forced annuity changes-is it legal

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forced annuity changes-is it legal

Postby gerrym51 » Sun Jul 14, 2013 8:28 am

in new york times today


http://www.nytimes.com/2013/07/13/your- ... rechp&_r=0



changes to annuities to CURRENT holders-not just future buyers
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Re: forced annuity changes-is it legal

Postby billyt » Sun Jul 14, 2013 8:47 am

The article says that these changes are legal. The contracts are to complicated for most people to understand.
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Re: forced annuity changes-is it legal

Postby Oicuryy » Sun Jul 14, 2013 9:27 am

It is right there in the prospectus. Here is the language from Vanguard's GLWB.

A designated investment may be un-designated at any time. If a designated investment is un-designated, then a Contract owner will be given the option to reallocate the value in the un-designated investment to a designated investment. Any amount not so reallocated will be treated as a withdrawal under this rider.

Is that really too complicated to understand?

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Re: forced annuity changes-is it legal

Postby afan » Sun Jul 14, 2013 11:02 am

It is apparent that many people did not understand the annuities they purchased. Certainly the insurance companies did not highlight the ability to make such changes when the annuities were sold.

I am not at the stage where annuities would be of interest to me, but I have long wondered at their appeal. Fundamentally you are trading your cash for a promise that the company will pay you in the future. They make promises, but it is hardly unknown for the companies to get in financial trouble and be unable to meet these commitments. I had not investigated, and had not realized, that the companies could change the promises at will, but it makes the programs themselves that much less appealing.

I suppose the reason the annuities look so good on a promised return basis is that the companies know they do not have to keep those promises. So they pitch high returns to get customers, then change them if it becomes inconvenient to do what they said they would.

A bond is also a promise to make a series of payments, but people are far more likely to diversify their bond portfolios, or use funds, and some bonds are not subject to such games- Treasuries. The problem here is that the annuities have been sold to many elderly who are far past the point of being able to return to the work force if their retirement incomes drop. So they are stuck. Many may have believed that their "guaranteed" returns were really guaranteed, and have long since lost whatever ability they may once have had to follow the complexities of the contracts.

Is this another case where the next generation will avoid these like the plague, having seen what was done to our parents?
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Re: forced annuity changes-is it legal

Postby nedsaid » Sun Jul 14, 2013 11:08 am

It is all in the fine print. It is like the old Groucho Marx joke that the fine print in the insurance says that you are not covered unless you are run over by a herd of wild elephants at three in the morning.

This is why insurance companies annoy me to no end. Their products are very complex and hard to understand. So why invest in these?
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Re: forced annuity changes-is it legal

Postby Boglenaut » Sun Jul 14, 2013 12:03 pm

This sure does make me want to go out and buy an annuity.

Seriously, if it cannot do what it is sold to do, why would I buy one?
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Re: forced annuity changes-is it legal

Postby Oicuryy » Sun Jul 14, 2013 12:20 pm

afan wrote:I had not investigated, and had not realized, that the companies could change the promises at will, but it makes the programs themselves that much less appealing.

Let's be clear. None of the insurance companies in that NYT article changed any of the promises they made.

AXA never promised not to offer to buy back the contract. Hartford never promised not to change investment options. Prudential never promised to always accept additional premium payments.

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Re: forced annuity changes-is it legal

Postby dhodson » Sun Jul 14, 2013 1:25 pm

Oicuryy wrote:It is right there in the prospectus. Here is the language from Vanguard's GLWB.

A designated investment may be un-designated at any time. If a designated investment is un-designated, then a Contract owner will be given the option to reallocate the value in the un-designated investment to a designated investment. Any amount not so reallocated will be treated as a withdrawal under this rider.

Is that really too complicated to understand?

Ron



Well many of the middle people producers are surprised by these sort of changes (which have been discussed here before). If those people who deal with these contracts every day are taken off guard, what chance does an individual have at ferreting these issues out decades before they occur. Pretty much none. Some people like to pretend that insurance companies take on the investment risk with these products but that just isn't the case.
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Re: forced annuity changes-is it legal

Postby 555 » Sun Jul 14, 2013 3:14 pm

I don't understand why anyone buys variable annuities.

Just buy a fixed annuity for some guaranteed income, and keep your stocks separate.
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Re: forced annuity changes-is it legal

Postby Phineas J. Whoopee » Sun Jul 14, 2013 3:20 pm

GLWB =|= SPIA.
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Re: forced annuity changes-is it legal

Postby ndchamp » Mon Jul 15, 2013 9:04 am

afan wrote:. Fundamentally you are trading your cash for a promise that the company will pay you in the future. They make promises, but it is hardly unknown for the companies to get in financial trouble and be unable to meet these commitments.


Has any Annuity owner has ever lost their money from an insurance company failure?
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Re: forced annuity changes-is it legal

Postby dhodson » Mon Jul 15, 2013 10:05 am

yes

it isnt common but yes

a while back someone linked a site about the state insurance guaranty assoc and what has happened in the past when they had to step in. The bottom line was that for annuities the client was made whole 94% of the time and 96% for insurance. Those who werent always made whole were above the guaranty assoc limits which are typically 100k of cash value and 300k of death benefit but varies from state to state.
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Re: forced annuity changes-is it legal

Postby Dulocracy » Mon Jul 15, 2013 10:10 am

Thanks for the article. While I may "build my own" annuity, I do not plan on purchasing one.
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.
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Re: forced annuity changes-is it legal

Postby 555 » Mon Jul 15, 2013 2:21 pm

Dulocracy wrote:Thanks for the article. While I may "build my own" annuity, I do not plan on purchasing one.


How do you build your own annuity?
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Re: forced annuity changes-is it legal

Postby ndchamp » Mon Jul 15, 2013 3:06 pm

555 wrote:
Dulocracy wrote:Thanks for the article. While I may "build my own" annuity, I do not plan on purchasing one.


How do you build your own annuity?


http://wpfau.blogspot.com/2012/09/an-efficient-frontier-for-retirement.html
or
http://www.financial-planning.com/fp_issues/2011_4/diy-annuity-2672150-1.html?zkPrintable=true

or from a previous BH thread;

http://www.bogleheads.org/forum/viewtopic.php?t=73319&mrr=1303600130
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Re: forced annuity changes-is it legal

Postby Dulocracy » Mon Jul 15, 2013 4:25 pm

ndchamp wrote:
555 wrote:
Dulocracy wrote:Thanks for the article. While I may "build my own" annuity, I do not plan on purchasing one.


How do you build your own annuity?


http://wpfau.blogspot.com/2012/09/an-efficient-frontier-for-retirement.html
or
http://www.financial-planning.com/fp_issues/2011_4/diy-annuity-2672150-1.html?zkPrintable=true

or from a previous BH thread;

http://www.bogleheads.org/forum/viewtopic.php?t=73319&mrr=1303600130


Yup. Thanks ndchamp!
I'm not a financial professional. Post is info only & not legal advice. No attorney-client relationship exists with reader. Scrutinize my ideas as if you spoke with a guy at a bar. I may be wrong.
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Re: forced annuity changes-is it legal

Postby magellan » Mon Jul 15, 2013 11:52 pm

ndchamp wrote:
afan wrote:. Fundamentally you are trading your cash for a promise that the company will pay you in the future. They make promises, but it is hardly unknown for the companies to get in financial trouble and be unable to meet these commitments.


Has any Annuity owner has ever lost their money from an insurance company failure?

According to congressional testimony at the time, if the government didn't bail out AIG, many state guaranty associations would have gone bankrupt and annuitants would have faced massive losses.

IMO, the design of the guaranty system is fine for one-off badly managed small firms, but in the case of any serious systemic problem in the industry, it's basically guaranteed to fail. The key point is that there's no government entity providing any financial guarantee at all.

Jim
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Re: forced annuity changes-is it legal

Postby 555 » Tue Jul 16, 2013 1:13 am

ndchamp wrote:
555 wrote:
Dulocracy wrote:Thanks for the article. While I may "build my own" annuity, I do not plan on purchasing one.


How do you build your own annuity?


http://wpfau.blogspot.com/2012/09/an-efficient-frontier-for-retirement.html
or
http://www.financial-planning.com/fp_issues/2011_4/diy-annuity-2672150-1.html?zkPrintable=true

or from a previous BH thread;

http://www.bogleheads.org/forum/viewtopic.php?t=73319&mrr=1303600130


Okay, let me rephrase the question. How do you build your own longevity insurance without using an annuity that provides guaranteed income for life (as opposed to other types of annuities)?
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Re: forced annuity changes-is it legal

Postby dhodson » Tue Jul 16, 2013 9:45 am

while im no fan of most annuities, you cant actually individually create your own lifetime annuity with guaranteed income. What you can create is a situation where the odds are low that you will run out of money usually using very conservative investments in a ladder fashion. Some people like to call it an annuity. Some people get offended by calling it an annuity. Depends on your definition of an annuity. In todays low interest rate environement, i think these DIY approaches have more appeal bc you dont lock yourself into the current SPIA rates. Ill personally consider a SPIA later in life like age 70 or 80.
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