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This is true. And most people don't understand why they should buy a SPIA. Obviously, some shouldn't. It's all about transferring risk. If you are 100% invested in equities, you own 100% of the risk. On average you will do better than buying a SPIA. But not always. It depends on when you need the money.
Generally, SPIAs guarantee a death benefit and guarantee some kind of growth and some kind of payout. For example, I have one that guarantees 6% growth and 5% lifetime payout. So the insurance company is taking the market risk and I pay them for that. I wouldn't want 100% of my retirement plan to be in annuities.
I think that anyone who doesn't have a significant part of their retirement plan covered by fixed income (defined benefit plans or annuities) is making a huge mistake.
I understand. You are not confident or savvy enough to manage your own retirement income streams and need help. Hopefully the insurance companies can point you in the right direction.
the basis is our elder care attorney is one of the largest in the tristate area and we have had many discussions about me self insuring which i eventually decided against .
and nooooo he does not sell insurance . his case load has changed more an more through the years to folks who thought they would self insure and now that reality struck are petrified of being impoverished as they had no plan in place for what happens when funds run low . or the funds didn't grow to what they thought . .
Thanks for the answer. Your elder care attorney's experience is not representative of society as a whole. Think about it, most people do not have long-term care insurance nor suffer financially because of it and they are not seeing an elder-care attorney either. Some are but most are not.
I'm not trying to pick a battle with you but merely having you have ownership of your most word in your earlier post.
what you have to remember is things in life can only work out as planned or not . if they work out as planned then great there is nothing to worry about and little to discuss . .
but the side of things i am concerned about and the reason we insure the unlikely things that can be financial devastating to us is for when they don't work out as planned for us , as there are no do overs . .
that is the part i am interested in hearing about . if it was only about the folks who were on the right side of things i would never have life insurance at a young age even raising a family , fire insurance or even health insurance since there has never been a year in my life i didn't pay in way way way more then i used or had things happen . .
so we try to mitigate those things that if it is us it happens to , since it has to happen to someone , that these things would be devastating to us our our spouse . especially if things didn't stick to your plan . it is great you set a side a pool of money , but now what when the money runs out and the expense is still there ?
with no plan for protecting assets you might just as well have not had the pool set a side because you will leave your spouse impoverished at the end of the day anyway .
the very wealthy need not worry , they likely have enough assets to cover regardless .
thos in the middle class likely don't have enough to worry about protecting .
but then you get that group in the middle where we are not very wealthy , have multiple 7 figures in assets but live in very high cost of living areas and we are not leaving our family's if we need care .
we saw first hand what happened when my dad spent 6 years in a home after a paralyzing stroke .
hey if none of this doesn't make sense to you great , but i certainly would never ever chastise those who plan the way they see fit to protect their spouses ..
to say someone was foolish or ignorant for wanting certain guarantees or as close to guarantees as we can get in place would only be ignorance on the part of the person saying it .
not everything in life is about rolling the dice for more wealth . many times the game changes from trying to grow richer to not trying to grow poorer .
that hypothetical y2k retiree may tuirn out to be one of the worst case scenrio time frames . they would have done a whole lot better with some guarantees in their tool box .
Last edited by mathjak107; 12-31-2015 at 11:40 AM..
what you have to remember is things in life can only work out as planned or not . if they work out as planned then great there is nothing to worry about and little to discuss . .
but the side of things i am concerned about and the reason we insure the unlikely things that can be financial devastating to us is for when they don't work out as planned for us , as there are no do overs . .
that is the part i am interested in hearing about . if it was only about the folks who were on the right side of things i would never have life insurance at a young age even raising a family , fire insurance or even health insurance since there has never been a year in my life i didn't pay in way way way more then i used or had things happen . .
so we try to mitigate those things that if it is us it happens to , since it has to happen to someone , that these things would be devastating to us our our spouse . especially if things didn't stick to your plan . it is great you set a side a pool of money , but now what when the money runs out and the expense is still there ?
with no plan for protecting assets you might just as well have not had the pool set a side because you will leave your spouse impoverished at the end of the day anyway .
the very wealthy need not worry , they likely have enough assets to cover regardless .
thos in the middle class likely don't have enough to worry about protecting .
but then you get that group in the middle where we are not very wealthy , have multiple 7 figures in assets but live in very high cost of living areas and we are not leaving our family's if we need care .
we saw first hand what happened when my dad spent 6 years in a home after a paralyzing stroke .
hey if none of this doesn't make sense to you great , but i certainly would never ever chastise those who plan the way they see fit to protect their spouses ..
to say someone was foolish or ignorant for wanting certain guarantees or as close to guarantees as we can get in place would only be ignorance on the part of the person saying it .
not everything in life is about rolling the dice for more wealth . many times the game changes from trying to grow richer to not trying to grow poorer .
that hypothetical y2k retiree may tuirn out to be one of the worst case scenrio time frames . they would have done a whole lot better with some guarantees in their tool box .
Don't believe I've ever called you foolish or thought you were. In fact, you have shared much and freely of your experiences and wisdom and for this I'm most grateful. I merely did a word check on you because words are important and some superlatives such as most and always convey a message that is much different than some and sometimes.
Happy New Years 2016 to you and may all your fears be calmed by knowing you're trying your best to manage and protect you and your family from them.
my wife was a widow when i met her . her views now as to what she wants are very different from the first time she had a bomb dropped on her .
in her world she would she would love to have a single premium immediate annuity for income every month , life insurance guaranteeing heirs and perhaps wellesley income for inflation adjusting income and the wants in life .
to her that would be her perfect plan . not mine but hers . but eventually i just may have to gravitate a bit in her direction . perhaps locking in the non discretionary expenses with that check in the mail box . lots of women especially have that image of themselves running out iof money before they run out of time and being that homeless bag lady .
in my wifes case after her husband died she had a pile of investments she had no desire to deal with and she saw someone at her bank to help her invest it ,.
well the guy threw her in dot coms and tech and she lost 1/2 the money .
so now she is very gun shy about what she may be left with as far as how the income is generated and what it is dependent on ..
she gives me free reign to do as i see fit but that is with me in the picture .
i likely wouldn't make any changes until i was around 70 and if i did i would ladder the spia's .
Last edited by mathjak107; 12-31-2015 at 12:22 PM..
not really the same issues. market cycles do not effect the insurer the way they do us with sequence risk . . they have something we can never have . DEAD BODY'S . they are well diversified in to dead body's .
IF 2008 , ONE OF THE BIGGEST DEBACLES SINCE THE GREAT DEPRESSION HAD NOT PRODUCED ONE FAILED ANNUITY OR LTC POLICY then odds are pretty good they have way higher odds of survival then we do .
getting a 3rd party to shoulder risk who is not dependent on just markets and rates is never a bad idea .
the biggest risk we have is not a big drop , it is a prolonged modest drop while we are spendiing down early in to retirement .
You're confusing apples - long term care insurance - with oranges - single premium immediate or deferred annuities. When it comes to long term care insurance (which is what I'm talking about) - it's like a homeowners' policy. You pay annual premiums in return for insuring against a future risk. You're also not talking about dead bodies. Beneficiaries of LTC policies are alive - not dead. Also - all insurance companies depend on investment returns to some degree. Which is why some are doing pretty poorly these days.
The largest company in the LTC business is Genworth Financial. Its LTC insurance arm is a mess. And it is under pressure to get out of the business:
It is currently getting the ok for big ---> huge premium hikes - and I wouldn't be surprised to see it get out of the business altogether in the next 5-10 years. Because it's just not a profitable line of business for the most part. E.g., Genworth Financial's long term debt is in "junk bond" territory now.
Note that there are only about 12 insurance companies left in this market today. Some of the largest companies - like MetLife - Prudential and CNA - have left the market in recent years:
BTW - here's at least one company that issued LTC policies in Florida that went under post-2008 (took me about 2 minutes to find it). Didn't bother to look for others (insurance companies go under all the time):
Keep in mind that the OP is in her 40's. The OP has plenty of time to see what happens in this very turbulent insurance market (or to save for the possible eventual need for a SNF). Note that I find single premium immediate or deferred annuities more palatable. Although not necessarily suitable for many/most people. Robyn
One problem with insurance guaranty associations when it comes to the failure of annuity companies is the association doesn't pay you for the rest of your life. It pays out a lump sum which is the value of your future payments discounted to present value (based on current interest rates and your life expectancy). Which kind of defeats one purpose of an annuity - which is trying to insure that you don't outlive your money.
Another problem is that the associations often don't pay claims tomorrow - or next week - or next month or even next year. Depends on the financial status of the association at the time and the nature of the failure(s). When my husband and I were active lawyers - and we wound up with claims against FIGA (Florida Insurance Guaranty Association) - we sometimes had to wait a long time for our clients/us to be paid.
IOW - even if someone decides an insurance product makes sense personally - he/she has to do due diligence WRT the insurance company. Still - there's only so much you can do. One of my father's SPIAs is with AIG. And it was a very robust company when he bought the annuity (about a decade before 2008).
Note to OP if you're getting confused about this stuff. With a plain vanilla single premium immediate annuity - you give an insurance company a lump sum of money now. And it immediately starts to pay you a certain amount monthly. The amount is pretty much based on interest rates and estimated life expectancy. Many of these annuities have options like minimum guaranteed payout periods (like 5-10 years). The annuities can be based on a single life - or two lives (commonly a husband/wife). The more favorable the terms are to the buyer - the lower the monthly payout will be. And the older you are when you buy these - the larger your monthly payment will be (because you have a shorter life expectancy). I don't think these make any sense at all for people under 70 (my father bought his when he was 80).
A plain vanilla single premium deferred annuity does almost the same thing. Except your payments will start at a time in the future. Like you buy one at age 70 and it starts to pay at age 80 or older. These annuities are sometimes called "longevity insurance". The younger you are when buy one of these - the cheaper your initial payment will be. Because the insurance company will have a longer time to invest its money before it starts to pay you (or it may never have to pay you). I don't think anyone has to think about products like this until one is at least in his/her 60's.
These are the only 2 types of annuities that make make any sense to me at all. And only for some people in limited circumstances. Other kinds of annuities are just way too complicated IMO - with way too many fees.
One thing you haven't mentioned OP is life insurance or disability insurance. I think life and disability insurance are often much more important for average 40 year olds than long term care insurance or annuities. And a lot of people tend to overlook disability insurance.
Jims mom just started collecting on her LTC. Received a nice healthy refund check for the past 12 months
Her policy, started in the 1980s @150/quarter. She has been in a level II shared room in a highly regarded facility in this area, with the cost about 4500/mo, since 2013...
Just to clarify - this is almost certainly an assisted living facility - not a skilled nursing facility - not at that price. Some LTC policies cover ALFs or certain kinds of care in ALFs - some don't. You have to read the "fine print". Robyn
One problem with insurance guaranty associations when it comes to the failure of annuity companies is the association doesn't pay you for the rest of your life. It pays out a lump sum which is the value of your future payments discounted to present value (based on current interest rates and your life expectancy). Which kind of defeats one purpose of an annuity - which is trying to insure that you don't outlive your money.
Another problem is that the associations often don't pay claims tomorrow - or next week - or next month or even next year. Depends on the financial status of the association at the time and the nature of the failure(s). When my husband and I were active lawyers - and we wound up with claims against FIGA (Florida Insurance Guaranty Association) - we sometimes had to wait a long time for our clients/us to be paid.
IOW - even if someone decides an insurance product makes sense personally - he/she has to do due diligence WRT the insurance company. Still - there's only so much you can do. One of my father's SPIAs is with AIG. And it was a very robust company when he bought the annuity (about a decade before 2008).
Note to OP if you're getting confused about this stuff. With a plain vanilla single premium immediate annuity - you give an insurance company a lump sum of money now. And it immediately starts to pay you a certain amount monthly. The amount is pretty much based on interest rates and estimated life expectancy. Many of these annuities have options like minimum guaranteed payout periods (like 5-10 years). The annuities can be based on a single life - or two lives (commonly a husband/wife). The more favorable the terms are to the buyer - the lower the monthly payout will be. And the older you are when you buy these - the larger your monthly payment will be (because you have a shorter life expectancy). I don't think these make any sense at all for people under 70 (my father bought his when he was 80).
A plain vanilla single premium deferred annuity does almost the same thing. Except your payments will start at a time in the future. Like you buy one at age 70 and it starts to pay at age 80 or older. These annuities are sometimes called "longevity insurance". The younger you are when buy one of these - the cheaper your initial payment will be. Because the insurance company will have a longer time to invest its money before it starts to pay you (or it may never have to pay you). I don't think anyone has to think about products like this until one is at least in his/her 60's.
These are the only 2 types of annuities that make make any sense to me at all. And only for some people in limited circumstances. Other kinds of annuities are just way too complicated IMO - with way too many fees.
One thing you haven't mentioned OP is life insurance or disability insurance. I think life and disability insurance are often much more important for average 40 year olds than long term care insurance or annuities. And a lot of people tend to overlook disability insurance.
Robyn
there are a few older failures at insurers but i bet they are a fraction of the the failure rate of investors trying to maintain their own incomes on their own . .
it is like saying i will never fly or drive because there were accidents .
the failure of a handful of mismanaged companys years and years ago compared to the number of annuity holders , company's and billions of dollars in them is minuscule .
Last edited by mathjak107; 12-31-2015 at 03:34 PM..
One problem with insurance guaranty associations when it comes to the failure of annuity companies is the association doesn't pay you for the rest of your life. It pays out a lump sum which is the value of your future payments discounted to present value (based on current interest rates and your life expectancy). Which kind of defeats one purpose of an annuity - which is trying to insure that you don't outlive your money.
Another problem is that the associations often don't pay claims tomorrow - or next week - or next month or even next year. Depends on the financial status of the association at the time and the nature of the failure(s). When my husband and I were active lawyers - and we wound up with claims against FIGA (Florida Insurance Guaranty Association) - we sometimes had to wait a long time for our clients/us to be paid.
IOW - even if someone decides an insurance product makes sense personally - he/she has to do due diligence WRT the insurance company. Still - there's only so much you can do. One of my father's SPIAs is with AIG. And it was a very robust company when he bought the annuity (about a decade before 2008).
Note to OP if you're getting confused about this stuff. With a plain vanilla single premium immediate annuity - you give an insurance company a lump sum of money now. And it immediately starts to pay you a certain amount monthly. The amount is pretty much based on interest rates and estimated life expectancy. Many of these annuities have options like minimum guaranteed payout periods (like 5-10 years). The annuities can be based on a single life - or two lives (commonly a husband/wife). The more favorable the terms are to the buyer - the lower the monthly payout will be. And the older you are when you buy these - the larger your monthly payment will be (because you have a shorter life expectancy). I don't think these make any sense at all for people under 70 (my father bought his when he was 80).
A plain vanilla single premium deferred annuity does almost the same thing. Except your payments will start at a time in the future. Like you buy one at age 70 and it starts to pay at age 80 or older. These annuities are sometimes called "longevity insurance". The younger you are when buy one of these - the cheaper your initial payment will be. Because the insurance company will have a longer time to invest its money before it starts to pay you (or it may never have to pay you). I don't think anyone has to think about products like this until one is at least in his/her 60's.
These are the only 2 types of annuities that make make any sense to me at all. And only for some people in limited circumstances. Other kinds of annuities are just way too complicated IMO - with way too many fees.
One thing you haven't mentioned OP is life insurance or disability insurance. I think life and disability insurance are often much more important for average 40 year olds than long term care insurance or annuities. And a lot of people tend to overlook disability insurance.
Robyn
wrong about aig , aig's insurance division was never at risk . they had other separate company's that had run in to problems .
the troubled company wasn’t their insurance business. The issues all stemmed from their banking and securities divisions. The AIG insurance divisions were and continue to be solvent and profitable .
all that would have happened was these policies would have been shifted to a healthy insurer and carried on even if it was the insurance end that failed which it wasn't . .
as advisor perspective said :
AIG and the financial crisis
AIG stands out as the poster child for making advisors and the public nervous about insurance companies. This was the AAA-rated company that, almost overnight, found itself in need of a $182 billion bailout from the Federal government. The natural question for prospective annuity investors to ask is, "What would have happened to AIG annuity owners if the Federal government had not stepped in?"
AIG was (and remains) a diversified financial conglomerate, and the huge losses from credit default swaps were concentrated in its financial products division. The insurance subsidiaries of AIG that sold annuities remained reasonably healthy during the crisis. The losses befell a separate legal entity, which means that creditors seeking restitution for credit default swap losses could not have laid claim to insurance subsidiary assets. If AIG had tried to move assets out of the insurance subsidiaries, insurance commissioners in the various states would have blocked such attempts. So while AIG set off huge alarms in the financial system, it was not a crisis for their basic life insurance and annuity business.
Last edited by mathjak107; 12-31-2015 at 03:24 PM..
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