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Message
Fixed Index Annuity – do any of you have experience with them? Update on page 2
Posted on 10/9/14 at 1:07 pm
Posted on 10/9/14 at 1:07 pm
I’ve never been an annuity guy. But, a good friend who I have discussed investments with over the years and whose opinion I respect told me about an annuity I wasn’t aware of, Fixed Index Annuity. From what he told me and a little research it works something like this. The annuity invests your principle in bonds. The interest earned on the bonds is not returned to the investor. It is used to purchase a stock index fund such as S&P 500 or options in the index fund. If the index goes up you make money but if the index goes down you don’t lose your principle.
The general idea is you don’t lose money in a down year but make money in the up years.
He said the life of the annuity is 5 to 10 years. At the end you get your principle and any profit out and can invest in another one if you want. There is a penalty for taking your money out early except that you can take up to 10% out during any year with no penalty.
I have an appointment with his advisor next Friday and have thought of a few questions. I was hoping some of you have looked into fixed index annuities or might let me know of other questions to ask. Here is what I have so far.
-What type of bonds do they invest in? It must be individual bonds because bond funds do loose value when interest rates rise. There is always the danger of default of some individual bonds. How can they guarantee that your principle will never lose value if invested in bonds?
-These annuities must have an inception date and a date certain ending date. How do they determine what the date is that they close out their position in the index fund and take a new position? They have to close out the position to “cash out” during up years. I need to know how this works because at the end of the year you have more income from the bonds that needs to be invested.
-What are the fees charged by the agent and by the administrator? Supposedly the insurance company pays the agent a commission.
-Would there be an advantage to laddering, for example, $5000 every 6 months vs. investing $50,000 at one time? I believe $5000 is the minimum investment.
-Wouldn’t it be better to wait for a big correction before getting into one of these? The money I am considering is sitting in a money market fund (outside of an IRA) earning about $50 per year. So even if I got in near the top of the market I wouldn’t miss much income. I might even make out better with the principle invested in bonds.
Thanks in advance for any thoughtful insights you might be able to pass along.
The general idea is you don’t lose money in a down year but make money in the up years.
He said the life of the annuity is 5 to 10 years. At the end you get your principle and any profit out and can invest in another one if you want. There is a penalty for taking your money out early except that you can take up to 10% out during any year with no penalty.
I have an appointment with his advisor next Friday and have thought of a few questions. I was hoping some of you have looked into fixed index annuities or might let me know of other questions to ask. Here is what I have so far.
-What type of bonds do they invest in? It must be individual bonds because bond funds do loose value when interest rates rise. There is always the danger of default of some individual bonds. How can they guarantee that your principle will never lose value if invested in bonds?
-These annuities must have an inception date and a date certain ending date. How do they determine what the date is that they close out their position in the index fund and take a new position? They have to close out the position to “cash out” during up years. I need to know how this works because at the end of the year you have more income from the bonds that needs to be invested.
-What are the fees charged by the agent and by the administrator? Supposedly the insurance company pays the agent a commission.
-Would there be an advantage to laddering, for example, $5000 every 6 months vs. investing $50,000 at one time? I believe $5000 is the minimum investment.
-Wouldn’t it be better to wait for a big correction before getting into one of these? The money I am considering is sitting in a money market fund (outside of an IRA) earning about $50 per year. So even if I got in near the top of the market I wouldn’t miss much income. I might even make out better with the principle invested in bonds.
Thanks in advance for any thoughtful insights you might be able to pass along.
This post was edited on 10/23/14 at 1:03 pm
8
Posted on 10/9/14 at 1:10 pm to PlanoPrivateer
Not a fan of capped returns.
Posted on 10/9/14 at 1:15 pm to PlanoPrivateer
Do. Not. Want.
Could be suitable for some folks, but lots of people buy and regret. Do lots of homework then make informed decision.
Don't let me talk you out of it though. Make your own choice
Could be suitable for some folks, but lots of people buy and regret. Do lots of homework then make informed decision.
Don't let me talk you out of it though. Make your own choice
This post was edited on 10/9/14 at 1:20 pm
Posted on 10/9/14 at 1:33 pm to PlanoPrivateer
Don't buy anything with a bonus. Run away if it has a bonus. There are some interesting possibilities, but it's not one size fits all.
The best FIA's for the client won't return more than 6% over the long haul. The worst will be under 2%.
The best FIA's for the client won't return more than 6% over the long haul. The worst will be under 2%.
Posted on 10/9/14 at 1:36 pm to PlanoPrivateer
quote:
I have an appointment with his advisor next Friday and have thought of a few questions.
Is he truly a advisor, or a salesman pushing fixed index annuities? People selling these things are cropping up everywhere, and weekend talk radio stations are crammed with "infomercials" about them. They may be a good fit for you, but as others have said, do a lot of research.
Posted on 10/9/14 at 2:04 pm to PlanoPrivateer
What company issued your buddy's annuity?
Whats the partipation rate? What's the cap?
Whats the partipation rate? What's the cap?
Posted on 10/9/14 at 2:52 pm to PlanoPrivateer
I don't understand why they call it an annuity. It's really a structured investment. You are generally buying a product, not a stock or bond investment fund. Think of it is a derivative.
The product invests in bonds and pay a rate (or, the product invests in whatever, but your product is paid interest based on a fictional investment). The interest then buys a side investment - in this case a stock index fund (or, again, it may just mimic one). Generally, there is a cap in how much growth you can get in that side investment in a year. The side investment may or may not "lock-in gains" after a period of time - say annually.
The premise, indeed, is that you won't lose any principal, and you may get some of the gains of the market.
They are pitched on WWL a lot. They have a commercial about how they don't lose "one penny" of the investor's principal.
The product invests in bonds and pay a rate (or, the product invests in whatever, but your product is paid interest based on a fictional investment). The interest then buys a side investment - in this case a stock index fund (or, again, it may just mimic one). Generally, there is a cap in how much growth you can get in that side investment in a year. The side investment may or may not "lock-in gains" after a period of time - say annually.
The premise, indeed, is that you won't lose any principal, and you may get some of the gains of the market.
They are pitched on WWL a lot. They have a commercial about how they don't lose "one penny" of the investor's principal.
Posted on 10/9/14 at 4:03 pm to PlanoPrivateer
I have a portion of mine and my wife's retirement fund in some of these, because I do like the idea of "no losses", but I also think that over the long haul, they probably won't make as much as "traditional" investments. I think mine have made about 3-4% over the last couple of years, plus the 10% bonus. I'm in my 30's so I took the bonus knowing that I would have to be in a real bad spot to use that money I had invested.
Posted on 10/23/14 at 1:02 pm to PlanoPrivateer
I’m finally getting around to updating my post about the Fixed Index Annuity I wrote about. Last Friday, I met with the Financial Strategist (title on his business card) that is representing this product.
Summary first. I decided not to invest in it for two major reasons both of which I knew somewhat about before the meeting. One, is the investment is tied up for 6 to 10 years. Two, there is a cap on the most you can make in years that the market is up. The percentage that was presented was 4% to 7%. However, the paperwork I was given to read states, “We may change caps and spreads at the beginning of each contract year.” In my mind I think - lower. Nothing explains how they arrive at the cap figure for each year.
If you want to check out all of the details you can go to their website at www.allianzlife.com. Click on annuities and then Fixed Income Annuities. The plan that was presented to me was the Allianz222 Annuity.
I was not familiar with Allianz. I found out they are one of the largest insurance companies in the world and based in Germany. They are over 100 years old. Two of the companies they own are Pimco and Fireman’s Fund.
Some nice features are your annuity can gain value based on which index you like: S&P 500, Nasdaq 100, Barclays US Dynamic Balance Index, Russell 2000 or a blend of 4 Indexes. You can also choose among three crediting methods: Monthly Sum, Annual Point to Point or Monthly Average. The advisor recommended the Monthly Sum but I didn’t try to calculate which one I would like.
There are too many other details to go into them all including 4 annuity values, bonuses, and how you can access your money. If you want to know about more of the details please go to their website.
Summary first. I decided not to invest in it for two major reasons both of which I knew somewhat about before the meeting. One, is the investment is tied up for 6 to 10 years. Two, there is a cap on the most you can make in years that the market is up. The percentage that was presented was 4% to 7%. However, the paperwork I was given to read states, “We may change caps and spreads at the beginning of each contract year.” In my mind I think - lower. Nothing explains how they arrive at the cap figure for each year.
If you want to check out all of the details you can go to their website at www.allianzlife.com. Click on annuities and then Fixed Income Annuities. The plan that was presented to me was the Allianz222 Annuity.
I was not familiar with Allianz. I found out they are one of the largest insurance companies in the world and based in Germany. They are over 100 years old. Two of the companies they own are Pimco and Fireman’s Fund.
Some nice features are your annuity can gain value based on which index you like: S&P 500, Nasdaq 100, Barclays US Dynamic Balance Index, Russell 2000 or a blend of 4 Indexes. You can also choose among three crediting methods: Monthly Sum, Annual Point to Point or Monthly Average. The advisor recommended the Monthly Sum but I didn’t try to calculate which one I would like.
There are too many other details to go into them all including 4 annuity values, bonuses, and how you can access your money. If you want to know about more of the details please go to their website.
This post was edited on 10/23/14 at 1:04 pm
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