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Started By
Message
Why would anyone do an annuity?
Posted on 6/24/24 at 2:30 pm
Posted on 6/24/24 at 2:30 pm
Been reading about them and it just doesn’t seem to make a ton of sense. Maybe to get pre retirement age income from retirement plan(s)?
Still doesn’t seem like the smart thing to do.
Still doesn’t seem like the smart thing to do.
9
Posted on 6/24/24 at 2:45 pm to BabyTac
Been in the financial industry for 25 years and every time I analyze an annuity contract for people, the ones that makes the most from an annuity are the insurance company and the commission whore that sold it to them. Great sells pitch though. Fear is a great motivator.
Posted on 6/24/24 at 3:19 pm to BabyTac
The only world where it makes sense is when someone is so risk adverse that they pay the fees to keep a consistent income coming in.
Posted on 6/24/24 at 3:27 pm to BabyTac
They're just paying up for the security of future cash flows.
Posted on 6/24/24 at 4:17 pm to Auburn80
quote:
is when someone is so risk adverse
It's "averse" in that situation. There are fixed annuities that are covered by state guaranty associations up to "X" amount. I'm not promoting annuities but I can't recall someone having a SPIA having lost money if they stayed under the guaranty limits although there are many forms of annuities that can be very risky. Depends on the investor and what they are seeking to accomplish. TIPS would likely have provided better and/or safer buying opportunities on 5 to 20yr bonds over the last 9 months.
Posted on 6/24/24 at 4:30 pm to tirebiter
Hey, some people still buying timeshares too
Posted on 6/24/24 at 4:38 pm to Popths
quote:
Hey, some people still buying timeshares too
That is another level of stupidity. Now all the Disney timeshare owners will chime in as to how great theirs are.
Posted on 6/24/24 at 6:00 pm to BabyTac
Behavioral finance.
The same reason why people don’t stay 100% equities their entire life. The math says one thing, but people don’t do the right thing. An annuity can help those people protect themselves.
That being said, I’d wager 80% or more are sold inappropriately, especially anything that has an income rider on it.
ETA- reminds me of the SS discussion. People don’t give a shite about the math, they want to feel good.
The same reason why people don’t stay 100% equities their entire life. The math says one thing, but people don’t do the right thing. An annuity can help those people protect themselves.
That being said, I’d wager 80% or more are sold inappropriately, especially anything that has an income rider on it.
ETA- reminds me of the SS discussion. People don’t give a shite about the math, they want to feel good.
This post was edited on 6/24/24 at 7:29 pm
Posted on 6/24/24 at 6:31 pm to BabyTac
Because people like my dad could be talked into doing anything.
Posted on 6/24/24 at 8:01 pm to slackster
quote:
The same reason why people don’t stay 100% equities their entire life. The math says one thing, but people don’t do the right thing. An annuity can help those people protect themselves.
People have to do what allows them to sleep at night. I’m sure a lot of these are lousy deals under “the math,” but people need to meet their needs.
And many people shouldn’t be 100% in equities their entire lives.
Posted on 6/24/24 at 8:10 pm to SloaneRanger
quote:
People have to do what allows them to sleep at night. I’m sure a lot of these are lousy deals under “the math,” but people need to meet their needs. And many people shouldn’t be 100% in equities their entire lives.
Couldn’t agree more.
I can put together mathematically sound plans all day but they’re useless if someone can’t follow it. Annuities can help people stick to the plan, sometimes by force.
This post was edited on 6/24/24 at 8:21 pm
Posted on 6/24/24 at 8:54 pm to LSUtoOmaha
quote:Which always baffles me because of the inability to adjust for inflation.
They're just paying up for the security of future cash flows.
Posted on 6/25/24 at 6:49 am to BabyTac
After all other use of tax deferred investments such as 401k, IRA, Roth IRA’s, an Annuity is just another way to invest and defer taxes on the capital gains and income it produces.
There are some very low cost, commission free Annuities out there, such as the one offered by Fidelity Investments.
There are some very low cost, commission free Annuities out there, such as the one offered by Fidelity Investments.
Posted on 6/25/24 at 7:06 am to Skippy1013
quote:
an Annuity is just another way to invest and defer taxes on the capital gains and income it produces.
Which is then taxed as ordinary income upon withdrawal and doesn’t get any step up in basis upon death.
The tax deferral nature of an annuity is one of the least attractive benefits IMO.
Posted on 6/25/24 at 7:52 am to BabyTac
quote:
Been reading about them and it just doesn’t seem to make a ton of sense. Maybe to get pre retirement age income from retirement plan(s)?
Still doesn’t seem like the smart thing to do.
IMO the simplest way to make sense of annuities is as retirement insurance.
You pay an insurance premium to protect your retirement income against sequence risk.
If you have enough money to self-insure against sequence risk then you don't need to buy insurance. I suspect the majority of retirees don't have enough money to self-insure their retirements so annuities end up being common and will probably only become more popular as more boomers retire.
Posted on 6/25/24 at 8:47 am to SloaneRanger
quote:
People have to do what allows them to sleep at night. I’m sure a lot of these are lousy deals under “the math,” but people need to meet their needs.
I absolutely agree with this, but if you never watch scary movies it gives you a lot less to be scared about.
The issue with the annuity industry is they are fear mongering to sell their product. Take away the fake fear, and most wouldn't pay for the product.
Its just like anything, people buy annuities because the salesman are good at their job. That's really the whole story.
Posted on 6/25/24 at 8:47 am to Huey Lewis
What percentage of SPDAs are actually ever annuitized?
Posted on 6/25/24 at 8:49 am to Huey Lewis
quote:
You pay an insurance premium to protect your retirement income against sequence risk.
If you have enough money to self-insure against sequence risk then you don't need to buy insurance. I suspect the majority of retirees don't have enough money to self-insure their retirements so annuities end up being common and will probably only become more popular as more boomers retire.
In 3 to 5 years, maybe sooner, this boards opinions about annuities will change.
Posted on 6/25/24 at 9:03 am to Huey Lewis
quote:
IMO the simplest way to make sense of annuities is as retirement insurance.
You pay an insurance premium to protect your retirement income against sequence risk.
Sure, and I absolutely agree with this. But the other option against risk is self insurance. Saving up enough and living conservatively enough, to where there is almost no risk.
The average annuity salesman would recommend putting so much money into an annuity to insure the customers risk that if they instead put 100% into other investment options there would be almost 0 risk due to having that much more money.
If you have $1 mil in an annnuity to guarantee never having less than $500k or $1.5 mil in other investments, salesman love to still push the annuity.
This post was edited on 6/25/24 at 9:05 am
Posted on 6/25/24 at 9:12 am to BabyTac
First there are a myriad of choices, and they are not all created equal. It's confusing and some are more top heavy with fees and lag their indices.
In our case, we've been investing since the mid 80's. Always contributing where possible to 401ks, ROTH IRAs. Locking in contributions to dollar cost average, letting it grow and being "done with it".
But to me, a key tenet is your retirement assets are a portion of your overall assets. We've also spent more effort and time growing non-retirement assets and have done well with ESPPs, ETFs and particularly rental real estate.
I'll tell you why we did for a portion of our retirement assets. And everyone's personal circumstances will vary.
Risk mitigation. Didn't want to F around any further with retirement monies. Still continue to invest in non-retirement assets outside of that.
S&P Historical Returns
We've lived through some significant rises AND declines over the years. Imagine the feeling seeing your portfolios dip 30-40% in a year. Seen it a couple of times. Look at the chart. In 2008 it was -38.49%. Yeah, over time, it averages out, but it depends on where you are in the retirement lifecycle. Let say you were ready to retire then and that happened.
A few years ago, we rolled money into variable rate annuities at Prudential. We wanted to lock in a guaranteed income amount that grows daily at a compounded annualized rate. The income stream is guaranteed to grow at 6% a year minimum. And there is the death benefit to the spouse on the back end.
Currently, retirement assets represent 42% of the total. Of the retirement portion, the annuities are 90%. We still contribute the max to a company 401k and have other ROTH IRAs outside of Prudential.
Not for everyone and it depends on where you are in your life, your spouse, and how comfortable you feel navigating the market in the current cycle and playing with your retirement money. Can you do better? Maybe. Maybe not. Personal decision, but like everything, consult with your CPA and/or Financial Advisor on decisions like that.
Article On Considerations
Pros And Cons
Disadvantages
In our case, we've been investing since the mid 80's. Always contributing where possible to 401ks, ROTH IRAs. Locking in contributions to dollar cost average, letting it grow and being "done with it".
But to me, a key tenet is your retirement assets are a portion of your overall assets. We've also spent more effort and time growing non-retirement assets and have done well with ESPPs, ETFs and particularly rental real estate.
I'll tell you why we did for a portion of our retirement assets. And everyone's personal circumstances will vary.
Risk mitigation. Didn't want to F around any further with retirement monies. Still continue to invest in non-retirement assets outside of that.
S&P Historical Returns
We've lived through some significant rises AND declines over the years. Imagine the feeling seeing your portfolios dip 30-40% in a year. Seen it a couple of times. Look at the chart. In 2008 it was -38.49%. Yeah, over time, it averages out, but it depends on where you are in the retirement lifecycle. Let say you were ready to retire then and that happened.
A few years ago, we rolled money into variable rate annuities at Prudential. We wanted to lock in a guaranteed income amount that grows daily at a compounded annualized rate. The income stream is guaranteed to grow at 6% a year minimum. And there is the death benefit to the spouse on the back end.
Currently, retirement assets represent 42% of the total. Of the retirement portion, the annuities are 90%. We still contribute the max to a company 401k and have other ROTH IRAs outside of Prudential.
Not for everyone and it depends on where you are in your life, your spouse, and how comfortable you feel navigating the market in the current cycle and playing with your retirement money. Can you do better? Maybe. Maybe not. Personal decision, but like everything, consult with your CPA and/or Financial Advisor on decisions like that.
Article On Considerations
Pros And Cons
Disadvantages
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