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The part that spooks me is it ceases to be my money. I have a friend who bought annuities over the years in $100k increments. Some are paying 12%, which ain’t chump change. He and his wife are very comfortable with the monthly income from them. Still, they spook me.
It depends on the annuity as far as a death benefit. In he one above your account balance is the actual account balance not the virtual one with all that growth.
But not only are the fees taken out of the actual account balance but when drawing out the 5% a year the payments are subtracted out too. You can see that will deplete the actual account
Those who operate annuity funds benefit when their account holders die. I wouldn't want my death to be a benefit to anyone. No life insurance for me, either and no bequests in a will that are known to the heirs. I tell them if I die before age 100, it's all going to charity.
I guess you won’t be filing for social security either
The part that spooks me is it ceases to be my money. I have a friend who bought annuities over the years in $100k increments. Some are paying 12%, which ain’t chump change. He and his wife are very comfortable with the monthly income from them. Still, they spook me.
There is a bit of a mis-belief here that somehow spending down your own money is any different .
Let’s say you have a 50/50 mix. If you draw a 4-5% inflation adjusted income from the bond portion to live ,eventually that portion hits zero and is gone . You would need to refill from equities for more spending money. As you spend down the cash and bonds each year you have less and less left .
So that money goes to zero eventually.
If you took a portion of the bond money and bought an immediate annuity ,not only does that piece never go to zero requiring less equity selling but the annuity can give you a higher cash flow than you can safely take from yourself.
So in both cases you either spend that portion of money down to zero or you buy an annuity which is buying a pension but in both cases that portion will no longer be yours
Annuities can diversify in to something you or I can’t . They are not dependent on totally markets and rates. They diversify in to dead bodies.
Those who die pay for those who live and they can take very low rates and make them way bigger.
If 12 of us bought a 30 year bond we each would end up with about 3.25% if we lived.
But if our deal was those who die roll their bond in to the funds of the others and one of us died a month ,you can see last man standing gets 12 x 3.25% . That is a whopper of a return.
So annuities tend to provide cash flow far higher than we can generate from our cash and bond portion .
A combo of immediate annuities and your own investing tends to beat just your own investing over far wider outcomes.
In fact a combo of immediate annuities , permanent life insurance which is tax free to your spouse and your own investing beat buy term and invest the rest 70% of the time in 10,000 scenarios run .
Buy term and invest the rest always had the bigger balance by retirement . But few studies looked beyond . That tax free Life insurance can be priceless in retirement,especially because so much is linked to income .plus your spouse has rmds and now files single.
Last edited by mathjak107; 10-29-2018 at 04:40 AM..
The part that spooks me is it ceases to be my money. I have a friend who bought annuities over the years in $100k increments. Some are paying 12%, which ain’t chump change. He and his wife are very comfortable with the monthly income from them. Still, they spook me.
In our case the money which purchased the annuity wasn't 'really' our money either. Sure, it was the value of my credited balance in the Corporate Retirement Account but it was money that I had no means to receive except via monthly checks after retirement. Until they offered lump sum distributions with the last round (while I was still working there) of retirement plan reductions.
Those of us approaching retirement now grew up with the popular scenario of a three legged stool to fund our retirements: Pensions, Social Security, and Personal Savings. Companies are eliminating the Pension leg so individually many of us are trying to reconstruct the missing leg of the stool. Using retirement plan cash-outs to fund the purchase of a pseudo pension is one way of accomplishing this.
The next generation may become accustomed to a single point of support, personal savings only, by the time they reach their retirement years.
Lord only knows what will happen to Social Security in the future. With declining birth rates resulting in fewer workers to pay into the system, massive unpaid 'loans' from the system to the Federal Government, and a huge bubble of current and soon-to-be benefactors for the next few decades, it is unreasonable (in my mind) to expect the benefits paid out will allow the same type of retirement enjoyed by our parents and grandparents without substantial additional funding from personal savings and pseudo pension equivalents.
You likely will not have immediate annuities sold by an adviser .they are like buying a cd and offer little incentive for them to sell them . All these linked and variable annuities all are much more lucrative products.
Never buy any index linked annuity as a proxy for a real equity investment .the results are not even close
Annuities can diversify in to something you or I can’t . They are not dependent on totally markets and rates. They diversify in to dead bodies.
Those who die pay for those who live and they can take very low rates and make them way bigger.
If 12 of us bought a 30 year bond we each would end up with about 3.25% if we lived.
But if our deal was those who die roll their bond in to the funds of the others and one of us died a month ,you can see last man standing gets 12 x 3.25% . That is a whopper of a return.
So annuities tend to provide cash flow far higher than we can generate from our cash and bond portion .
A combo of immediate annuities and your own investing tends to beat just your own investing over far wider outcomes.
In fact a combo of immediate annuities , permanent life insurance which is tax free to your spouse and your own investing beat buy term and invest the rest 70% of the time in 10,000 scenarios run .
Buy term and invest the rest always had the bigger balance by retirement . But few studies looked beyond . That tax free Life insurance can be priceless in retirement,especially because so much is linked to income .plus your spouse has rmds and now files single.
Quote:
Originally Posted by mathjak107
You likely will not have immediate annuities sold by an adviser .they are like buying a cd and offer little incentive for them to sell them . All these linked and variable annuities all are much more lucrative products.
Never buy any index linked annuity as a proxy for a real equity investment .the results are not even close
You're on a roll this morning. Two excellent posts right there. That bolded part bears repeating in case anyone has become interested in annuities reading this thread. The guy buying the steak dinner is not offering a good annuity. Here's a convenient calculator for anyone wondering how much income their money will buy. https://www.immediateannuities.com/
It's up to the individual to not get sucked in to these things.
It's usually an unfair situation. The guys selling these expensive and complicated products are pitching them to people who can rarely understand them. It's not just at steak dinners either. Aunt Ethel's Ameriprise or Edward Jones guy may suggest an annuity to her at their annual sit-down as he is very incentivized to put part of her money into an annuity. The suggestion of guaranteed income will look very attractive to her after a stock market correction like we've just had.
We sat down and listened to a pitch given by our bank. It sounded so good . A 10% guaranteed minimum return for 10 years regardless of what the variable market investments linked to it did.
Wow , what a deal ..I would have bought it myself . But once you looked under the hood and saw how that only pertained to the virtual account that wasn’t yours , looked at the fees and all the inner workings what you see is not what you really get
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