Is An Annuity Right for Us? (adult, married, drug, date)
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Longevity annuities have an unquestionable value for me, because I can have a spending bonanza in my 50s, 60s and 70s, while I still have energy for living - ie, I know I can spend everything I have by the 80th birthday, because a large deferred fixed annuity (which I bought incredibly cheaply in my early 50s) starts paying on my 80th birthday. If I die earlier, so what? - that longevity annuity was VERY cheap, and it is making my present years (while I am very much not dead yet) very financially carefree.
My shorter-term annuities, or smaller earlier-starting fixed life annuities, are the immediate counterpart to the longevity annuity that kicks in at 80. They provide $ for my ongoing expenses, like bank accounts but with much better gains than bank accounts (it is not true that they pay back only the principal. Over 25 years, in one form or another, they pay about 180% of the principal, and in case of life annuities they continue paying about 5% of the principal per year until death, even after the principal is long gone) - all this without market risks of investment accounts. I do not have any variable annuities (I keep up with inflation by adding more fixed annuity accounts that start paying gradually later in the future, not by having variable annuities). My goal is not to maximize money, but to have a good life without thinking about money, and annuities have been extremely useful for that.
these short term annuity products are really just cd's from insurers . there should not be much difference . usually the insurer is a tad higher . likly not even enough of a difference to switch unless the tax structure adds some value . with the annuity cd you do not get hit all at once with interest since each payment is principal and interest
Agreed. And the rates aren't all that wonderful either.
Plus - with the short term annuity products - your principal is "poof" after 10 years. What if you need/want it for medical/custodial/home health care expenses - or to remodel your kitchen? I don't see any logic behid this particular kind of insurance product at all.
As for tax sensitive people - it is still hard to beat high grade munis today. Robyn
No one with a securities license or works in the business will answer your question in this environment (web forum.) Speak to a licensed financial professional, and ask them to be impartial.
Agreed. And the rates aren't all that wonderful either.
Plus - with the short term annuity products - your principal is "poof" after 10 years. What if you need/want it for medical/custodial/home health care expenses - or to remodel your kitchen? I don't see any logic behid this particular kind of insurance product at all.
As for tax sensitive people - it is still hard to beat high grade munis today. Robyn
no your principal is not poof on the short term stuff . it is given back to you with each payment and if you die heirs get the difference .
each payment is interest and principal and by ten years you got it all back plus interest . whether you choose to spend it is a different issue , but that is what an annuity is for , income . the cd may or may not provide you with income from principal without penalty . which is why folks like the annuity short term products . they get principal and interest each year .
they are no different then cd's . there are no mortality gains or money forfeited on short term annuity products. only difference is you have a flow of interest and principal over the 10 years from the 10 year annuity , you may only have a flow of interest over the 10 years with the cd . big difference in cash flow .
Last edited by mathjak107; 04-25-2016 at 04:29 PM..
I am not advocating having all your assets in annuities and living in a cardboard box under the bridge, without any resources if you are faced with a large sudden expense. It goes without saying that your home should be paid off before retirement, and you should always be able to take out a home equity loan for unexpected catastrophic expenses. That comes before annuities or mutual funds or any other financial discussion about retirement.
you can't compare risk on going out 20 years on muni's inflation wise to just 10 years on a cd . that is apples to grapefruits . hardly worth betting another 10 years out for 1/2 a point . if you need the income from principal and interest the muni will not help you
Anyone who is still an inflation worry wort is fighting a war from decades ago. And there's a big difference between 3% tax exempt and 2.75% taxable. For most people. Also - I have been laddering these investments for decades now. Can't say I would jump into the pool feet first with everything today. Then again - you have to start somewhere.
People have been saying what you're saying about interest rates for years/decades now. And you have been WRONG. For a very long time.
Guess you will be right eventually - and I will change my mind at some point. Based on my charts. But I haven't changed my mind as of today. We are still in a secular bond bull market (as we have been for a long time). And I take advantage of short term corrections to invest money. It's really not any different than what people do when it comes to equities when they are enjoying a bull market run. Robyn
ha ha ha don't bet the ranch on that inflation war being dead . those folks in 1966 thought the same thing when inflation was below 2% and there wasn't a hint on the horizon .
i would never make a claim about any of the 4 major scenario's be it recession , depression inflation or prosperity .
i would never make any claim about what rates will be in 20 years or inflation so i certainly would not go 25 year muni instead of a 10 year cd if the cd was what i really wanted . remember we laughed at the 5-1/4% savings account and the christmas club account and said who would ever accept that as an interest rate . the thought that one day we would kill for 5% was as ridiculous and out of the picture as inflation thoughts are today .
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so never go by what you see or think , it is always the things not on the radar that send us reeling .
Last edited by mathjak107; 04-25-2016 at 05:08 PM..
Took another look - and yes - it's 1.54% (I think I reversed the numbers to 1.45% in my head when switching from one program to another). It is still a terrible rate of return. Even in today's interest rate environment. Where you can get 2.6-2.7% on a federally insured brokered 9-10 year CD. Or 3+% on AAA 20 year munis - Florida GOs (which I bought last week).
I suspect your employer is subsidizing your annuity to some extent - to get your pension off its books. When I plug your numbers into a "man off the street" annuity calculator - I am looking at < $900/month with your numbers. Robyn
I prepared a simple Excel spreadsheet to do these annuity yield calculation but after seeing your post, I did a search and found an online calculator for folks who want to evaluate annuity offers
As others have noted, it is apple and orange to compare annuity and CD. Yes, the rates for those long term 10 years CD or 20 year munis are definitely higher than 1.54% but one has to lock in the principal for quite a while.
You are certainly a very savvy and experience investor. IMO, figuring out the best laddering CDs strategy or best AAA muni bond yield are either beyond the skills or scope of interests for the average retirees.
My former employer had offered the choice of lump sum, enhanced annuity or a combination of both for a long time (it was there when I joined the company 24 years ago) so I don't think it was a recent effort to get the pension off its books.
I have been inclined to take the annuity instead of a lump sum when I turn 65 to spread out paying taxes. However, I am now toying with the idea of taking the lump sum either full or some portion of it and rollover to my ROTH IRA. We also plan to rollover some of my husband's IRA to ROTH to reduce his upcoming RMDs so we will have to decide how to divvy up the conversion portions.
There are just so many investment options and choices. I wish that we have more trust in the financial professional. Years ago, we got burned pretty bad by a professional tax/accounting firm (which was highly recommended by a friend). The firm made a $12K mistake on my tax return. I found a small error first and did not trust them so I went to the library to get a bunch of tax forms, instructions and prepared the tax myself (it was a marathon afternoon). When I showed them my calculations, they admit the errors and refunded me the fee. This was the one and only time that I 'hire' a financial/tax expert or tax preparer.
Location: Was Midvalley Oregon; Now Eastside Seattle area
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Quote:
Originally Posted by elnrgby
I am not advocating having all your assets in annuities and living in a cardboard box under the bridge, without any resources if you are faced with a large sudden expense. It goes without saying that your home should be paid off before retirement, and you should always be able to take out a home equity loan for unexpected catastrophic expenses. That comes before annuities or mutual funds or any other financial discussion about retirement.
We tried to finance a home purchase off of Income from SS and pension. It is difficult. We said the heck with this and purchased this Seattle rental condo, for cash. So ironically now that we have income from the rental, we can easily do a HELOC or a 1st.
If one is in retirement getting a HELOC, a CC of more than $5000 is more difficult even though you have a guaranteed SS income and money in the bank. If in a catastrophic situation, that situation may limit one's ability to meet the qualification--perhaps because of no-doc-no-asset-no-job era.
no your principal is not poof on the short term stuff . it is given back to you with each payment and if you die heirs get the difference .
each payment is interest and principal and by ten years you got it all back plus interest . whether you choose to spend it is a different issue , but that is what an annuity is for , income . the cd may or may not provide you with income from principal without penalty . which is why folks like the annuity short term products . they get principal and interest each year .
they are no different then cd's . there are no mortality gains or money forfeited on short term annuity products. only difference is you have a flow of interest and principal over the 10 years from the 10 year annuity , you may only have a flow of interest over the 10 years with the cd . big difference in cash flow .
The principal is "poof" if you spend it. And - if you don't spend it - but only spend the interest component - what's the point of the product? You might as well just buy a plain vanilla fixed income product - like a CD. And skip the fees/insurance company profit. Robyn
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