Allianz 222 annuity to counter sequence risk?

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Sillyivan
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Allianz 222 annuity to counter sequence risk?

Post by Sillyivan » Mon Sep 10, 2018 5:01 pm

Our accountant has recommended investing approx 20% of our portfolio in an annuity in an effort to preserve capitol. I've never been a fan of annuities and a cursory Googling reveals many share this opinion. My wife and I will be taking our pensions in the next couple years - and should more than be able to cover expenses without tapping our IRAs until 70 1/2 (and/or as long as we can avoid it) So... curious what Boglehead-ers think - and are there simple alternative investments ie., bond/stock funds or TBills that will offer protection of our principal?

Thanks for any insight.

S

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David Jay
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Re: Allianz 222 annuity to counter sequence risk?

Post by David Jay » Mon Sep 10, 2018 6:20 pm

Welcome to the forum.

Yes, there are many ways to preserve capital besides giving it to an insurance company. I am a little bit surprised that this came from your accountant. Most accountants do not make specific financial product recommendations. I would ask him who is receiving the commission on the sale.

The primary “control knob” for risk-versus-reward is your Asset Allocation. Putting more in bonds makes your portfolio more stable and putting more in stocks increases the growth.
Last edited by David Jay on Mon Sep 10, 2018 6:35 pm, edited 1 time in total.
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: Allianz 222 annuity to counter sequence risk?

Post by David Jay » Mon Sep 10, 2018 6:27 pm

Please tell me he wasn’t recommending that you do this with IRA funds...
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

Nate79
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Re: Allianz 222 annuity to counter sequence risk?

Post by Nate79 » Mon Sep 10, 2018 6:37 pm

A fixed indexed annuity? Is this accountant also a salesman?

What a nasty product.

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David Jay
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Re: Allianz 222 annuity to counter sequence risk?

Post by David Jay » Mon Sep 10, 2018 6:45 pm

Nate79 wrote:
Mon Sep 10, 2018 6:37 pm
A fixed indexed annuity? Is this accountant also a salesman?

What a nasty product.
I looked it up, it also has a 10 year withdrawal penalty.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

Nate79
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Re: Allianz 222 annuity to counter sequence risk?

Post by Nate79 » Mon Sep 10, 2018 6:48 pm

David Jay wrote:
Mon Sep 10, 2018 6:45 pm
Nate79 wrote:
Mon Sep 10, 2018 6:37 pm
A fixed indexed annuity? Is this accountant also a salesman?

What a nasty product.
I looked it up, it also has a 10 year withdrawal penalty.
Basically bond like returns that is almost illiquid due to the horrible withdrawal penalty schedule.

Grt2bOutdoors
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Re: Allianz 222 annuity to counter sequence risk?

Post by Grt2bOutdoors » Mon Sep 10, 2018 7:14 pm

Want to do the same thing an insurance company does but with lower fees? Let’s say the principal is worth 10k today. Purchase a 10 year zero coupon bond that will be worth $10k in 10 years. Take the difference left over and purchase the S&P 500 or Total Stock Market Index. In 10 years, if the stock index went down by 50% in value, you’d still have 100% of your principal since zero coupon bonds are now worth $10k and you’d have 50% of what was invested in the stock index. That’s more than what Allianz will give you after fees and expenses.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

Sillyivan
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Re: Allianz 222 annuity to counter sequence risk?

Post by Sillyivan » Tue Sep 11, 2018 3:44 pm

Thanks for all the thoughtful comments. Confirmed our gut instincts. Good point about zero coupon bond, too. Glad I joined this site. Impressive community.

Grt2bOutdoors
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Re: Allianz 222 annuity to counter sequence risk?

Post by Grt2bOutdoors » Tue Sep 11, 2018 5:21 pm

Sillyivan wrote:
Tue Sep 11, 2018 3:44 pm
Thanks for all the thoughtful comments. Confirmed our gut instincts. Good point about zero coupon bond, too. Glad I joined this site. Impressive community.
Protecting principal is easy, the hard part is to figure out what you are protecting it from? There are all kinds of risk, some risk you may be willing to assume, others you won't. The biggest risk you can certainly protect yourself from is theft. The biggest thieves are those who use a cloak and dagger approach - the cloak is the annuity, the dagger is the multitude of fees and expenses that is wrapped in it. Then we have market risk - if you put 100% of your principal in the stock market and the market tanks 50%, you lost on paper 50% of the value. If you took 100% of the value and put it into FDIC insured CDs or US Treasury bills, you are guaranteed principal and interest, the guarantor being an agency of the US Treasury, the other is the US Treasury itself. What you don't have is inflation protection and that may or may not be an acceptable risk to you. For someone such as yourself who's expenses are covered by pensions and social security, the need to take excessive risk is muted, sometimes you don't need to take any at all. But then there are others who may want to take risk because they are leaving the monies for a future generation. That is why finance is well, personal finance. What may be unsuitable for one, may be suitable for others.

Welcome to the forum!
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Raymond
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Re: Allianz 222 annuity to counter sequence risk?

Post by Raymond » Tue Sep 11, 2018 8:34 pm

Nate79 wrote:
Mon Sep 10, 2018 6:48 pm
David Jay wrote:
Mon Sep 10, 2018 6:45 pm
Nate79 wrote:
Mon Sep 10, 2018 6:37 pm
A fixed indexed annuity? Is this accountant also a salesman?

What a nasty product.
I looked it up, it also has a 10 year withdrawal penalty.
Basically bond like returns that is almost illiquid due to the horrible withdrawal penalty schedule.
Sillyivan, welcome to Bogleheads.

Is the accountant actually selling stuff like this?

Or was he going to refer you to his brother-in-law/golfing buddy/college roommate for this crap and get a kickback referral fee?
"Ritter, Tod und Teufel"

Dottie57
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Re: Allianz 222 annuity to counter sequence risk?

Post by Dottie57 » Tue Sep 11, 2018 8:54 pm

Be suspect of your accountant and his ideas. The type of annuity s not good.

I think I will be putting some money into a small ladder of SPIA annuities somewhere between 65 and 80. SPIA is much simpler and less costly than the annuity your accountant recommended.

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