Is this annuity really as bad as I think it is? (Symetra Select 7)

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arcion
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Joined: Mon Dec 05, 2016 11:08 pm

Is this annuity really as bad as I think it is? (Symetra Select 7)

Post by arcion » Thu Apr 19, 2018 1:19 am

The in laws got laid off last year and quietly (didn't want to be a bother) rolled their 401ks over to Chase's Symetra Select 7 Annuity. Both are blue collar workers (company went overseas) who had worked about 30 years in CA @ about $15-20 an hour.

Age: 64/64

Purchased Payment (principal): $100,000
Effective base interest rate: 2.750% guaranteed for 7 years, minimum of 1% thereafter.
Guaranteed Minimum Value: Upon annuitization, death of the owner or a total surrender of the contract, the mimimum value that will be applied toward regular payments or paid to a beneficiary or contract owner is 90% of the Purchase Payments accumulated at the nonforfeiture rate each year, less prior withdrawals accumulated at the nonforfeiture rate each year.

Surrender Charge: 8%,8%,7%,7%,6%,5%,4% of amount withdrawn during first seven years; no charge thereafter. Up to 10% of the contract value can be withdrawn each year without a surrender charge.

While I really dislike annuities because I don't feel like I actually own anything, and it seems like a bet more than an investment. The cost per $1 of annunity payment at age 65, for example, is $222. Doing the math, the current contract value of $102,750 would get my FIL $463 a month for life. He would have to live 18.5 years just to get that $102,750 back, getting only $5,554 a year in annuity payment. To me, that sounds like, betting that he will live past age 84 - not such a great bet considering that he's been smoking since he was 14. And, even if he did live past 84, he'd only be "winning" by $5,554 per year.

On top of that, it sure sounds like that if he dies after he annuitizes and begins the income phase, his beneficiary would only get 90% of the money he's actually put in - doesn't look like that beneficiary would get any of the "interest" compounded, either. So if he annuitized next year at age 65, and died right away, his wife would get only $90,000 after having "invested" $100,000 for three years. Then (I assume), she'd get hit with taxes on that payout.

Am I misunderstanding any of this? And if I'm not, what might I suggest to them? Their income right now is very low - less than a thousand dollars a month combined. At least, they own their house, have no debt whatsoever, and are able to live within their comfort zone even on that small income stream.

smitcat
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Re: Is this annuity really as bad as I think it is? (Symetra Select 7)

Post by smitcat » Thu Apr 19, 2018 8:09 am

arcion wrote:
Thu Apr 19, 2018 1:19 am
The in laws got laid off last year and quietly (didn't want to be a bother) rolled their 401ks over to Chase's Symetra Select 7 Annuity. Both are blue collar workers (company went overseas) who had worked about 30 years in CA @ about $15-20 an hour.

Age: 64/64

Purchased Payment (principal): $100,000
Effective base interest rate: 2.750% guaranteed for 7 years, minimum of 1% thereafter.
Guaranteed Minimum Value: Upon annuitization, death of the owner or a total surrender of the contract, the mimimum value that will be applied toward regular payments or paid to a beneficiary or contract owner is 90% of the Purchase Payments accumulated at the nonforfeiture rate each year, less prior withdrawals accumulated at the nonforfeiture rate each year.

Surrender Charge: 8%,8%,7%,7%,6%,5%,4% of amount withdrawn during first seven years; no charge thereafter. Up to 10% of the contract value can be withdrawn each year without a surrender charge.

While I really dislike annuities because I don't feel like I actually own anything, and it seems like a bet more than an investment. The cost per $1 of annunity payment at age 65, for example, is $222. Doing the math, the current contract value of $102,750 would get my FIL $463 a month for life. He would have to live 18.5 years just to get that $102,750 back, getting only $5,554 a year in annuity payment. To me, that sounds like, betting that he will live past age 84 - not such a great bet considering that he's been smoking since he was 14. And, even if he did live past 84, he'd only be "winning" by $5,554 per year.

On top of that, it sure sounds like that if he dies after he annuitizes and begins the income phase, his beneficiary would only get 90% of the money he's actually put in - doesn't look like that beneficiary would get any of the "interest" compounded, either. So if he annuitized next year at age 65, and died right away, his wife would get only $90,000 after having "invested" $100,000 for three years. Then (I assume), she'd get hit with taxes on that payout.

Am I misunderstanding any of this? And if I'm not, what might I suggest to them? Their income right now is very low - less than a thousand dollars a month combined. At least, they own their house, have no debt whatsoever, and are able to live within their comfort zone even on that small income stream.
I feel you pain.
In all fairness you are attempting to summarize a very complex document that is set up to be confusing. If you are anything like we were reviewing our annuity you likely have descibed this a bit wrong - just saying that out front.
With that said - yes it sounds like he would have to live 18.5 years to get the initial $102K back. Additionally that $5554/yr is not adjusted for inlfation and the $102K initial would be getting some income even in a CD, TIPS or the like.
Since the funds originated in a 401K and they have lower income now they could have rolled those funds into a Roth which may or may not have helped with taxes when they both recieve SS.
One thing to look for in the wording for beneficiary - make sure it does not say that the survivor will get 90% of the remaining unpaid funds rather than 90% of the initial funds - makes a big difference over time.
No matter what you do it is going to take you quite some time to completely decipher this document in total and that is what is needed.

bsteiner
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Location: NYC/NJ/FL

Re: Is this annuity really as bad as I think it is? (Symetra Select 7)

Post by bsteiner » Thu Apr 19, 2018 9:09 am

In one sense it's worse than it sounds because all of the investment income and gains will be ordinary income.

In another sense it's not as bad as it sounds since they can cash it in now and get about 92% of their money back.

airborne
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Re: Is this annuity really as bad as I think it is? (Symetra Select 7)

Post by airborne » Thu Apr 19, 2018 1:42 pm

I worked in the annuities division at Symetra's Bellevue HQ years ago. From what I saw on the inside, I've always advised family and friends to not give Symetra a dime of their money.

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FiveK
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Re: Is this annuity really as bad as I think it is? (Symetra Select 7)

Post by FiveK » Thu Apr 19, 2018 1:59 pm

bsteiner wrote:
Thu Apr 19, 2018 9:09 am
In another sense it's not as bad as it sounds since they can cash it in now and get about 92% of their money back.
arcion, this point is well worth considering. Sure, nobody likes to admit a mistake, but that attitude can be costly.

E.g., if the money were invested in something return 5%/yr instead of 2.75%, it would take less than 4 years for a $92K investment at 5% to surpass the $100K at 2.75%. No guarantees, but....

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sergeant
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Re: Is this annuity really as bad as I think it is? (Symetra Select 7)

Post by sergeant » Thu Apr 19, 2018 9:47 pm

What might you suggest to them? How about nothing! They are comfortable on their current income and don't seem to be asking for your assistance.
Lincoln 3 EOW!

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Nestegg_User
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Joined: Wed Aug 05, 2009 1:26 pm

Re: Is this annuity really as bad as I think it is? (Symetra Select 7)

Post by Nestegg_User » Thu Apr 19, 2018 10:52 pm

Sorry Sarge

but that’s a bit like saying to the plebes that start their “investing” with First Command ...
when they can do SO MUCH BETTER elsewhere, like Vanguard, Schwab, or Fido....

viewtopic.php?t=200425


[immediateannuities gives $525/mo for life for single, and $451/mo for joint life for the same (64/64; 100000, CA) so if it’s a true “joint life” contract it would be better with a $463/mo payout, but if it’s a single life with cash refund then it’s below the value of $488/mo by immediateannuities (which it appears to be)]

however, to your point: if the money isn’t needed right then, and they really didn’t ask, the difference isn’t earth shattering. (what the OP might do, especially if the OP’s in-laws didn’t ask and when the difference might not make that much actual difference in their living standard, may be “nothing” except planning for any eventuality of their future support, if feasible. Whether they should have bought one in the first place, if the health conditions were as described, is on them (especially since it was fairly “early” with little mortality credits at age 64)

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