Ben Stein/Variable Annuity
Ben Stein/Variable Annuity
Been looking into Variable Annuities and in research mode right now. I am 46 and have looked into the Vanguard VA, Jackson VA, and Pru VA.
Here is Ben Stein's take.
http://www.youtube.com/watch?v=C6p7op4n ... re=related
P.S. I am not an insurance agent. I just have slightly older friends that own VA's and they love them and they believe it really helped them "stay the course" in 2008/09.
Thoughts????
Here is Ben Stein's take.
http://www.youtube.com/watch?v=C6p7op4n ... re=related
P.S. I am not an insurance agent. I just have slightly older friends that own VA's and they love them and they believe it really helped them "stay the course" in 2008/09.
Thoughts????
Re: Ben Stein/Variable Annuity
Not enough information provided. Use the format in the sticky post and provide all the details requested.
http://www.bogleheads.org/forum/viewtop ... f=1&t=6212
http://www.bogleheads.org/forum/viewtop ... f=1&t=6212
Ignore the market noise. Keep to your rebalancing schedule whether that is semi-annual, annual or trigger bands.
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Re: Ben Stein/Variable Annuity
Wow! I'd forgotten all about Ben Stein. He lost a lot of visibility when the New York Times kicked him out for shilling for the dubious "freescore.com."
My thoughts are, basically, why would one want a variable annuity rather than a single premium immediate annuity (aka income annuity or fixed annuity)? In The Only Guide to Alternative Investments You Will Ever Need, Larry Swedroe and Jared Kizer discuss fixed annuities in the section of the book entitled "good," and variable annuities in the second headed "bad."
Annuitization is a good idea, but getting it in the form of a variable annuity is like saying "water is good for you, so drink Coke because it contains water." Just because you want an annuity doesn't mean you need to get a complicated high-fee package of limited-choice mediocre private-label no-ticker-symbol mutual funds bundled along with it.
My thoughts are, basically, why would one want a variable annuity rather than a single premium immediate annuity (aka income annuity or fixed annuity)? In The Only Guide to Alternative Investments You Will Ever Need, Larry Swedroe and Jared Kizer discuss fixed annuities in the section of the book entitled "good," and variable annuities in the second headed "bad."
Annuitization is a good idea, but getting it in the form of a variable annuity is like saying "water is good for you, so drink Coke because it contains water." Just because you want an annuity doesn't mean you need to get a complicated high-fee package of limited-choice mediocre private-label no-ticker-symbol mutual funds bundled along with it.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
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Re: Ben Stein/Variable Annuity
Perhaps this old thread will open your eyes as to why he likes Variable Annuities:
http://www.bogleheads.org/forum/viewtop ... 817#p68817
http://www.bogleheads.org/forum/viewtop ... 817#p68817
Best Regards - Mel |
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Re: Ben Stein/Variable Annuity
Ben Stein ---> Idiot when it comes to variable annuities.
Variable annuities prey on people who think that they are going to lose all of their money.
Why buy an annuity when interest rates are at historic lows?
Most variable annuities use a 1.5% rate of return to determine monthly benefit.
Variable annuities prey on people who think that they are going to lose all of their money.
Why buy an annuity when interest rates are at historic lows?
Most variable annuities use a 1.5% rate of return to determine monthly benefit.
Cheaper VA than even Vanguard
Biggest problem in the past with Variable Annuities has been the annual cost associated with being in the vehicle and the limited funds to choose from.
There is a relatively new insurance company that is now offering a VA with a flat annual fee.
The company is Jefferson National. The only fee they charge is a flat annual fee of $240.
For VA over $70K, that makes them cheaper than Vanguard.
They have hundreds of funds to choose from, including Vanguard and DFA.
If you already have money in a VA and it is over $70K, then you may want to look at these folks.
There is a relatively new insurance company that is now offering a VA with a flat annual fee.
The company is Jefferson National. The only fee they charge is a flat annual fee of $240.
For VA over $70K, that makes them cheaper than Vanguard.
They have hundreds of funds to choose from, including Vanguard and DFA.
If you already have money in a VA and it is over $70K, then you may want to look at these folks.
Re: Ben Stein/Variable Annuity
interesting thread.Mel Lindauer wrote:Perhaps this old thread will open your eyes as to why he likes Variable Annuities:
http://www.bogleheads.org/forum/viewtop ... 817#p68817
i think someone in the previous thread mentioned that VA's are good product for some folks to 'save themselves'. i would not put myself or other Bogleheads in this category. There are a lot of people though that will not invest in the equity market without some gurantees.
anyway, i am interested in guranteeing a portion of my portfolio for retirement income purposes. i am a little young for this (age 46) but i figure why not take a look at it now. i am in no rush to buy a VA product.
I talked to the Vanguard annuity people last week and I am meeting a friend who is an Advisor and is a big fan of the Jackson product. I am meeting him on Wednesay and I will let you know what he has to say.
thanks
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Re: Ben Stein/Variable Annuity
There's a major difference between a variable annuity and a Single Premium Immediate Annuity which will provide you with retirement income. You're talking about paying higher expenses for a long period of time for the variable annuity, when you could actually pay lower fees until you actually need the retirement income stream. At that time, you can purchase a SPIA for your retirement income. Chances are, you'd have a lot more money to buy that income stream than you'd have by owning a higher-cost variable annuity for 20 or more years.riskonoff wrote:interesting thread.Mel Lindauer wrote:Perhaps this old thread will open your eyes as to why he likes Variable Annuities:
http://www.bogleheads.org/forum/viewtop ... 817#p68817
i think someone in the previous thread mentioned that VA's are good product for some folks to 'save themselves'. i would not put myself or other Bogleheads in this category. There are a lot of people though that will not invest in the equity market without some gurantees.
anyway, i am interested in guranteeing a portion of my portfolio for retirement income purposes. i am a little young for this (age 46) but i figure why not take a look at it now. i am in no rush to buy a VA product.
I talked to the Vanguard annuity people last week and I am meeting a friend who is an Advisor and is a big fan of the Jackson product. I am meeting him on Wednesay and I will let you know what he has to say.
thanks
Here are three columns I did for Forbes on variable annuities and SPIAs that might be of interest:
http://www.forbes.com/2010/06/04/variab ... dauer.html
http://www.forbes.com/2010/06/18/variab ... dauer.html
http://www.forbes.com/2010/07/29/single ... dauer.html
Best Regards - Mel |
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Semper Fi
Re: Ben Stein/Variable Annuity
Annuity is an abused word. It has two completely different meanings.
1) An annuity is an investment vehicle for accumulating wealth that falls under special tax rules.
2) An annuity is a stream of income used mostly by people in retirement to pay their bills.
A 403(b) Tax Sheltered Annuity is of type 1. Note the official title "Tax Sheltered."
Annuities of either type can be either fixed or variable. Type 2 annuities can be for a fixed period, for one life, for two lives, for one live with a guarantee period, etc.
TIAA Traditional is a (mostly) fixed annuity of type 1 before annuitization and of type 2 after annuitization. TIAA calls its type 2 annuities Payout Annuities to distinguish them from the type 1 annuities. CREF Stock is a variable annuity that also comes in both type 1 and type 2. TIAA allows you to accumulate in CREF Stock but annuitize at retirement in TIAA Traditional if you want (mostly) fixed income rather than variable income, but TIAA never forces you to annuitize*; you can take out lump sums, interest only, and RMDs if you wish.
* Certain contracts require TIAA Traditional to be paid in 10 payments over 9 years and one day in a Transfer Payout Annuity. So it is an annuity (a stream of income), but not a life annuity.
1) An annuity is an investment vehicle for accumulating wealth that falls under special tax rules.
2) An annuity is a stream of income used mostly by people in retirement to pay their bills.
A 403(b) Tax Sheltered Annuity is of type 1. Note the official title "Tax Sheltered."
Some people convert their type 1 annuity into a type 2 annuity at some point. Others withdraw the accumulation from the type 1 annuity and never own a type 2 annuity. Other people never have a type 1 annuity, but at retirement purchase a type 2 annuity.A 403(b) tax-sheltered annuity (TSA) plan is a retirement plan, similar to a 401(k) plan, offered by public schools and certain 501(c)(3) tax-exempt organizations. An individual may only obtain a 403(b) annuity under an employer’s TSA plan.
Annuities of either type can be either fixed or variable. Type 2 annuities can be for a fixed period, for one life, for two lives, for one live with a guarantee period, etc.
TIAA Traditional is a (mostly) fixed annuity of type 1 before annuitization and of type 2 after annuitization. TIAA calls its type 2 annuities Payout Annuities to distinguish them from the type 1 annuities. CREF Stock is a variable annuity that also comes in both type 1 and type 2. TIAA allows you to accumulate in CREF Stock but annuitize at retirement in TIAA Traditional if you want (mostly) fixed income rather than variable income, but TIAA never forces you to annuitize*; you can take out lump sums, interest only, and RMDs if you wish.
* Certain contracts require TIAA Traditional to be paid in 10 payments over 9 years and one day in a Transfer Payout Annuity. So it is an annuity (a stream of income), but not a life annuity.
Re: Ben Stein/Variable Annuity
I believe Ben Stein is a paid huckster for the annuity industry , and some other financial products - caveat emptor.
Re: Ben Stein/Variable Annuity
And everything else.KSActuary wrote:Ben Stein ---> Idiot when it comes to variable annuities..
Re: Ben Stein/Variable Annuity
The living benefits are great to have. The problem is that they come at a high cost. Typically, we are talking at least 2% extra in fees a year.riskonoff wrote:Been looking into Variable Annuities and in research mode right now. I am 46 and have looked into the Vanguard VA, Jackson VA, and Pru VA.
Here is Ben Stein's take.
http://www.youtube.com/watch?v=C6p7op4n ... re=related
P.S. I am not an insurance agent. I just have slightly older friends that own VA's and they love them and they believe it really helped them "stay the course" in 2008/09.
Thoughts????
Jim and Bob are both 46. Jim uses a VA and gets a 6% return. Bob does not and at the same level of risk gets a 8% return. They both invested $100,000 and are taking the money at age 70. Bob will have $634,000. Jim will have $404,000. That is lots of upside to give up for the downside protection. Was it worth it to Jim to lose $230,000 of wealth to get the guarantees?
I am the poster formerly known as Oneanddone.
Re: Ben Stein/Variable Annuity
The best to look at a VA is to ask yourself - How much money am I going to get when I annuitize at age 65? Most will pay around 5% per year for the rest of your life. Well, if your life expectancy is 22 years then you are in line to 110% of your age 65 value back over the next 22 years. Not a great payback no matter what they paid you pre-65 to induce you to buy.
I second the Jefferson national product for low fees and good choices.
I second the Jefferson national product for low fees and good choices.
Re: Ben Stein/Variable Annuity
That's no the way to look at it. There is no way to know how much one would get if they annuitize the contract because they don't know what the contract value will be. There may be a guarantee that will tell them what the minimum will be.KSActuary wrote:The best to look at a VA is to ask yourself - How much money am I going to get when I annuitize at age 65? Most will pay around 5% per year for the rest of your life. Well, if your life expectancy is 22 years then you are in line to 110% of your age 65 value back over the next 22 years. Not a great payback no matter what they paid you pre-65 to induce you to buy.
I second the Jefferson national product for low fees and good choices.
I am the poster formerly known as Oneanddone.
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Re: Ben Stein/Variable Annuity
Ben Stein wrote a revealing column at the depths of the 2008-2009 period. It seems to have gone down the memory hole at yahoo.com but it's still at the Australian Yahoo! site:How to Ruin your Morning. As I read it, he underestimated the risks of stocks, overestimated his own risk tolerance. He looks at his last few months' stock transaction receipts, notices that "they're a catastrophe," and wallows in panic, despair, and shoulda-coulda-woulda. Notice that doesn't actually give his asset allocation. He says that he always said investors should have a "huge slice" of bonds, but he doesn't actually say he had a huge slice or how big it was. I do not think his reactions are consistent with his having, say, the 65% in bonds that "age in bonds" would suggest. And notice, too, his unwillingness to admit that he had too much in stocks; he blames himself for having the wrong bonds.
I give him points for frankness, but not for investing wisdom.
I give him points for frankness, but not for investing wisdom.
And, yes, I question his neutrality. He was willing to endorse a dodgy credit score deal, and according to livesoft he had past business connections with a variable annuities association. He is like the Ford dealer who is going to show you why this Ford is a good purchase for you; it has four wheels, it goes fast, it keeps you warm and dry in bad weather, so, if you need these things, buy this Ford.My losses are staggering even in the most plain vanilla index funds. In the emerging markets and developed markets, investments that had once provided immense gains, the losses are worse. Even in my beloved RQI, the high-income, leveraged REIT index fund, the losses are beyond belief.
Instead of just jumping off my balcony, which wouldn't get me more than a broken leg, I am going to try to make some sense of what has happened.
First, although my colleague, Phil DeMuth, and I always wrote in our books that investors should have a huge slice of bonds, two problems happened to me. One, I had too many corporate bonds. Although they did not get hit as hard as stocks, they did not hold up well at all. Second, I should have had a huge dollop of Treasury short-term bonds. If I had held half of my savings in short term Treasuries, I would have lost only half as much.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: Ben Stein/Variable Annuity
Wow. I see VAs everyday that are so under water that no matter what the market return is, they are going to get the guaranteed value.Brody wrote:That's no the way to look at it. There is no way to know how much one would get if they annuitize the contract because they don't know what the contract value will be. There may be a guarantee that will tell them what the minimum will be.KSActuary wrote:The best to look at a VA is to ask yourself - How much money am I going to get when I annuitize at age 65? Most will pay around 5% per year for the rest of your life. Well, if your life expectancy is 22 years then you are in line to 110% of your age 65 value back over the next 22 years. Not a great payback no matter what they paid you pre-65 to induce you to buy.
I second the Jefferson national product for low fees and good choices.
Also, the annuitization rate age 65, or whatever age you choose, is the same no matter what the account value is. Whether you are using the guaranteed account value or some form of daily lock up on the separate accounts, the annuitization at age 65 is always the same. To get the contract value, you must use that annuitization factor.
Insurance companies make money off the spread. They make 6%, they will gladly give you 3.5%. They make 4.5%, they will gladly give you 2%.
VAs are constructed to get your money away from you as fast as possible because you will probably just lose it in the market. How many VAs were sold using the "get aggressive in the account because you can't lose" argument? Wonder why the high fees get calculated off the contract value but come out of the actual account value? They have to wear the account down as fast as possible.
Wonder why Hartford and Lincoln took TARP? Too much VA premium and the contractholders lost their accounts in the down turn. Prudential now requires that they have control of your annuity should a 2008 happen again because they will put you in bonds and other short term securities.
Sure, if you get lucky and the market goes way up and stays there then you may participate in a higher monthly amount. The insurance didn't give that to you, the market did and they got paid handsomely along the way. And, they get the last bite at the apple if choose to annuitize by using low annuitization factors.
VAs are sold for commissions.
Re: Ben Stein/Variable Annuity
i am meeting an Advisor about Jackson on Wednesday and have meeting with another FA who sells a ton of Pru VA in early Feb. Last year, I was invited to a Pru VA presentation at a fancy dining establishment that was put on by Pru. It flew right over my head though. Pru has an algorithim that many are familar with that moves you into 'Bonds' when equities sell off. Worked well in 2008/09 but i imagine they have been getting chopped up the past 2 years. I have heard that Jackson has good fund choices and perhaps allows 100% equities.
My goal is that whenever I retire that I have a guranteed income stream to cover my expenses. It is looking like the SPIA is the route I will take and I won't have to worry about this for 20 years or so. Till then I will take a peak at the VA's with GLWB's......
thanks for your responses
My goal is that whenever I retire that I have a guranteed income stream to cover my expenses. It is looking like the SPIA is the route I will take and I won't have to worry about this for 20 years or so. Till then I will take a peak at the VA's with GLWB's......
thanks for your responses
Re: Ben Stein/Variable Annuity
The Jeff Nat product is a good one. How will the advisor be compensated since it is a no-load product? Probably will need to pay the advisor from another source.
Re: Ben Stein/Variable Annuity
As an advisor, I agree with the advice others here have given you. You are too young to be looking at a VA in general, spend your time learning AA and finding the risk tolerance you are comfortable with earning for the next 20 years. As you approach retirement (3-5 year away timeframe) research what VA's are doing. If the last few years are any indication they will be completely different than what we have to offer right now so there is no point in discussing it. VA's can offer some guarantee's on income growth when you are within a few years of retirement but are getting nervous about another 2008 happening and needing to retire on 50-70% of the assets you had, and I believe they are preferable to exiting the market in that timeframe to prevent a 2008. Also, VA's will never be right for all of your money. I rarely put more than 30-35% of a clients retirement assets into a VA when they are appropriate.
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Re: Ben Stein/Variable Annuity
Actually Ben Stein's book on retiring comfortably advocated 50% VTI and 50% total bond market as the recommended holding for retirees. Maybe he's getting a bad rap here. He sounds like a Boglehead to me.
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Re: Ben Stein/Variable Annuity
Then why did he react the way he did in November, 2008? And that's only 2008, not March, 2009!riskreward wrote:Actually Ben Stein's book on retiring comfortably advocated 50% VTI and 50% total bond market as the recommended holding for retirees. Maybe he's getting a bad rap here. He sounds like a Boglehead to me.
If he'd been 50/50 VTI and Total Bond, then between mid-2007 and November, 2008 he'd have seen a 40% decline in VTI and a 7% gain in Total Bond and he'd have been down about 16%--about 1/6th.
Does a loss of 1/6th of your portfolio merit language like "staggering" and "beyond belief" and "catastrophe" and "jumping off my balcony?"
Where does his "beloved RQI, the high-income, leveraged REIT index fund" fit into 50% VTI, 50% Total Bond?
And what about his bonds? He complains that "I had too many corporate bonds. Although they did not get hit as hard as stocks, they did not hold up well at all. Second, I should have had a huge dollop of Treasury short-term bonds." Well, exqueez me, but what exactly did he have in his bond portfolio, and why?
Why was he fiddling around with "too many" corporate bonds? Why didn't he just settle for the BarCap Aggregate-indexed Total Bond in the first place... if that's really what he is recommending for everyone else? If he'd had dull, plain-Jane Total Bond, this is what he would have been looking at: a 4.15% drop from the start of the year.
Oh, the green line below is his "beloved RQI."
Last edited by nisiprius on Mon Jan 23, 2012 8:57 pm, edited 2 times in total.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: Ben Stein/Variable Annuity
I traded for over 20 years and the old saying was "eat like a bird and #%@& like an elephant"nisiprius wrote:Ben Stein wrote a revealing column at the depths of the 2008-2009 period. It seems to have gone down the memory hole at yahoo.com but it's still at the Australian Yahoo! site:How to Ruin your Morning. As I read it, he underestimated the risks of stocks, overestimated his own risk tolerance. He looks at his last few months' stock transaction receipts, notices that "they're a catastrophe," and wallows in panic, despair, and shoulda-coulda-woulda. Notice that doesn't actually give his asset allocation. He says that he always said investors should have a "huge slice" of bonds, but he doesn't actually say he had a huge slice or how big it was. I do not think his reactions are consistent with his having, say, the 65% in bonds that "age in bonds" would suggest. And notice, too, his unwillingness to admit that he had too much in stocks; he blames himself for having the wrong bonds.
I give him points for frankness, but not for investing wisdom.And, yes, I question his neutrality. He was willing to endorse a dodgy credit score deal, and according to livesoft he had past business connections with a variable annuities association. He is like the Ford dealer who is going to show you why this Ford is a good purchase for you; it has four wheels, it goes fast, it keeps you warm and dry in bad weather, so, if you need these things, buy this Ford.My losses are staggering even in the most plain vanilla index funds. In the emerging markets and developed markets, investments that had once provided immense gains, the losses are worse. Even in my beloved RQI, the high-income, leveraged REIT index fund, the losses are beyond belief.
Instead of just jumping off my balcony, which wouldn't get me more than a broken leg, I am going to try to make some sense of what has happened.
First, although my colleague, Phil DeMuth, and I always wrote in our books that investors should have a huge slice of bonds, two problems happened to me. One, I had too many corporate bonds. Although they did not get hit as hard as stocks, they did not hold up well at all. Second, I should have had a huge dollop of Treasury short-term bonds. If I had held half of my savings in short term Treasuries, I would have lost only half as much.
I think Ben experienced that firsthand. He must have been in a fetal position in Feb/Mar 2009. Looks like he survived though.
Re: Ben Stein/Variable Annuity
If a VA is "so under water", it is a function of when it was purchased. If you know that it will always be under water, you must have a wonderful crystal ball.Wow. I see VAs everyday that are so under water that no matter what the market return is, they are going to get the guaranteed value.
Also, the annuitization rate age 65, or whatever age you choose, is the same no matter what the account value is. Whether you are using the guaranteed account value or some form of daily lock up on the separate accounts, the annuitization at age 65 is always the same. To get the contract value, you must use that annuitization factor.
If one annuitizes, it is only the contract value that gets annuitized. The only exception is if one has a GMIB (not GMAB or GWIB) and the GMIB is higher than the contract value. We know the annuitization factor in advance. We don't know what the dollar figure will be. I have no idea what you meant when you say, "to get the contract value, you must use that annuitization factor." To get the contract value, one must simply ask for the money from the insurance company.
What spread? There is no spread with these products. A fee, like they are charging, is not the same as the spread. In a spread, the insurance company makes something and then they give the client something smaller. A fee with these products is just something that comes right off the top.Insurance companies make money off the spread. They make 6%, they will gladly give you 3.5%. They make 4.5%, they will gladly give you 2%.
Huh? Why would one assume that a person will just lose the money in the market? Again, you must have a great crystal ball.VAs are constructed to get your money away from you as fast as possible because you will probably just lose it in the market.
The contract value and the actual account value are the same thing. I assume that you mean contract value vs. guaranteed (GMIB/GMWB) value. Some fees come out of the contract value (M&E and fund expense ratios). Others come out of the guarantee (GMIB/GMWB). Which will be higher, guarantee value or contract value? It depends upon the market. When one is drawing money out of a GMWB contract, if the contract is underwater, this can definitely accelerate the contract getting to $0. However, that is the last thing that the insurance company wants. It means that the insurance company would be paying out of their own coffers.How many VAs were sold using the "get aggressive in the account because you can't lose" argument? Wonder why the high fees get calculated off the contract value but come out of the actual account value? They have to wear the account down as fast as possible.
Contract holders losing money doesn't hurt the insurance company. Contract holders losing money while the insurance company is guaranteeing the money is what hurts the insurance company. While the insurance company was getting hurt, their clients were not. They were getting paid on the guarantees.Wonder why Hartford and Lincoln took TARP? Too much VA premium and the contractholders lost their accounts in the down turn. Prudential now requires that they have control of your annuity should a 2008 happen again because they will put you in bonds and other short term securities.
Keep in mind that they don't have to annuitize using low annuitization factors. Products with excessively generous GMIB's have low annuitization factors. Other annuities don't necessarily have low annuitization factors. In fact, if someone has an old annuity, there is a very good chance that the annuitization factors in the contract are greater than what is available today. The product used older mortality tables. Also, one doesn't have to use the annuitization factors in the contract when they are annuitizing the contract value.Sure, if you get lucky and the market goes way up and stays there then you may participate in a higher monthly amount. The insurance didn't give that to you, the market did and they got paid handsomely along the way. And, they get the last bite at the apple if choose to annuitize by using low annuitization factors.
Ex. Jim has a contract value of $300,000 in his VA. Based upon the annuitization factors, he can get an income of $1,500/month. There is nothing that stops him from buying a SPIA with the same company or another company. In short, if another company will give him $3000/month, that is what he'll end up getting.
Keep in mind that I'm not pushing these products. I'm primarily against them the way that they are currently structured. I just want people to make an opinion using correct information. Like I originally said, it is impossible to know the amount of future income one will get without knowing the amount of money that they will have.
I am the poster formerly known as Oneanddone.
Re: Ben Stein/Variable Annuity
Please pardon my brashness...but why do we insist on referring to product salesmen as 'advisors'. The pop media does this all the time. I mean, do we refer to car salesmen as 'transportation consultants'?riskonoff wrote: i am meeting an Advisor about Jackson on Wednesday and have meeting with another FA who sells a ton of Pru VA in early Feb.
There really is no such thing as a 'guarantee' when it comes to discretionary retirement income. There are only product promises that are only as good as the product manufacturer, both in terms of the solvency of the producer and the language of the contract.riskonoff wrote:My goal is that whenever I retire that I have a guranteed income stream to cover my expenses. It is looking like the SPIA is the route I will take and I won't have to worry about this for 20 years or so. Till then I will take a peak at the VA's with GLWB's......
thanks for your responses
As much as I don't want to, I think I have to agree with Ben Stein more than I disagree. I've met him a couple of times at an FPA conference, and besides he being a smart guy, I think he has studied the phenomena of retirement income more than most. Similarly, Bill Bernstein who has made his reputation in showing us the importance of index allocations and rebalancing, has also gotten an upclose look at the behavior of new or soon-to-be retirees....and my sense is they are arriving at the same point....that the majority of these now or upcoming retirees haven't a clue about investment management...even the simple stuff...and they will be prime targets for the latest on-line financial pornography of things like yield chasing, penny stocks, limited partnerships, unlisted REITs, etc, etc, where a loss of savings is an almost certainty and where the retiree doesn't have 20 years to recover and learn from their mistakes. For this majority, an annuity is by far the lesser of the evils.
Of course, Ben could have mentioned utilization of Fee-Only advisors who charge by the hour, to coach them on self-managed investments of Vanguard index funds....but then the Association of Annuity Salesmen (or whatever they're called) wouldn't have paid him anything for that.
BruceM
Re: Ben Stein/Variable Annuity
Once VAs get underwater, it becomes difficult to make much headway during a choppy market. I do not have a crystal ball but I can do simple math and know that an annual roll-up of 6% is very difficult to catch when you are saddled down with a 2 - 2.5% load every year. Will we have a material bull market in the future where the actual value of the separate accounts can catch the contract value? As to contract holders losing money and its affects on the insurance company, why did The Hartford take TARP? Why is Prudential now requiring that they have ultimate control over the assets? Because if I buy a VA and lose the money in the market, where are the assets that stand behing the contractual promise? Why did The Hartford lobby the NAIC to extend mortality tables at the time they did?Brody wrote:If a VA is "so under water", it is a function of when it was purchased. If you know that it will always be under water, you must have a wonderful crystal ball.Wow. I see VAs everyday that are so under water that no matter what the market return is, they are going to get the guaranteed value.
Also, the annuitization rate age 65, or whatever age you choose, is the same no matter what the account value is. Whether you are using the guaranteed account value or some form of daily lock up on the separate accounts, the annuitization at age 65 is always the same. To get the contract value, you must use that annuitization factor.
If one annuitizes, it is only the contract value that gets annuitized. The only exception is if one has a GMIB (not GMAB or GWIB) and the GMIB is higher than the contract value. We know the annuitization factor in advance. We don't know what the dollar figure will be. I have no idea what you meant when you say, "to get the contract value, you must use that annuitization factor." To get the contract value, one must simply ask for the money from the insurance company.
What spread? There is no spread with these products. A fee, like they are charging, is not the same as the spread. In a spread, the insurance company makes something and then they give the client something smaller. A fee with these products is just something that comes right off the top.Insurance companies make money off the spread. They make 6%, they will gladly give you 3.5%. They make 4.5%, they will gladly give you 2%.
Huh? Why would one assume that a person will just lose the money in the market? Again, you must have a great crystal ball.VAs are constructed to get your money away from you as fast as possible because you will probably just lose it in the market.
The contract value and the actual account value are the same thing. I assume that you mean contract value vs. guaranteed (GMIB/GMWB) value. Some fees come out of the contract value (M&E and fund expense ratios). Others come out of the guarantee (GMIB/GMWB). Which will be higher, guarantee value or contract value? It depends upon the market. When one is drawing money out of a GMWB contract, if the contract is underwater, this can definitely accelerate the contract getting to $0. However, that is the last thing that the insurance company wants. It means that the insurance company would be paying out of their own coffers.How many VAs were sold using the "get aggressive in the account because you can't lose" argument? Wonder why the high fees get calculated off the contract value but come out of the actual account value? They have to wear the account down as fast as possible.
Contract holders losing money doesn't hurt the insurance company. Contract holders losing money while the insurance company is guaranteeing the money is what hurts the insurance company. While the insurance company was getting hurt, their clients were not. They were getting paid on the guarantees.Wonder why Hartford and Lincoln took TARP? Too much VA premium and the contractholders lost their accounts in the down turn. Prudential now requires that they have control of your annuity should a 2008 happen again because they will put you in bonds and other short term securities.
Keep in mind that they don't have to annuitize using low annuitization factors. Products with excessively generous GMIB's have low annuitization factors. Other annuities don't necessarily have low annuitization factors. In fact, if someone has an old annuity, there is a very good chance that the annuitization factors in the contract are greater than what is available today. The product used older mortality tables. Also, one doesn't have to use the annuitization factors in the contract when they are annuitizing the contract value.Sure, if you get lucky and the market goes way up and stays there then you may participate in a higher monthly amount. The insurance didn't give that to you, the market did and they got paid handsomely along the way. And, they get the last bite at the apple if choose to annuitize by using low annuitization factors.
Ex. Jim has a contract value of $300,000 in his VA. Based upon the annuitization factors, he can get an income of $1,500/month. There is nothing that stops him from buying a SPIA with the same company or another company. In short, if another company will give him $3000/month, that is what he'll end up getting.
Keep in mind that I'm not pushing these products. I'm primarily against them the way that they are currently structured. I just want people to make an opinion using correct information. Like I originally said, it is impossible to know the amount of future income one will get without knowing the amount of money that they will have.
http://www.reuters.com/article/2009/06/ ... YN20090612
"Hartford lost $2.75 billion in 2008, hurt by investment losses and the cost of guarantees it provided to holders of variable annuities."
SPIAs are a much better product to consider when buying longevity security from an insurance company.
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Re: Ben Stein/Variable Annuity
Then why was he talking about jumping off the balcony in November of 2008? Yes, that was a joke, but the tone of that column was no joke.BruceM wrote:[As much as I don't want to, I think I have to agree with Ben Stein more than I disagree. I've met him a couple of times at an FPA conference, and besides he being a smart guy, I think he has studied the phenomena of retirement income more than most.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.
Re: Ben Stein/Variable Annuity
You are making a good point especially assuming that the annuity has a living benefit which has a cost that is based upon the living benefit value and not the contract value.Once VAs get underwater, it becomes difficult to make much headway during a choppy market. I do not have a crystal ball but I can do simple math and know that an annual roll-up of 6% is very difficult to catch when you are saddled down with a 2 - 2.5% load every year. Will we have a material bull market in the future where the actual value of the separate accounts can catch the contract value? As to contract holders losing money and its affects on the insurance company, why did The Hartford take TARP? Why is Prudential now requiring that they have ultimate control over the assets? Because if I buy a VA and lose the money in the market, where are the assets that stand behing the contractual promise? Why did The Hartford lobby the NAIC to extend mortality tables at the time they did?
http://www.reuters.com/article/2009/06/ ... YN20090612
"Hartford lost $2.75 billion in 2008, hurt by investment losses and the cost of guarantees it provided to holders of variable annuities."
SPIAs are a much better product to consider when buying longevity security from an insurance company.
Ex. Jim has a VA. He thinks that his total costs are 2.5%. Part of this cost is a 1% cost for his rider. He invested $100,000, his rider value is now $130,000, but his contract value is $80,000. He was paying $1,000 which was 1% of his contract value of $100,000. He is now paying $1,300 which is 1.625% of his contract value of $80,000. His total costs are now 3.125% and not 2.5%.
SPIAS typically are a better product if one is looking to buy longevity security. However, that isn't always the reason why someone buys a VA. For instance, I used to sell some VAs. I used GMABs. This had nothing to do with longevity.
I am the poster formerly known as Oneanddone.
Re: Ben Stein/Variable Annuity
Ben Stein sometimes gives advice that is in line with Boglehead values. He also sometimes gives advice that is greatly if not diametrically opposed to what most Bogleheads usually believe.
"The name Ben Stein is synonymous with intelligence and money. Teamed with investment advisor and psychologist Phil DeMuth, they examine a century of stock market data to discover a profound and original investment truth: Yes, You Can Time the Market!
The bubble is over. Going forward, investors are going to have to be much more careful about how and when they step into the stock market to make money. An instant investment classic, Yes, You Can Time the Market shows investors simple, readily available measurements to tell them when it's time for stocks, and when it might he time for bonds, real estate, or cash. The book doesn't pretend to tell you when to buy day-by-day for quick trading profits. But it does offer a set of reliable signals for the prudent, long-term investor to get in or stay out of the market for the best long-term rewards. An investor who followed their guidelines would have bought stocks in fifteen out of fifteen of the best long-term years to invest since 1926, while sidestepping the worst fifteen years. Written for the investor who wants to preserve capital and build wealth steadily, Yes, You Can Time the Market is prudent, bedrock advice for the man, woman, or family who can no longer afford to play games with their money."
http://www.yesyoucantimethemarket.com/
Not terribly convincing that this man's advice and analysis can keep you out of market downturns, given his quoted comments and behavior in posts above. I haven't read the book (nor do I intend to), but I would anticipate that it would do little more than convince me that they figured out how to backtest.
"The name Ben Stein is synonymous with intelligence and money. Teamed with investment advisor and psychologist Phil DeMuth, they examine a century of stock market data to discover a profound and original investment truth: Yes, You Can Time the Market!
The bubble is over. Going forward, investors are going to have to be much more careful about how and when they step into the stock market to make money. An instant investment classic, Yes, You Can Time the Market shows investors simple, readily available measurements to tell them when it's time for stocks, and when it might he time for bonds, real estate, or cash. The book doesn't pretend to tell you when to buy day-by-day for quick trading profits. But it does offer a set of reliable signals for the prudent, long-term investor to get in or stay out of the market for the best long-term rewards. An investor who followed their guidelines would have bought stocks in fifteen out of fifteen of the best long-term years to invest since 1926, while sidestepping the worst fifteen years. Written for the investor who wants to preserve capital and build wealth steadily, Yes, You Can Time the Market is prudent, bedrock advice for the man, woman, or family who can no longer afford to play games with their money."
http://www.yesyoucantimethemarket.com/
Not terribly convincing that this man's advice and analysis can keep you out of market downturns, given his quoted comments and behavior in posts above. I haven't read the book (nor do I intend to), but I would anticipate that it would do little more than convince me that they figured out how to backtest.
Retirement investing is a marathon.