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Fixed index annuities
Posted on 6/4/19 at 7:47 am
Posted on 6/4/19 at 7:47 am
Looking at investing in these as they are not currently part of my portfolio. Would like some pros and cons before I commit to a sit down. Fire away, I always listen to money talk.
7
Posted on 6/4/19 at 8:02 am to done dancing
Annuities typically have higher fee structures. That’s all I’ve got.
Posted on 6/4/19 at 8:29 am to lynxcat
Fee fee fee. I’m so sick of hearing the fee discussion out of context. Since when is net performance and risk management not the most important decision factor in combination with costs and suitability??? The notion that fees are the only consideration you should make and pony up at Vanguard or the like is a subtle sales tactic and misguided when it’s the only consideration.
Sidebar: Compare SUPER CHEAP ETFs, XBI & IBB. Two leading biotech ETFs by assets. Over the past year, XBI is down over 10% more than IBB due to weighting differences. Absolutely nothing to do with the 0.10% difference in costs. The underlying assets matters most.
I’ll get back on topic. Many annuity sales reps pitch FIA’s as a “no fee” product. Sounds great right?
Yet there is “no fee” because the insurance company bakes their ROI into the performance caps or credit rate they build within the product structure.
A FIA will give you probably around 4-5% return over the long haul, if it’s a quality FIA. You’re locked in typically for 6-8 years and if you’re under 59 1/2 by surrender date you’ll be penalized 10% on earnings and taxed on gains if held in taxable account.
FIAs are not bad products, just do your homework and make sure they make sense within your goal set.
Sidebar: Compare SUPER CHEAP ETFs, XBI & IBB. Two leading biotech ETFs by assets. Over the past year, XBI is down over 10% more than IBB due to weighting differences. Absolutely nothing to do with the 0.10% difference in costs. The underlying assets matters most.
I’ll get back on topic. Many annuity sales reps pitch FIA’s as a “no fee” product. Sounds great right?
Yet there is “no fee” because the insurance company bakes their ROI into the performance caps or credit rate they build within the product structure.
A FIA will give you probably around 4-5% return over the long haul, if it’s a quality FIA. You’re locked in typically for 6-8 years and if you’re under 59 1/2 by surrender date you’ll be penalized 10% on earnings and taxed on gains if held in taxable account.
FIAs are not bad products, just do your homework and make sure they make sense within your goal set.
This post was edited on 6/4/19 at 8:37 am
Posted on 6/4/19 at 9:09 am to LSUcam7
Example: 8 to 10 yr time frame, 4 to 6% average with a cap of 12%. No fees, commission built into the caps. Sound about right? And of course no access to the lump sum, cap limits market growth in a high yield period. But overall steady guaranteed returns better than bonds and CD's. Does that basically sum it up except for the individual broker nuances?
Posted on 6/4/19 at 9:22 am to done dancing
The more important question is why this vehicle? What does it provide to your portfolio that you do not have today and/or what are comparable options to achieve the same goals?
Posted on 6/4/19 at 9:24 am to done dancing
Annuities are like ordering pizza and having it delivered by a limo driver. You’re still getting the pizza and the only person who’s making money is the limo driver.
For a very few, that price is worth it just to get their pizza.
For a very few, that price is worth it just to get their pizza.
Posted on 6/4/19 at 9:29 am to Shepherd88
quote:
You’re still getting the pizza and the only person who’s making money is the limo driver.
Yeah if you buy a 10 year FIA with a 3% cap. It’s a big world out there baw
Posted on 6/4/19 at 10:00 am to lynxcat
quote:
why this vehicle?
only thing I could think of is for tax purposes (defers interest) and maybe passing money on to the next generation on a "stepped up basis"
Posted on 6/4/19 at 10:03 am to good_2_geaux
Also get to name beneficiaries which is a big deal in LA
Posted on 6/4/19 at 10:15 am to done dancing
Some of them won’t allow you to take income during the first 10 years of a contract.
If they are showing rates of 3.5-4.0% you will average 2%.
They often update their marketing literature to cherry pick an index that doesn’t really exist. You can read the fine print to find out the date the index was created.
Many only allow you to invest in certain things/indexes. You don’t have control of where your funds are invested.
Many of these contracts are known for not having good renewal rates (which happen on the contract anniversary each year).
The cap rates reset on a year to year basis, usually not in your favor.
Expensive to get out of if you wish to do so.
Even if you withdrawal after 10 years you just give yourself a big tax bill.
They pay tons of commission to the agent who writes them. Sometimes 10% plus. I’d wonder where my interests lie with someone who stands to gain SO MUCH from my decision.
I just wonder how many annuities would be sold if the commissions on them weren’t as high.
If they are showing rates of 3.5-4.0% you will average 2%.
They often update their marketing literature to cherry pick an index that doesn’t really exist. You can read the fine print to find out the date the index was created.
Many only allow you to invest in certain things/indexes. You don’t have control of where your funds are invested.
Many of these contracts are known for not having good renewal rates (which happen on the contract anniversary each year).
The cap rates reset on a year to year basis, usually not in your favor.
Expensive to get out of if you wish to do so.
Even if you withdrawal after 10 years you just give yourself a big tax bill.
They pay tons of commission to the agent who writes them. Sometimes 10% plus. I’d wonder where my interests lie with someone who stands to gain SO MUCH from my decision.
I just wonder how many annuities would be sold if the commissions on them weren’t as high.
Posted on 6/4/19 at 10:34 am to AugustaTiger
My research looks similar to your comments on the con side. Looking for another estate planning tool. Already have IRA's, 529 and Coverdell, separate cash and bond accounts and a defined pension plan I'm drawing while working my next job. I'm with a national brand firm, fees aren't terrible but looking at options. Just trying to be a sponge on facts.
Posted on 6/4/19 at 11:52 am to done dancing
What kind of “estate planning” are you wanting to do?
Trying to defer taxes within your estate?
Trying to pass more money tax fee to heirs?
Wanting to guarantee a certain amount to heirs?
What are you trying to accomplish?
Trying to defer taxes within your estate?
Trying to pass more money tax fee to heirs?
Wanting to guarantee a certain amount to heirs?
What are you trying to accomplish?
Posted on 6/4/19 at 12:17 pm to AugustaTiger
Taking care of the spouse and child, it's what most of us do I hope. Probably over thinking it. Basically an all of the above answer to your question.
Posted on 6/4/19 at 1:19 pm to done dancing
Nevermind.
This post was edited on 6/4/19 at 1:20 pm
Posted on 6/4/19 at 2:41 pm to done dancing
Do you have a personal investment account? Yes, it’s taxable but it gives you flexibility.
Life insurance and disability coverage?
Don’t over complicate for the sake of it. Generally, my advice is keep it as simple as possible.
Life insurance and disability coverage?
Don’t over complicate for the sake of it. Generally, my advice is keep it as simple as possible.
Posted on 6/4/19 at 3:46 pm to done dancing
If you are looking to amass walk away money for the future forget it. They are a waste of time. If, however you want to take advantage of the lifetime income features a few years down the road it might be of interest to you. Typical roll up is 6-8% year. This is usually a hard number and can't change. The Caps however can change and usually not it your favor.
If you use them in a ladder investment income strategy where you don't turn on the lifetime income feature for 10 years it's pretty solid...no guess work. Just make sure you have a clear understanding of what you are getting into prior. These have a few moving parts. Good luck.
***Stay away from anything that has a surrender charge in excess of 10 years.
If you use them in a ladder investment income strategy where you don't turn on the lifetime income feature for 10 years it's pretty solid...no guess work. Just make sure you have a clear understanding of what you are getting into prior. These have a few moving parts. Good luck.
***Stay away from anything that has a surrender charge in excess of 10 years.
This post was edited on 6/4/19 at 3:54 pm
Posted on 6/4/19 at 3:54 pm to Disgeaux Bob
Spot on, Bob. For accumulation? No thanks. For income during retirement distribution? They hold their own.
Posted on 6/4/19 at 4:01 pm to good_2_geaux
quote:
and maybe passing money on to the next generation on a "stepped up basis"
You don't get a step up in basis on an annuity.
Posted on 6/4/19 at 4:05 pm to AugustaTiger
quote:
I just wonder how many annuities would be sold if the commissions on them weren’t as high.
Quite literally just talked to a guy who sold himself a 15 year surrender annuity with the logic being he made an 8% commission and he couldn't lose money. Those commissions are a real conflict.
*eta. such a conflict the guy was blinded to what he was doing to himself... when the agent isn't considering how it's hurting their own future, you think they're worried about yours?
This post was edited on 6/4/19 at 4:08 pm
Posted on 6/4/19 at 5:17 pm to Disgeaux Bob
These were the pros I found. Interest is acceptable and I also believe the initial high cap number will reduce at the first opportunity. A single payer whole life will get me the tax free option though only about 3% if I access it. Reality is I'm just trying to maximize the value to pass it on. I won't need it. But I like what I'm hearing so far.
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