Welcome to City-Data.com Forum!
U.S. CitiesCity-Data Forum Index
Go Back   City-Data Forum > General Forums > Retirement
 [Register]
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
View detailed profile (Advanced) or search
site with Google Custom Search

Search Forums  (Advanced)
Reply Start New Thread
 
Old 04-28-2015, 02:31 AM
 
105,919 posts, read 107,880,197 times
Reputation: 79508

Advertisements

Quote:
Originally Posted by DaveinMtAiry View Post
I can't address the logistics. But if you are paying someone a flat our hourly fee why would you not trust them? What would they have to gain by steering you in the wrong direction? They all depend on referrals, it serves them no good to put you in a plan that is not in your best interest. Just the opposite actually.
quite a few work on fee only because they lack the credentials and knowledge to sell certain beneficial type products or else they would .

once again it can be you don't know what you don't know so you miss some very good creative aspects of planning.

i know fee only planners who stay totally away of incorporating some very good products because they lack the understanding of how to use those products .

i am not saying go commission salesman but fee only is no guarantee you are getting the best plan either that you could have.

the planner i consult is a commissioned product adviser but he is also the best guy locally i know .
Reply With Quote Quick reply to this message

 
Old 04-28-2015, 02:10 PM
 
238 posts, read 615,806 times
Reputation: 135
Quote:
Originally Posted by volosong View Post
Some people, heck, most people in this life have not been so fortunate/smart/financially savvy/educated/lucky as you have been in financial dealings and investing. For some portion of the populace, an annuity might make sense. As with the field of quantum mechanics that most of us couldn't never hope to fully understand, some people don't have very good financial minds. To say that "there really is no reason to buy an annuity" is a disservice to those who have come here in an attempt to try and educate themselves about such things. Annuities might not good for you. That doesn't mean they are not good for everyone. If they are that 'bad', they would have been outlawed a long time ago.

p.s. I'm glad that you have done well. Some of us have also done well, or 'okay', despite our own stupidity and ignorance.

Thank you for this post. Also, some of this annunity info doesn't apply to the annunity I purchased a while back. Mine appears to be more of the multi year annunity mentioned upthread. It gave me a guaranteed 6% return (during Great Recession) with no chance of loss to my principle. AND I can pass on to a beneficiary. (My needs were pretty simple). It may have been a foolish purchase to some on here, but I'll take the gain and will be happy with it. I'm thankful my financial guy knew my risk tolerance and recommended this product to me. It sure beat leaving it in a passport savings acct or CD at .5%. I'm just undecided if I want to just dump it into my flagship account or go on the hunt for something else.
Reply With Quote Quick reply to this message
 
Old 04-28-2015, 02:12 PM
 
105,919 posts, read 107,880,197 times
Reputation: 79508
6% return or 6% withdrawal rate ? they are not the same .

if they guarantee a 6% return it is likely only on your balance to be annuitized. in which case the balance grows 6% a year until you start to draw.

then while the balance grows by 6% usually you only increase 1/10% per year in draw rate for every year you grew by 6%. you never really get to access the full amount it grew.

see my example I posted above in post 28..

that is a far cry from a 6% return on your balance.
Reply With Quote Quick reply to this message
 
Old 04-28-2015, 04:55 PM
 
105,919 posts, read 107,880,197 times
Reputation: 79508
it is very important to understand how these guarantee returns work because it is a balance that you can never get access to that is how they can do it.

at best while the account is growing by 6% a year in balance you can only access that balance by another 1/10 of 1% a year.

so if you buy the annuity at 55 and defer for 10 years taking money out the balance will grow by 6% a year , but the amount you can actually take only increases each year by another 1/10th of 1%.

so if you took withdrawals at 55 at 4% by 65 you get around 5% withdrawals. in the mean time the balance shows it increased more than 60-70% in value but you have no way of accessing that money in total . you only get your draw rate , in this case 5% of the balance is your payment 10 years later.

it is nothing even close to getting 6% on a bank account where the balance is actually yours to take . in this case you can't take that balance nor can heirs get it , you can only draw off it

there is a different formula for what heirs get if you paid for a death benefit rider..
Reply With Quote Quick reply to this message
 
Old 05-27-2015, 01:37 PM
 
13,478 posts, read 4,798,437 times
Reputation: 9482
Two basic rules of thumb come to mind in this discussion of annuities:

1) The companies that sell these products are in it to make a profit
2) If something sounds too good to be true, it is

The first one comes in to play with the exorbitant fees that most annuities charge, many of which are hidden or difficult to understand. The second rule applies to the so-called guaranteed returns, which as has been explained earlier in this thread are often much lower than what they appear to be.
Reply With Quote Quick reply to this message
 
Old 05-29-2015, 05:36 AM
 
Location: Near a river
16,042 posts, read 21,913,861 times
Reputation: 15773
Quote:
Originally Posted by mathjak107 View Post
it is very important to understand how these guarantee returns work because it is a balance that you can never get access to that is how they can do it.

at best while the account is growing by 6% a year in balance you can only access that balance by another 1/10 of 1% a year.

so if you buy the annuity at 55 and defer for 10 years taking money out the balance will grow by 6% a year , but the amount you can actually take only increases each year by another 1/10th of 1%.

so if you took withdrawals at 55 at 4% by 65 you get around 5% withdrawals. in the mean time the balance shows it increased more than 60-70% in value but you have no way of accessing that money in total . you only get your draw rate , in this case 5% of the balance is your payment 10 years later.

it is nothing even close to getting 6% on a bank account where the balance is actually yours to take . in this case you can't take that balance nor can heirs get it , you can only draw off it

there is a different formula for what heirs get if you paid for a death benefit rider..
A while back you indicated you have an annuity, can you tell us what kind and how it works.
Reply With Quote Quick reply to this message
 
Old 05-29-2015, 06:42 AM
 
105,919 posts, read 107,880,197 times
Reputation: 79508
no never bought an annuity. i wrote about them , i evaluated a few but right now have no need yet.

as i get older i will firm up some guaranteed income for my wife via a single premium annuity so i will couple that with our own newsletter portfolio. she would have no problem handling that on her own.

she was widowed once before and left a mish mosh of investments to deal with and does not want to be totally market and interest rate dependent and i respect that.
Reply With Quote Quick reply to this message
 
Old 05-30-2015, 12:29 PM
 
32 posts, read 55,083 times
Reputation: 73
Default Am I stuck with my Annuity?

Quote:
Originally Posted by LookingatFL View Post
A little discussion of Annuities:

[I hope if I made any mistakes here someone will tell me so I can fix it.]

Annuities come in two flavors. An immediate annuity (which is what we have been discussing on this board) begins to pay you very soon after you purchase it. A deferred annuity holds and invests the money until some future time when it will be converted to an immediate annuity and begin payments.

Annuities are paid in one of two ways. A fixed annuity pays a set amount of money each period (usually monthly). A variable annuity pays a different amount of money each period (usually monthly) based upon how well or poorly its investments are doing.

Annuities are complex beasts and can be confusing. First, you have to change your thinking. You are not investing your money. You are not trying to “grow” your assets and become richer. Instead, you are trying to prevent yourself from running out of money before you die. You are making sure that you have a certain amount of money coming to you on a regular basis. You are creating a pension. So, this is an entirely different purpose than investing. An immediate annuity will not make you richer. It is not intended to keep up with inflation (although it will help) but it will keep you from running out of money.

For example: Mr. Smith and Mr. Jones both have $100,000 in their respective savings accounts. Both are 65 years old and both receive $2,000 in social security benefits monthly. Both have monthly living expenses of $2,400. Mr. Smith has bought an immediate annuity. He will receive $416 per month from his annuity for his entire life. In this example to make my life easy we will assume that there is no inflation and that savings accounts earn no interest. Mr. Smith will not ever have to worry about not being able to afford his monthly expenses for life because between social security and his annuity he is receiving $2,416 monthly. Mr. Jones did not buy an annuity. Every month Mr. Jones goes to the bank and withdraws $400 to add to his social security benefit in order to pay his bills. After 20 years and some months of withdrawing $400 a month Mr. Jones has nothing left in the bank. If Mr. Jones lives to be 85 he is going to have to live on only $2,000 social security because he has nothing left to add to it. He will have to hope that he can do that.

To buy an immediate annuity, basically you give an insurance company an amount of money. The insurance company is going to do some calculations based upon your age and the prevailing interest rate. Their actuaries are going to figure out how long they think you are going to live. They are then going to give you back the money that you gave to them in installments that coincide with the length of time you are expected to live. This is called the Annual Payout Rate and should not be confused with the interest rate. This has to do with the length of time the insurance company thinks you will live and consequently how long they will have to pay you.

For example: Mr. Smith, a single man, is 50 years old (an arbitrary name, an arbitrary age) when he approaches an insurance company to purchase an immediate annuity. For this example we will guess that according to the actuaries a 50 year old man is expected to live until he is approximately 70 years old. The actuaries will then conclude that the payout rate is 5% (which translates into 20 years). Mr. Smith gives the insurance company $100,000 (an arbitrary amount) for his annuity. Mr. Smith will receive 5% of $100,000 or $5,000 per year ($416.67 monthly). In 20 years he will have received $100,000. If Mr. Smith dies at age 70 he will have received all of his money back. If Mr. Smith lives until he is 80 he will receive $5,000 for 30 years. He will have received a total of $150,000. This is $50,000 more than he gave the insurance company initially. If my math is correct (and I am notorious for miscalculating compound interest), in effect, his money would have grown approximately 1.35% over those 30 years. Mr. Smith doesn't care about that. What he cares about is that he didn't run out of money at age 70.

The payments you get back will be determined by a number of factors: (1) whether you have chosen a “fixed” or “variable” annuity. The “fixed” immediate annuity will pay the same amount each month. The “variable” annuity will fluctuate based upon market conditions; (2) how often and for how long you are paid. You can choose to be paid monthly for life. You can choose to be paid monthly for 5 years, you can choose to be paid quarterly, etc. Because insurance companies want to make sure they sell as many annuities as they can, they make sure to be very flexible on their options; (3) the extra options you add to the annuity. The more options you add, the less you will receive in each payment because theoretically the annuity will have to stretch for a longer period of time. Options are things like: [A] How long the annuity will last for (i.e. your lifetime, 5 years, 10 years, 15 years, etc.) [b] If your annuity has a payout to a beneficiary, [C] how many lives the annuity is covering (single vs. joint), [D] whether there is a guaranteed payment amount even if you die.

The insurance company is going to take the money that you gave to them, pool it with money other people have given to them, and they are going to invest it more aggressively than you would invest it. It is their belief that they will invest it well enough to be able to pay you the guaranteed monthly installment until the day you die. It is also their hope that you don’t live very long.

Annuities work a lot like Social Security. With Social Security you pay your money into the system from each paycheck. You have no control over that money. The Social Security funds are pooled and invested. Some people live long enough to receive all of the money they paid into Social Security and more in the form of a monthly benefit. Other people die at a young age and never receive any Social Security benefits. Their money remains in the pool of funds and is used to pay other people. Your heirs do not get your social security funds back if you die before they are disbursed to you. Annuities work the same way. You are guaranteed a monthly amount while you are alive. When you die payments stop. If you didn't get all of your money back, it will remain in the pool and be used to pay other people. Some people don’t like this idea so they buy an option which will allow their beneficiary to receive the monthly payment until all payments equal the initial premium or until a certain number of years have passed. If you choose these options, your monthly payment will be reduced.

As noted above, the amount of the monthly benefit is determined based upon your age when you buy the immediate annuity and the prevailing interest rate. If the annuity has to cover fewer years you will get a higher percentage back in your monthly payment. If you buy the annuity during periods where interest rates are high, you will also get a higher monthly payment.

For example: Mr. Smith is 50 years old when he buys the $100,000 annuity. In the example above it is going to have to cover him for 20 years until he is 70. He will only receive $5,000 a year. If he buys the annuity at age 70 and it is calculated that since he lived to age 70 statistically he is going to live until he is 82 (arbitrary age), he will be paid $8,100 per year because now it only has to cover 12 years. So, the later in life he buys it, the larger his monthly payment will be. That is the reason that people are suggesting waiting until later in life to purchase the annuity. Also, interest rates are low now but they may increase eventually.

On the positive side, you are guaranteed to receive a set amount of money periodically (usually monthly) until you die. As with all insurance products, each state has a guarantee fund established to protect policy owners in case the insurance company becomes insolvent. You need to check with your state to see up to what value the guarantee fund will cover. Each state is different.

On the negative side, once you buy an annuity you lose control of that money. Also, it is close to impossible and/or very costly to break an annuity. If you die before you receive all of your money back, you cannot leave it to a beneficiary if you didn't purchase that option. If you have an emergency and need extra cash from the annuity, you will have to sell the annuity at a discounted rate to get it. Therefore, don’t put all of your money into an annuity. Save some for a rainy day.

Years ago I purchased a deferred annuity. This is how my deferred annuity works: Mr. Smith age 53 (an arbitrary name, an arbitrary age) gave the insurance company money. For this example it is the $100,000 (an arbitrary amount) that I used in my previous examples. This money is called the contract value. The insurance company has invested it in a portfolio of stocks: 24% is in Aggressive Growth, 15% is in Growth, 33% is in Growth and Income, and 28% is in Income funds. The value of this account is going to increase or decrease as the market fluctuates daily. This is what is happening to his real money.

The insurance company is guarantying that Mr. Smith will earn 7% *** annually for 7 years on his initial $100,000 investment. So every year his $100,000 initial deposit is increased by the interest (just like what happens if you put money into a savings account at a bank). This will continue for 7 years. This figure is called the Benefit Base. In 7 years the benefit base will be $134,578. This is not real money because Mr. Smith's money was not put into a savings account and is not really earning interest. This is just done for accounting purposes so that both the insurance company and Mr. Smith know what his guaranteed income will be over time.

*** The insurance company is charging Mr. Smith 2.75% of his contract value annually to manage his account. Therefore, the net rate of interest over 7 years will be 4.25% (7% - 2.75%). They don't make this entirely clear when enticing you with the 7% guaranteed interest. It is the net 4.25% that is used to calculate the Benefit Base.

In 7 years Mr. Smith will be age 60 and can start withdrawing his annuity benefits. He will do this by converting it to an immediate annuity.

In 7 years when Mr. Smith will start withdrawing his annuity benefit the calculation will be based upon the Benefit Base. He will be allowed to withdraw up to 5% annually which will cover 20 years of his life (because that is how long the actuaries think he will live) before it is exhausted.

Example: At the end of 7 years the Benefit Base is $134,578 because that was the guaranteed 7% (4.25% actual return). The contract amount may be more or less money because that money is subject to the fluctuations in the market. (For this example we will assume that the market did well and his initial investment [contract value] has increased to $200,000). The actuaries are going to figure out how long they think Mr. Smith is going to live based upon the age when he started the annuity. Since Mr. Smith was 53 when he started the annuity, their actuarial tables show that Mr. Smith should live to be 80 years old. They calculate that this means they will be paying him for 20 years if he takes benefits at age 60 and thus he can withdraw 5% per year. Mr. Smith was promised $6,728 annually (134,578 x 5%). If you divide 134,578 by $6,728 the answer will be 20 years. This means that they can pay Mr. Smith $6,728 for 20 years (to age 80) before his "benefit base" will be depleted but his contract value will still have $65,422 in it ($200,000 - 134,578 paid out monthly over 20 years). If Mr. Smith lives to be 89, his contract value ($200,000) will be depleted and the insurance company will continue paying Mr. Smith $6,728 until he dies. At this rate he would have to live to the age of 90 before the insurance company has to dig into their reserve funds of people who didn't live to exhaust their own funds or who haven’t started to receive their payments yet (this is the same way Social Security operates). If Mr. Smith dies before using up the entire $200,000 of his contract value the remaining balance will remain in the pool of funds to be used to pay other annuitants.

Example 2: At the end of 7 years, the initial deposit (contract value) of $100,000 has decreased to $90,000 because the market performed poorly. The Benefit Base is $134,578. Mr. Smith is receiving $6,728 monthly. At the end of 14 years he has been paid more than the amount in his contract value account ($90,000). He will be 74 years old and he will continue to be paid $6,728 until he dies. If he dies at age 80, he will have received 4.25% on his investment of $100,000. If he dies at age 84, he will have received the guaranteed 7%.

The insurance companies are betting (1) that their statistical tables are fairly accurate, (2) that you will not live long enough to outlive your money based upon their calculated distributions, and (3) that they can invest your money aggressively and correctly to cover your needs.

They are stacking the deck in their favor by charging a hefty surrender value plus additional fees in order to end the annuity early and by charging high fees to manage your money. For this reason, many people prefer to invest in ways that have lower management fees and then purchase an immediate annuity later in life.
You made understanding Annuites quite clear, however I do not think you mentioned if one can just cash out the Annuity, pay the taxes and just put it in stocks. I want to make sure my beneficiary gets the proceeds. It just seems so risky losing everything if you do not live long enough. Anything could happen either illness or accident.
Reply With Quote Quick reply to this message
 
Old 05-30-2015, 12:41 PM
 
105,919 posts, read 107,880,197 times
Reputation: 79508
you are buying the wrong product if you want to guarantee heirs money. you do that with life insurance not annuities.

once you add a death benefit to an annuity you killed much of its advantage of increased cash flow since they will just buy a life insurance policy adder to it and charge you alot more for doing so.

life insurance is for dying , annuities are for living. annuities , your own investing and life insurance make a comprehensive package that 65% of the time beat term and investing on your own.
Reply With Quote Quick reply to this message
 
Old 07-13-2015, 04:43 PM
 
Location: Near a river
16,042 posts, read 21,913,861 times
Reputation: 15773
Quote:
Originally Posted by mathjak107 View Post
it is very important to understand how these guarantee returns work because it is a balance that you can never get access to that is how they can do it.

at best while the account is growing by 6% a year in balance you can only access that balance by another 1/10 of 1% a year.

so if you buy the annuity at 55 and defer for 10 years taking money out the balance will grow by 6% a year , but the amount you can actually take only increases each year by another 1/10th of 1%.

so if you took withdrawals at 55 at 4% by 65 you get around 5% withdrawals. in the mean time the balance shows it increased more than 60-70% in value but you have no way of accessing that money in total . you only get your draw rate , in this case 5% of the balance is your payment 10 years later.

it is nothing even close to getting 6% on a bank account where the balance is actually yours to take . in this case you can't take that balance nor can heirs get it , you can only draw off it

there is a different formula for what heirs get if you paid for a death benefit rider..
Is that "access rate" relatively the same with all annuities?
Reply With Quote Quick reply to this message
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.

Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.


Reply
Please update this thread with any new information or opinions. This open thread is still read by thousands of people, so we encourage all additional points of view.

Quick Reply
Message:

Over $104,000 in prizes was already given out to active posters on our forum and additional giveaways are planned!

Go Back   City-Data Forum > General Forums > Retirement
Similar Threads

All times are GMT -6.

© 2005-2024, Advameg, Inc. · Please obey Forum Rules · Terms of Use and Privacy Policy · Bug Bounty

City-Data.com - Contact Us - Archive 1, 2, 3, 4, 5, 6, 7, 8, 9, 10, 11, 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25, 26, 27, 28, 29, 30, 31, 32, 33, 34, 35, 36, 37 - Top