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Old 04-24-2016, 03:16 PM
 
72,039 posts, read 72,068,214 times
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i don't know what you have so i can't say much about your products but the implied interest on an annuity pay out is not really interest but phantom interest . it is required by the irs and it uses a life expectancy chart to be able to tax you on future interest if any .

in reality an annuity is very simple . you give the insurer 100k to pick a number .

they give you back your own money for 16 or 17 years today . there is no interest .

after you get all your money you gave them back you see your first bit of return as much as 18 years later when you first go on their dime . .

but the irs uses a chart that says each year you will be taxed on a phantom interest amount as if you lived to a certain age so they consider it part interest and part principal . the reality though is you got nothing as far as return until after they give you back what you gave them many years later .

an annuity is insurance and it may end up with near zero roi but to do its job it does not need any roi along the way .

its only job is to give you back your own money at a higher rate then you can take safely from yourself since if you run out they put you on their dime .

you stand a poor chance trying to draw as much as a single immediate annuity pays a 65 year old today from your own portfolio, and if outcomes are less then favorable you will be out of money before you run out of time .

Last edited by mathjak107; 04-24-2016 at 03:26 PM..
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Old 04-24-2016, 03:22 PM
 
Location: Was Midvalley Oregon; Now Eastside Seattle area
4,231 posts, read 1,931,933 times
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Quote:
Originally Posted by DaveinMtAiry View Post
Wow lots of discussion since I left. I think the most convincing argument yet against my idea came from the Investment Watchdog link, sorry I forgot the poster's name. Inflation is clearly the big factor. However as we age I do kind of see a purpose for a small one as the poster above has dscribed.
...snip
Because more of us B's are closing in and on reaching 62-66-70 yo.
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Old 04-24-2016, 03:24 PM
 
Location: Ponte Vedra Beach FL
14,628 posts, read 17,972,970 times
Reputation: 6723
Quote:
Originally Posted by PhxBarb View Post
Yes, that's how it works. It's a better return on my money than a CD or savings account. Of course at the end of the 10 years, I end up with nothing but at that time I will probably decide on another plan of action to replace this annuity.
No it isn't. Your rate of return is 1.42%/year. On a 10 year brokered CD - you could easily get 3% until a few months ago - and you can still get about 2.75% today. And still have all of your money at the end of 10 years. Unless I have misunderstood your investment - it sounds incredibly stupid to me (sorry for sounding harsh - but I just call them as I see them). Robyn
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Old 04-24-2016, 03:29 PM
 
72,039 posts, read 72,068,214 times
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these period certain deals from the insurers give you back all your money if you die plus some interest . the ones i saw paid a bit more then cd's today .

they really act as cd's from an insurer . there are myga's which pay out almost 3% on multi year contracts .

MYGA – aka “Fixed Rate Annuity”
Fixed Rate Annuities function a lot like CDs, and are referred to in the industry as “Multi Year Rate Guaranteed” annuities (MYGAs). In essence, MYGAs are CDs….but with tax deferral, and are typically purchased with a single premium amount of money.

MYGAs pay a specific percentage yield for a contractually certain amount of time. The main difference between the two strategies is that with CDs, you pay the taxes annually on the interest earned. With Fixed Rate Annuities, you defer the taxes on the interest until money is taken out. The interest rate compounds tax deferred, which is important to know from a comparison standpoint.

Downside: Similar to CDs, surrender penalties can be high if you want all of your money back before the specified term ends. Also, you have to pay attention to the contract because some MYGAs automatically renew and restart surrender charges at the end of the guarantee period, unless you proactively contact the annuity carrier with your intentions. In addition, some guarantee periods don’t match up with the surrender periods. As with any annuity, always know what you own, how it works, and the contractual rules in place.

http://allthingsannuity.com/cd_annuities.htm
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Old 04-24-2016, 03:37 PM
 
Location: Ponte Vedra Beach FL
14,628 posts, read 17,972,970 times
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Quote:
Originally Posted by mathjak107 View Post
without seeing those plans there may be a misunderstanding between returns and draw rates . they are worlds a part in what they represent . immediate annuity products have a draw rate not a return like a mutual fund . an annuity includes principal in the payment ,the fund does not . one is all yours at the end , the annuity is not .
Agreed. Too many people don't understand the difference between a return of principal - and a return on an investment. I see that all the time when evaluating things like closed end funds (many sell at premiums because they have high "returns" - but often a large part of those returns are simply a return of principal).

Think I see a possible business here. Everyone could give me lots of money for 10 years. And I would guarantee them that they'd get all their money back over the course of 10 years. Plus 1.5%/year. And I'd buy CDs at 2.75-3% - and pocket 1-2% on every dollar I got - guaranteed. How can I get into that business ? Robyn
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Old 04-24-2016, 03:41 PM
 
72,039 posts, read 72,068,214 times
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i wanted to do it with these jokers who buy high yielding stocks and then say they don't care about the share price because they are getting a dividend .

hey i will pay them that dividend and if they don't care about principal i keep their money
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Old 04-24-2016, 03:51 PM
 
Location: Was Midvalley Oregon; Now Eastside Seattle area
4,231 posts, read 1,931,933 times
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^ I buy my utilities & other div stocks at low price and sell at higher price. I get the divs and the trading profit.
I am out of the market at this time. Global warming and Solar will affect utilities revenues. How much effect on profits and div remains to be seen.
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Old 04-24-2016, 03:56 PM
 
Location: Was Midvalley Oregon; Now Eastside Seattle area
4,231 posts, read 1,931,933 times
Reputation: 3256
Quote:
Originally Posted by Robyn55 View Post
Agreed. Too many people don't understand the difference between a return of principal - and a return on an investment. I see that all the time when evaluating things like closed end funds (many sell at premiums because they have high "returns" - but often a large part of those returns are simply a return of principal).

Think I see a possible business here. Everyone could give me lots of money for 10 years. And I would guarantee them that they'd get all their money back over the course of 10 years. Plus 1.5%/year. And I'd buy CDs at 2.75-3% - and pocket 1-2% on every dollar I got - guaranteed. How can I get into that business ? Robyn
Anytime (current year) you want to take my downside risk, for 2-4% on original investment, you'll have my attention.
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Old 04-24-2016, 04:01 PM
 
72,039 posts, read 72,068,214 times
Reputation: 49605
5 year myga's are at 3% tax deferred . giving someone 2% and buying a 3% myga is worth it .
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Old 04-24-2016, 04:08 PM
 
72,039 posts, read 72,068,214 times
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some caveats with these myga's are :

you have to make sure the lump sum interest that is deferred does not bump your bracket up or raise your medicare premium if you choose not to roll it over .

having these come due near age 70-1/2 can combine the lump sum multi year interest with your rmds making for some nasty unexpected results .
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