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Started By
Message
re: Pros and cons of fixed index annuities.
Posted on 3/24/22 at 6:32 am to TDTOM
Posted on 3/24/22 at 6:32 am to TDTOM
quote:
You don’t need to pay an exorbitant amount of fees in a fixed annuity.
Please explain.
LINK
quote:
It is also critical to understand that you will usually not receive credit for the dividends which are part of the index. For an index like the S&P 500, you can usually expect that the dividends will generate about 2% of the total return. So, if the index’s total return is 14%, the return eligible for consideration in your annuity is probably 12% when you strip out the dividends (14% less 2% in our example). Let’s do the math combing all these concepts. Let’s assume you purchased an FIA using the S&P 500 index with a 90% participation rate and an 8% cap. If the S&P 500 earns 12%, the index will earn 10% because the insurance company strips out the 2% in dividends. Your participation amount would be 9% (90% of the 10% index return), but you would be credited with 8% because of the cap.
That’s a lot of steps, and as you can see there’s a lot that is scalped off the top.
quote:
In this example, the FIA would “cost” you 4% even though you wouldn’t “pay” 4%. You could have earned the full 12%, but instead, the insurance company only credits you with 8% due to stripping out the dividend and applying the participation and cap rates.
1
Posted on 3/24/22 at 6:35 am to meansonny
quote:
DO NOT annuitize
EVER.
AKA, Annui-cide
Posted on 3/24/22 at 7:04 am to Kreg Jennings
Those are not fees. That is the way they work. You give up some of the return for downside protection. The only fees would be those you choose to add with riders.
Posted on 3/24/22 at 4:24 pm to TDTOM
Fees are management fees.
Withdrawal fees.
Surrender charges.
Withdrawal fees.
Surrender charges.
Posted on 3/25/22 at 6:43 am to TDTOM
quote:
Those are not fees. That is the way they work. You give up some of the return for downside protection. The only fees would be those you choose to add with riders.
People who are snake oil type salesman target prospects who do not fully comprehend this and make a truly informed decision and justify charging for these “riders” (sic fees) in exchange for high competation. You can try and justify it much as you want so that you don’t feel so bad selling these products.
Those riders are to fees like inflation is to a new Biden tax.
Posted on 3/25/22 at 6:44 am to TDTOM
quote:
TDTOM
Also, answer me this….do you or have you ever sold a fixed index annuity?
Posted on 3/25/22 at 7:22 am to Kreg Jennings
quote:
People who are snake oil type salesman target prospects who do not fully comprehend this and make a truly informed decision and justify charging for these “riders” (sic fees) in exchange for high competation. You can try and justify it much as you want so that you don’t feel so bad selling these products.
None of this makes you less wrong. Do you consider it a reverse fee if the market goes down 10% but the annuity doesn’t lose value?
This post was edited on 3/25/22 at 8:15 am
Posted on 3/26/22 at 3:42 pm to TDTOM
quote:
Yes, and?
Tells me everything I need to know.
Either you willingly and knowingly screw people out of money, or you’re not a master of your craft, nor bright enough to figure out how a more effective and equitable strategy for your clients.
Posted on 3/27/22 at 3:26 am to Kreg Jennings
Is it considered a fee when you sell a mutual fund with 5% upfront load so the client starts off with 95% of their money?
A FIA starts the client off with 100% of their money.
Yes, 90 % of annuities probably aren’t good but they do fit a niche with clients that just don’t want to lose. I sold a bunch when the market was way up in 2007-2008. All had high s&p caps and protection. All were taking monthly checks from earnings. Guess what, I looked good when market crashed. They averaged 6-7% over 10 years while their friends lost big time and they had to take out monthly checks while being down 50% to further hurt the situation. I can hug them when I see them at church or Walmart knowing they have 100% of their money and not a slave to the markets.
It’s not for everyone so quit acting like it is.
A FIA starts the client off with 100% of their money.
Yes, 90 % of annuities probably aren’t good but they do fit a niche with clients that just don’t want to lose. I sold a bunch when the market was way up in 2007-2008. All had high s&p caps and protection. All were taking monthly checks from earnings. Guess what, I looked good when market crashed. They averaged 6-7% over 10 years while their friends lost big time and they had to take out monthly checks while being down 50% to further hurt the situation. I can hug them when I see them at church or Walmart knowing they have 100% of their money and not a slave to the markets.
It’s not for everyone so quit acting like it is.
Posted on 3/27/22 at 9:34 am to Jaspermac
quote:
A FIA starts the client off with 100% of their money.
Ummm. Surrender charges? It isnt your money if you cant get it when you want it without substantial penalty.
Edit to add: what is a year 1 surrender charge with highest cap rate? 10%?
This post was edited on 3/27/22 at 11:04 am
Posted on 3/28/22 at 5:22 am to meansonny
If they will need more than the 10% penalty free amount each year, the annuity is not for them.
They can get at least 100% of the account for healthcare or at death. That’s when you may need a lot of money. You don’t surrender an annuity to buy a boat.
10% surrender charges may be correct for a 10 year account.
They can get at least 100% of the account for healthcare or at death. That’s when you may need a lot of money. You don’t surrender an annuity to buy a boat.
10% surrender charges may be correct for a 10 year account.
Posted on 3/28/22 at 7:38 am to Jaspermac
quote:
If they will need more than the 10% penalty free amount each year, the annuity is not for them.
They can get at least 100% of the account for healthcare or at death. That’s when you may need a lot of money. You don’t surrender an annuity to buy a boat.
10% surrender charges may be correct for a 10 year account.
You're not wrong.
But dont complain about front load charges comparative to an annuity and act like the annuity isnt worse.
And the surrender charge business is exactly why an annuity is wrong for almost everyone. If your "access to funds" window is 5 to 7+ years, i dont agree with capping your returns for downside protection. Downside protection is responsible for that 5 and under window, and exactly why annuities are awful solutions to real scenarios.
Posted on 3/28/22 at 7:56 pm to meansonny
Where we disagree- when I think it is best for someone to buy annuity is when they say these words “ I don’t want to lose any money” my next question is “when will you need this money” then they say “it has been in the bank for the last 20 years and not making a dime”.
This is not their market money. I forget the stat but the average cd at a bank is around 10-12 years. This is usually 1 year cds that are renewed each year. All I am doing is beating cd rates while keeping the money 100% safe. If the surrender it at year 6, guess what, they still made money when compared to the BANK, not a mutual fund.
This is not their market money. I forget the stat but the average cd at a bank is around 10-12 years. This is usually 1 year cds that are renewed each year. All I am doing is beating cd rates while keeping the money 100% safe. If the surrender it at year 6, guess what, they still made money when compared to the BANK, not a mutual fund.
Posted on 3/28/22 at 8:43 pm to meansonny
quote:
Downside protection is responsible for that 5 and under window, and exactly why annuities are awful solutions to real scenarios.
I don’t disagree, but a lot of retail does not and will not understand this. I know stocks are great long term investments, but if I have a client that can’t stomach the volatility even after attempts to educate them, we have to adjust the plan. A plan you can’t follow is a recipe for disaster regardless of the factual math behind it.
Posted on 3/28/22 at 10:22 pm to Jaspermac
Congrats on beating CD rates. Great flex.
I understand. You are selling what they ask for. Sleep well on your pillow stuffed with cash.
Just make sure they understand how it works and how much they will still be charged to access funds in year 6 (ive seen withdrawal fees at almost $1k. No. That is not a surrender charge. It is a fee that someone had to pay to access their own funds within the index annuity).
I understand. You are selling what they ask for. Sleep well on your pillow stuffed with cash.
Just make sure they understand how it works and how much they will still be charged to access funds in year 6 (ive seen withdrawal fees at almost $1k. No. That is not a surrender charge. It is a fee that someone had to pay to access their own funds within the index annuity).
Posted on 3/28/22 at 10:42 pm to meansonny
An annuity should never be used for a client that has liquidity needs. You even mentioning that shows that you have a lot to learn. FIA is a solution for a real need/problem/want that exists. It might not be for you but it is a great product for some people. It should be way down the list in planning tools.
You seem to think all people are the same mindset, same place in their life, same amount of liquidity needs, and all fit some neat little profile for a cookie cutter profile for your model portfolios built on ETFs.
You seem to think all people are the same mindset, same place in their life, same amount of liquidity needs, and all fit some neat little profile for a cookie cutter profile for your model portfolios built on ETFs.
Posted on 3/28/22 at 11:12 pm to Abstract Queso Dip
quote:
FIA is a solution for a real need/problem/want that exists
Feel free to share.
So far, we have established that annuities are good for people who have CDs and need access to funds after 60 months (surrender charges are bad) but before 84 months.
Posted on 3/29/22 at 6:29 am to meansonny
quote:
You are selling what they ask for. Sleep well on your pillow stuffed with cash
0.60% per year on an 8 year account? It’s not for the money.
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