AXA index-linked deferred variable annuity

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Bhbop1209
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AXA index-linked deferred variable annuity

Postby Bhbop1209 » Mon Apr 17, 2017 4:53 pm

I am 58 years old and am investigating a deferred, variable annuity linked to index like S&P500. Does anyone believe this could be an appropriate investment to reduce risk of significant loss due to market meltdown, etc? I am just curious if anyone on this forum would say "yes" or even "maybe"? Thanks!

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FiveK
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Re: AXA index-linked deferred variable annuity

Postby FiveK » Mon Apr 17, 2017 6:34 pm

No, not even maybe.

It may be "linked to" the S&P 500 or similar index, but likely in such a way that you get minimal returns even in a year such as 2013 when the S&P 500 increased >30%. In years with a smaller index increase, e.g. 2016's ~10%, you may even get 0% increase.

Sure, the account balance doesn't decrease in a year when the index drops, but that historically doesn't compensate for the gains you forsake in good years.

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Mel Lindauer
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Re: AXA index-linked deferred variable annuity

Postby Mel Lindauer » Mon Apr 17, 2017 6:42 pm

Here's a Forbes column I did some time ago on these (IMO) horrible things:

https://www.forbes.com/2010/08/10/truth ... dauer.html
Best Regards - Mel | | Semper Fi

DetroitRick
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Re: AXA index-linked deferred variable annuity

Postby DetroitRick » Tue Apr 18, 2017 8:51 am

I would never consider one, but my circumstances could be different from yours. But before acting, make sure you first understand the significant cost that the underlying guarantee entails.

Mel's article is superb, do make sure to read it. Then if you still have any inclination to purchase one of these, go online and grab the exact prospectus for the annuity that is being pitched. AXA's website (us.axa.com) will allow you to download the specific prospectus for this annuity. That prospectus will be long, tedious and very obtuse. But it will allow you to exactly pinpoint the costs of the product and the way in which income is earned from benchmark performance. Also look at exit costs, often contingent deferred sales charges, a % of contract value for a certain number of years. At that point of understanding, there won't be many people left who will still like this type of annuity product. Unfortunately, most prospective buyers will buy on faith and promises and never research this far.

I just got pitched a similar product last week at Prudential (I had to speak with them on another issue, and I guess they thought they found a mark). Similar product, but not index-linked (based on a single fixed income "fund" instead). The exact pitch was centered around the guaranteed income aspect and avoiding market volatility. The underlying prospectus was a jam-packed 88 pages and ongoing fees topped 3% per year (which is actually better than most, but still....). Plus, but a large contingent deferred sales charge for the first 7 years. They stressed a guaranteed 5% return (from bond investments, mainly investment-grade corps, ha-ha), but this was actually a guarantee of 5% including both actual return and a reduction of contract value itself. Not a guarantee of real return as was slickly suggested. It was actually a guarantee of the contract quickly becoming worth less than the original purchase value :oops: .

If guaranteed income is a big issue, also look at single premium immediate annuities (see lots of threads here on them). Don't be in a rush, get quotes from different companies, research all alternatives carefully. My several encounters with AXA reps have not been very positive. Good luck in working through this decision.

aristotelian
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Re: AXA index-linked deferred variable annuity

Postby aristotelian » Tue Apr 18, 2017 9:11 am

My IPS states that I am not allowed to invest in a complicated instrument that I do not fully understand. So, no.

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BL
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Re: AXA index-linked deferred variable annuity

Postby BL » Tue Apr 18, 2017 9:46 am

No!

FINRA, a watchdog, has this pdf which may be helpful:
https://www.finra.org/file/alert-equity-indexed-annuities-complex-choice


Check out immediateAnnuities.com for ideas on SPIAs and perhaps deferred SP deferred annuities. Don't consider anything else. These are much simpler to understand and compare between companies. They don't make the huge profits (that you pay for!) found in index variable annuities (which used to have a different name but they changed it when it got too much bad publicity, IIRC). Vanguard seems to have some lower-cost annuities, but they are still more expensive than investing directly into stocks and bonds.

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Raymond
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Re: AXA index-linked deferred variable annuity

Postby Raymond » Tue Apr 18, 2017 10:00 am

If you want to reduce the risk of market meltdown, that's what the bond portion of your portfolio is for.

After all, that's what the insurance company is doing anyway - throwing you a bone if everything goes bad, but keeping the meat if everything goes well.

And charging you fees on top of everything, otherwise how would they pay for all those huge office buildings downtown? :P
"Ritter, Tod und Teufel"

Grt2bOutdoors
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Re: AXA index-linked deferred variable annuity

Postby Grt2bOutdoors » Tue Apr 18, 2017 10:10 am

No, not even close!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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David Jay
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Re: AXA index-linked deferred variable annuity

Postby David Jay » Tue Apr 18, 2017 12:44 pm

Bhbop1209 wrote:...to reduce risk of significant loss due to market meltdown, etc?


A 30/70 (30% stocks, 70% bonds) portfolio would be a good way to reduce the risk of significant loss during a market meltdown (it would have only had about a 12% drop in the "meltdown" of the 2008 financial crisis).
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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David Jay
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Re: AXA index-linked deferred variable annuity

Postby David Jay » Thu Apr 20, 2017 11:38 am

Bhbop1209 wrote:I am 58 years old and am investigating a deferred, variable annuity linked to index like S&P500.


I see you have not returned to this thread (or made a second post on BH as of today), but if you do read this, here are some specifics that you need to investigate:
1. Get a copy of the prospectus.
2. Find all the fees in the prospectus (usually towards the back of the 90+ pages). This will be about 2.5% to 3% when you include the investment ER
3. Find the participation rate, typically 90%
4. Find the monthly cap on index growth, such that if the index goes up 5% in one month you only get, say, 1% or 1.5%
5. Understand that the SP500 index is not the same as the SP500 total return (the index value does not include a nominal 2% annual dividend)

And finally, here is a quote from the very knowledgeable Jane Bryant Quinn: "...you shouldn't buy anything too complex to explain to the average 12-year old"
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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FiveK
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Re: AXA index-linked deferred variable annuity

Postby FiveK » Thu Apr 20, 2017 1:49 pm

David Jay wrote:3. Find the participation rate, typically 90%
And take note of the minimum allowed values for this and the other numbers. E.g., I've seen some of these annuities that started with a 100% participation rate but dropped it to 30% in some subsequent years.

itstoomuch
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Re: AXA index-linked deferred variable annuity

Postby itstoomuch » Thu Apr 20, 2017 3:55 pm

OP,
We did protect a good portion of retirement assets beginning in Nov 2008, after seeing -40% in balanced funds. See notes below.
We may not see all of a Market rise but definitely won't see any Market falls. The annuities, rental, SS, and small pension is for Income not for investments. The Discretionary accts are for Risk Investments, currently 85% cash.
Ymmv
4 buckets: SS+pension;dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rental. Do OK any 2 bkts. LTCi. Own, not asset. Tax 25%. Early SS. FundingRatio (FR) >1.1 Age 67/70

Bhbop1209
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Re: AXA index-linked deferred variable annuity

Postby Bhbop1209 » Thu Apr 27, 2017 8:03 pm

I just got back to read my responses again tonight. Thanks very much to all who replied. I appreciate your inputs. I have not gone down the deferred variable annuity path yet and I am even more reluctant to do so now. Thanks for your advice Bogleheads!


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