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Old 01-02-2016, 10:14 AM
 
71,520 posts, read 71,694,121 times
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here is an example of the one pitched to us .

if i didn't know better it sounded fabulous .

i posted this a while ago when we first got the sales pitch .

many banks are making a thrust into selling you an annuity with rates so low. i thought i would give you the heads up on it as it just happened to us saturday.
they all pretty much play out the same so being forewarned is to be forearmed as to just how these work. they all pretty much follow the same layout..

the fine print and pages and pages of stuff was very complex. i did my best to interpret it as best i could and i believe this is what it boiled down to so dont quote me. it is still making my hair hurt as to what that plan is. it takes an mba in finance to figure out that prospectus.

SOOOOOOOOOO yesterday we went to the bank to renew a cd and got pitched an annuity . they said rates are so low and since we had no time frame on the money would we like to see some better options.
i said sure and so the next guy went to work on us with their annuity offering.

i have to say it sounded so good i almost bought it myself lol.

it started out with them promising me a minimum of 10% a year return for 10 years if the annuity was on myself or 5% a year min if it extended to marilyn too.. if my variable investments were worth less they would increase me to either 5% or 10% min depending which i took. . if i died my wife gets to continue the plan and she gets the 5% minimum option.

thats where it got interesting.

i asked if i could take that money out and of course no you cant.

that 10% a year guarantee are only bonus bucks good towards an annuity conversion into a lifetime income stream..

however heres the catch. you pay expenses on your average yearly account value. those bonus bucks after 10 years have your expenses running double because they are based on that phantom value.

if you started with 100k had 3600.00 a year in expenses before the fund expenses those bonus bucks after 10 years have you paying 7200.00 a year plus fund expenses .

there were options everywhere to add to the plan each one increasing costs as well.

as best as i could tell here are the expenses,and keep in mind historically the return on a 50/50 mix is about 7% when not in an annuity.

the expenses below are based on the total account value with the phantom bucks being included they give you.

mortality and expense risk charge 1.10%...

administrative fee .20%

combination enhanced death benefit .45%

beneficiary protector .35%

10% lifetime income option charge 1.2%

10% spousal continuation charge .30%

total 3.60% but we haven't included the fund expense fees so tack on another .45 to 1.94% depending what funds you picked..


is that an amazing fee structure for the un-aware?.


those bonus bucks are only good if at the end of the investment stage i annuitize into a lifetime income stream locking in more expenses on the payout for life.


folks be careful of these offers. we guarantee you a 10% a year minimum regardless of what your investments do isn't exactly as you think it is .
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Old 01-02-2016, 10:46 AM
 
Location: Central Massachusetts
4,800 posts, read 4,845,678 times
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mathjak that sounds like the proverbial "Pay no attention to the man behind the curtain"
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Old 01-02-2016, 11:22 AM
 
71,520 posts, read 71,694,121 times
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yep , all folks hear is they are giving me a bonus .

but they don't realize there is no way that is the whole story nor do they understand that money can never leave the account .

kind of like here is 50k as a bonus . but you get it as a additional income draw of 1/10% a year added to your regular draw amount , and when you die it basically dies with you and is not part of the account balance that goes with the death benefit if it has one .

in other words they added 50k to your balance and give you only a minuscule percentage of it each year added to your annuity amount based on the money you put in . .

in effect they could have given you a percentage of a point more in draw and never gave you the 50k in the first place . but the fact they tell you we give you a 50k bonus sounds sooooooooooooooo much better it is very enticing .

what the truth is , we give you 50k but all you get is .001% ( hypothetical number ) of it a year extra added to your draw amount and when you die we take it back , heirs get what you contributed not us .. ha ha ha great deal

Last edited by mathjak107; 01-02-2016 at 12:24 PM..
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Old 01-02-2016, 11:45 AM
 
71,520 posts, read 71,694,121 times
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here is another look at new very popular variable fixed income annuity from prudential . they call it a defined variable income annuity .

it isn't a bad deal if you just accept it as a proxy for a cash instrument and not an investment .

this one guarantees you a minimum return of 5.50% year regardless and is linked to a bond index so if the bond index does better you get the higher of the two .

sounds great right ? a min of 5.50% or higher .

so lets dissect it under the hood which annuity gaitor already did for us with a spread sheet you will never see from the annuity company . .


looking at the prudential defined income variable annuity you see starting the annuity at 55 and deferring taking payments until 65 gives a single about 9k a year based on 100k.

it has a 5.50% guaranteed minimum growth on the money you give them up until you draw an income. it also has a variable sub account in the ast bond index.

with 2.90% in fees the bond index will likely never be higher than the minimum guaranteed growth rate. it would take an act of god to ever have the index do better with those yearly fees .

see the guaranteed amount is inclusive of fees , the sub index account is not . ( it is in the fine print ) .


see how that balance grows nicely being compounded by the 5.50% minimum ? you have 180k by the time you are ready to draw an income at 65 .

you cannot get access to that money that is given via the growth rate. all you will ever see of that 5.50% compounded balance is you get to take 1/10% a year more of it for every year you delay drawing .

so while they guarantee you a 5.50% growth rate you can never access that money totally . you only get 1/10% a year of what it compounds to.

if you lived to age 82-83 your actual compounded return would be 3.80%

at age 90 you would see 4.55 %

so you never really see the 5.50%

the joint annuity chart which is the 2nd one increases less then 1/10% a year so at 82-83 you really averaged only 2.88 %

at age 90 the joint annuity has not even hit 4% yet the guaranteed minimum is 5.50%

if anyone does not follow this concept i will be glad to explain it .

all bonus bucks in annuity's work the same way . it isn't really all your money . this is an important concept to understand before buying any variable annuity product . they all have some similar twist .





here is the break out of the annuity.





this is for a joint plan


Last edited by mathjak107; 01-02-2016 at 12:45 PM..
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Old 01-02-2016, 12:49 PM
 
71,520 posts, read 71,694,121 times
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the above examples are why buying anything other then an immediate annuity or a deferred income annuity can be a mine field .

most folks are going to take things like bonus bucks , guaranteed minimums , etc for face value and they are nothing like that at all . vou need to dissect and stress test them via a spreed sheet just like above in order to see your real deal . no annuity company has print outs like the above that you can see .
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Old 01-02-2016, 12:53 PM
 
2,294 posts, read 1,560,184 times
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Quote:
Originally Posted by mathjak107 View Post
Not really. That yearly difference is not a true return because you are giving up all the checks you are not getting , spending down invested assets instead and not getting spousal adders.

When all that is figured in you have to make it 22-24 years just to break even . If you make it until 95 you see about a 5% real return.

Just because the money increases at that rate does not make it a return because all of the above represent the costs of getting that return.

Like paying a 6% sales commission and the money grows 8%
I'll be 62 in Sept and have been debating about whether to take Social Security early. With investment money plus my pension plus some land rental income I can pretty much live comfortably . However having another 20,000 also be nice. I am just trying to figure out if I work part time will I make more than the 15 grand that I can make in wage income withthout having some of the Social Security withheld. I guess in reality I could make about 30 grand because a dollar for every two I make would be withheld and I guess I would get it back starting full retirement age.

I guess my only hesitation is that maybe I would find a part-time job that would pay $30,000 that I would like and then it really wouldn't make any sense to take Social Security early. I definitely am not going to look for a full-time job with a full-time salary but possibly part-time gig if I like it.

Any feedback or ideas about my situation? LOL
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Old 01-02-2016, 01:00 PM
 
71,520 posts, read 71,694,121 times
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as many hear can tell you , i don't give personalized advice . i am not in the business , i only know what i think i know and there is a whole lot i don't know so i never want to tell anyone what to do .

i only throw things out as general information .
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Old 01-02-2016, 02:04 PM
 
Location: Austin
29,546 posts, read 16,481,629 times
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Quote:
Originally Posted by mathjak107 View Post
spia's do not guarantee any growth , they are not an investment , they are just income insurance and have no growth vehicle , nor with out an insurance rider have any death benefit .

you have to add what amounts to a life insurance option .

spia's work the way they do just because they offer no death benefit and those who die add mortality credits to those who live .

you can buy a joint spia which carry's over to a spouse .

some insurers attempt to bundle an spia and a death benefit together and charge you accordingly . once you get involved with options you defeat the higher cash flow advantage of the spia .
Sorry, I didn't mean SPIA. I meant single premium deferred annuity (SPDA).
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Old 01-02-2016, 02:12 PM
 
Location: Austin
29,546 posts, read 16,481,629 times
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Quote:
Originally Posted by mathjak107 View Post
the above examples are why buying anything other then an immediate annuity or a deferred income annuity can be a mine field .

most folks are going to take things like bonus bucks , guaranteed minimums , etc for face value and they are nothing like that at all . vou need to dissect and stress test them via a spreed sheet just like above in order to see your real deal . no annuity company has print outs like the above that you can see .
In the end, you are paying the insurance company to take some or all of your investment risk and death risk. If you want to accept all the risks, there is no reason to buy an annuity. It really is that simple.
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Old 01-02-2016, 02:28 PM
 
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one other reason and that is they can give you back your own money at a draw rate greater than you can safely take it from yourself ..

they can give you your money back at a draw rate of 6% right now , you try drawing 6% of your own money and unless sequences are most favorable you can't sustain that rate safely .

because you need to keep so much more powder dry on your own because the same exact average return can make a 15 year difference in how long the money lasts just on the order of the gains and losses so you can't spend as much . .

you may die with a lot of money at the end left over if sequences are fine but you couldn't spend it for fear of poor sequencing and the unknown . .

that is why 96% of the time folks die with more then they started with using a 4% safe withdrawal rate . you just don't know how you will end because the worst cases would have run out of money while average scenarios playing out left you with more than you started . .

so if you protect against the worst scenrio's we had then you end up with to much unspent if things are just average .

Last edited by mathjak107; 01-02-2016 at 02:37 PM..
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