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Old 11-02-2016, 05:46 AM
 
2,444 posts, read 2,073,760 times
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Quote:
Originally Posted by eastcoastguyz View Post
Let's look at this from the point of view from the company who is offering the annuity. We gather a few people together and form a company. We then start talking about how we are going to make money by receiving money from all these retirees. We come up with a great sales pitch, how we are going to offer people 5% payback every year they are alive no matter how long they live. You could be 120 years of age, and we are going to still keep making the same monthly payments to people. But we do the math, and look at how we are going to invest the money and our own return on it, and we aren't going to do much better than the 5% ourselves every day. In fact, we might lose money overall by making payments to people who live to be 120 years of age.

Then someone says, "Woah, woah, woah...let's hire one of those actuarial guys. They have all kinds of statistics about how long will live". Whew, everyone likes this. They find out the vast majority of the population doesn't live until age 120. They find out that some people died younger and on average they die within 20 years or less after the age they would purchase an annuity from us.

The company executives are happy, they know overall they won't have to keep making those payments to those people starting at age 65 for the next 55 years, and it is more like the next 20 years or so.

The company executives get even happier after someone says, "Let's hire some attorneys to put together a very complex contract that favors us!".

So now things are even more in the companies favor. Take the $200K at age 65 and they start paying out 5% which is $10K. The person dies 15 years into this the age of 80. $10K times 15 years is only $150K. They keep the rest of the money for themselves, plus whatever they have been getting as a return investing the money. So this is a good deal for the company selling the annuity which is why they are selling it and the commissions are so high for the sales person. In this scenario, the retiree gave them $200K and in return got back $150K over 15 years. This retiree might have slept better knowing he or she didn't have to invest and be concerned about the markets, but they also didn't have access to this money to do something else with it, like put a new roof on their home.

You are betting you will live to 120 years of age, and feel like you were savvy with the annuity and you didn't want to leave anything in your estate because none of those relatives came to visit you anyway. Who knows, perhaps you'd live longer not having to be concerned about the stock market's bumps along the way. The company that sold the annuity is betting you aren't going to live that long. This is like Casino gambling which favors the house and the company is "The House". They must be, because they need to stay in business.

None of us knows how long we are going to live or where the markets will head. We also don't know what inflation and expenses will be like in the future. To deal with that, you can have a broker do retirement planning for you where they use simulations and come up with a probability of how the events can turn out. When it comes back with 95% probability that you will have a total of X amount per year of money to spend, then you know what to do to plan for. If that's enough money then fine, if it isn't, then you have time to do something about it before you retire and/or adjust your retirement plans.

The company bets you die young and they make a lot more money than they possibly could by the investments.

The very idea that annuities are made so complex with so many choices is all the more reason to be extremely caution with them, and look at an overall investment strategy for retirement. The company selling them is playing on the fear everyone has that they will live longer than they have money.
Great post. Annuities scare me.
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Old 11-02-2016, 05:56 AM
 
71,695 posts, read 71,801,099 times
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that is only because you don't understand them nor how to utilize them in a comprehensive plan . once you do there is nothing scary about them . you may not like the deal but there is certainly nothing scary about them .

we typically fear what we do not understand .

on the other hand the unknown and risks of markets and rates can be VERY scary to many
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Old 11-02-2016, 08:58 AM
 
Location: Columbia SC
8,984 posts, read 7,753,935 times
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Remember one thing folks. Annuities are sold by insurance companies who have been using confusing/shady sales practices for over 100 years.
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Old 11-02-2016, 10:26 AM
 
2,687 posts, read 1,545,393 times
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mj107, I think you're being a bit harsh and over-generalizing. Some annuities are indeed straightforward, but many of the heavily promoted products are not, especially those incorporating annuity and investment in the same product. Some features are tough to value, such as inflation protection, minimum payout periods and such.
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Old 11-02-2016, 10:30 AM
 
71,695 posts, read 71,801,099 times
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I already stated I do not like variable and most deferred annuity's many times .
no annuity should be bought with the idea of even buying the inflation adjusting . that is the job of your own investing and should never be left to an annuity product .

a cola will never ever match your personal cost of living .

annuity products , should be used as a replacement for some of the money you allocate to cash and bonds . it never should replace your growth vehicles like stock . I only recommend spia's .
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Old 11-02-2016, 10:59 AM
 
5,694 posts, read 8,766,777 times
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Quote:
i am anything but comfortable with the way things have been and look going forward so we are working on becoming less dependent
I'm sure this has been discussed before, but the easiest way to be more comfortable is reduce your cost of living. I know you like urban living but have you considered places like Philly and providence? Even including a few hotel nights for cultural events in NY or Boston, you are bound to save money. You are worried about stock volatility, what about the volatility of your apartment value.

Think about other expenses. You talk about $20,000 dental costs, I bet most seniors would go with dentures before even considering incurring that expense. Dental tourism could be a great savings. If you save $10K by a visit to Costa Rica or Romania, that would be the equivalent of having $400,000 in dividend stocks paying 2.5%, or a 200K annuity.
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Old 11-02-2016, 01:52 PM
 
71,695 posts, read 71,801,099 times
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noooooooo I would not leave our kids and grand kids who are based here too . that is the main reason we are here .

my parents moved away and missed out on the best years of all our lives .

I would never ever do dental implants like I had done anywhere but near where I live . they require to many visits over to long a period of time with to many potential issues. they can take as long as a year to complete .

dentures on me do not work on the bottom jaw .they totally sucked every time I tried them so they were not going to be a long term option .

we are not interested in cutting expenses anymore then we have , we just want to use the options available to us to diversify away from being totally market and interest rate dependent
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Old 11-02-2016, 03:50 PM
 
3,460 posts, read 2,202,288 times
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Quote:
Originally Posted by mathjak107 View Post
noooooooo I would not leave our kids and grand kids who are based here too . that is the main reason we are here .

my parents moved away and missed out on the best years of all our lives .

I would never ever do dental implants like I had done anywhere but near where I live . they require to many visits over to long a period of time with to many potential issues. they can take as long as a year to complete .

dentures on me do not work on the bottom jaw .they totally sucked every time I tried them so they were not going to be a long term option .

we are not interested in cutting expenses anymore then we have , we just want to use the options available to us to diversify away from being totally market and interest rate dependent
If my parents had moved in their retirement years to be near me, I would've help them out with expenses. I'd go without luxuries and extras if needed so they could be comfortable, because I'm sure they made sacrifices for me when I was young plus paying for college. If you're staying in a more expensive area to be near them, in my humble opinion, they should be looking to help you out. And before you say you don't want to be a burden, I'm sure kids were a burden to raise too, and now it's your turn.
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Old 11-02-2016, 04:10 PM
 
71,695 posts, read 71,801,099 times
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last thing i want is money from my kids . they have their own family's . i have zero reason to take money from them , no thank you . i will leave it to you to do it to your kids .
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Old 11-02-2016, 05:27 PM
 
Location: Baltimore, MD
3,745 posts, read 4,220,203 times
Reputation: 6866
I've read several studies that confirm that as people age, they progressively lose their ability to competently handle their financial affairs. Interestingly, the more confident the elders had in their ability to handle their financial affairs, the more likely they were to be financially impaired.

I don't think I'll be the outlier/snowflake that defies the odds. I'm opting for a small annuity and if I end up with additional funds, I may purchase and ladder several more annuities. I'm tired of looking at the stock and bond markets to determine whether it is a bad time to withdraw retirement funds. My goal is a simple, relatively secure retirement.
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