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Old 02-11-2016, 11:48 AM
 
291 posts, read 172,232 times
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Our financial planner suggested this saying it had a guaranteed 5% interest. Fees are 2 1/2%. Has anyone had any experience with this? We just recently retired and want to try to avoid anything high risk. Thanks
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Old 02-11-2016, 12:30 PM
 
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I recommend that you read

http://whitecoatinvestor.com/spia-the-good-annuity/

"Guaranteed 5% interest" leads me to suspect that this is one of the undesirable annuities.

If you have a hard time understanding exactly what is guaranteed and how it is calculated this is also a red flag.

The only annuities likely to be desirable are single premium fixed annuities.
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Old 02-11-2016, 02:05 PM
 
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I've got the:
Prudential X Series w/ HD Lifetime Income

What specifically are your questions? Feel free to DM me if you wish. I am not in any way associated with the insurance companies, investment firms or financial professions. However, I have bought annuities for myself.

No insurance product does all things so it is best you identify your goals prior to purchasing and then build a spreadsheet matrix and compare a number of different products against each other. These are very complicated products so unless one of you has the ability to read every single line of every single document and a slight legal background to understand defined terms I think it might be wise to stick with simpler products. I spent a year reading and comparing them before I pulled the trigger to buy. In the process all the rates I was looking at went down. But they still made sense for me.

I bought mine because I wanted to purchase a pension. Where I worked they did not have them so this is one of my tools to be sure my basic expenses are paid for life. It also happens to have an income doubler. Double income if incapable of caring for self. Two or more activities of daily life: bathing, continence, dressing, eating, toileting and transferring. 120 day elimination period. So a bit of a LTC component.

Mine also has 200% guaranteed on ACCUMULATION value (not actual value, this is a very important distinction) on 12th anniversary and 6% bonus on all amounts in first 4 years.

Currently I am very happy with the product 4 years in. My roll up value is as expected and for me that was the important part. And because the market has done well I could cash out for what I initially put in should I have a change of mind right at this instant. However it is not a wealth builder or product to leave money to heirs as the fees will eat it. And generally your actual value for cash out will go down. But I believe it will pay me the income for life and that is why I have it. Prudential has one of the better web sites for tracking and you can rearrange your investments on-line.

When I bought my pension through annuities I split up the money into several different ones to guard against insurance company risk and to stay under my state caps. The Prudential one was the lowest income of the group. However it has the LTC doubler which my highest incomes did not. The second lowest one also had the LTC doubler.

There are other products from other companies that provide more guaranteed income. I bought those also. Some had the LTC component also which was a good addition for me.

Not knowing your goals, whether you have a pension, how much you have in other investments, real estate etc I can't say if this is good for you or not. To be honest for most people it isn't good because they are told about these guaranteed returns and they think it is an investment vehicle. It is not. It is an insurance product much like you would buy home insurance or other insurance. If you sell your house before your house burns down then they don't give you your premiums back. So think of an annuity as buying the benefits but your money generally goes away through fees.
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Old 02-11-2016, 02:10 PM
 
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Glad you posted all that , but does anyone care enough to really read it is the question

Last edited by mathjak107; 02-11-2016 at 02:41 PM..
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Old 02-11-2016, 02:19 PM
 
71,471 posts, read 71,652,652 times
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Quote:
Originally Posted by elizabeth224 View Post
Our financial planner suggested this saying it had a guaranteed 5% interest. Fees are 2 1/2%. Has anyone had any experience with this? We just recently retired and want to try to avoid anything high risk. Thanks
It isn't really 5% interest as you would think it would be. You have two account balances an actual account value that represents the money that is actually yours to take , the other account maintains a balance that includes bonus bucks and a guaranteed interest rate and is never yours to take out or pass to heirs.

That balance is only used for purposes of drawing an income. So while it shows a nice big balance it is not yours to take.

So as an example while delaying drawing an income that balance increases at least 5% a year but typically all you get added to your annuitized amount you can draw is 1/10% of that a year.

So if you delayed annuitizing 10 years all you would get is an extra 1% additional draw on that big balance .

That balance can never be gotten at in any other way. Basically your actual account balance is yours to take and that can vary in various ways but it is no where near that nice juicy balance with the 5% guarantee and bonus bucks.

I just analyzed the prudential variable fixed income annuity with its guaranteed

5% interest in another thread . That one is linked to a bond index and you get the higher balance of the two as your annuity base , the guaranteed 5% or the bond index.

The problem is the 2-1/2% expense comes off the bond index return. You can pretty much forget a bond index less 2-1/2% expenses beating the guaranteed 5%.

It is not a bad product but it certainly is not what folks expect as far as the bonus bucks and guarantees. You can various options which of course they charge for which lets you use the policy for long term care or to guarantee heirs a certain amount but you are buying insurance in effect.

Last edited by mathjak107; 02-11-2016 at 02:57 PM..
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Old 02-11-2016, 03:29 PM
 
2,517 posts, read 3,504,493 times
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Quote:
Originally Posted by mathjak107 View Post
Glad you posted all that , but does anyone care enough to really read it is the question
I'm hoping elizabeth224 cares enough because I thought the question was asking if anyone had experience with the Prudential Highest Daily so I thought it was an on-target response as I actually have that one.

However in doing that I benefited myself as I pretty much had forgotten about the annuity. I just checked out the investments and the energy fund (AST T. Rowe Price Natural Resources Portfolio) has been slayed. I think I may jump into that as there is no risk to me and the upside with the highest daily could get me higher than my roll-up value. If my actual value gets too low they will force me into bonds but other than that I'm free to take some risk and right now my actual value is dead even with what I paid in so it should be OK. Just have to decide when is a good time to jump. I could slowly nibble my way in. International is also way down. Followed by Large, Mid and Small. I'm tempted to swing for the fence with energy though.
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Old 02-11-2016, 03:58 PM
 
71,471 posts, read 71,652,652 times
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It is rare you will do better then the guaranteed amounts. The guaranteed amounts includes fees. The variable does not and it also has the withdrawals subtracted so odds of ever seeing a high water mark run slim.

Because how the account used for annuitizing is treated they can give you all kinds of deals since the balance is never yours and they give you 1/10% a year increase so all you really see is 1/10 of 5% a year.

They are pretty smart calculating this stuff out.
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Old 02-11-2016, 04:29 PM
 
2,517 posts, read 3,504,493 times
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Quote:
Originally Posted by mathjak107 View Post
It is rare you will do better then the guaranteed amounts. The guaranteed amounts includes fees. The variable does not and it also has the withdrawals subtracted so odds of ever seeing a high water mark run slim.

Because how the account used for annuitizing is treated they can give you all kinds of deals since the balance is never yours and they give you 1/10% a year increase so all you really see is 1/10 of 5% a year.

They are pretty smart calculating this stuff out.
I agree. When I got it I figured if I could every high water mark it, it would be in the first couple of years. After that it would sink no matter what under the weight of the fees. I just ran the numbers and I would need a 34% return to overcome the guaranteed roll up right now and that would only increase as the year went on.
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Old 02-11-2016, 04:46 PM
 
291 posts, read 172,232 times
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Thank you everyone. We're away this weekend but we will read all of the responses. I really appreciate your input. I think it was "the unknown" when our planner spoke about it, so we want to take the time to learn about it before jumping in.
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Old 02-11-2016, 06:14 PM
 
Location: MMU->ABE->ATL->ASH
9,123 posts, read 17,125,688 times
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Here is a question for your "Planner" ask him/her how much commission they get on this product. My guess is its big..

Q: Is your Planner a Pru Agent? or some other "sales" person? Or you paying them a fee to advice you.

I might suggest you look for a Fee Only Where you pay someone X dollars to advise you. So your interest is aligned with theirs, Whats Best for you, Not there Commission..
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