Annuities

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edvest
Posts: 13
Joined: Sat Oct 06, 2018 3:27 pm

Annuities

Post by edvest » Wed Oct 10, 2018 6:56 am

Last year, while renewing a CD a my local bank I offered up my annual gripe about the interest.
She told me I was in luck that their bank's annuity guy here that day.

After an hour of promises of super high rates, his notes scribbled all over a paper and a handful of papers I left excited but confused.
I got home and for the first time started noticing prime time tv ads promoting annuities. That scared me so I let it sit.

My question, do you think a 62 year old man should consider annuities?

I've had a lot of losses in my life, mostly real estate, and am very wary of being screwed.

tu

JoeRetire
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Joined: Tue Jan 16, 2018 2:44 pm

Re: Annuities

Post by JoeRetire » Wed Oct 10, 2018 7:02 am

edvest wrote:
Wed Oct 10, 2018 6:56 am
After an hour of promises of super high rates, his notes scribbled all over a paper and a handful of papers I left excited but confused.
Did you understand the product he was trying to sell you?

I never purchase products I don't understand.

livesoft
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Re: Annuities

Post by livesoft » Wed Oct 10, 2018 7:04 am

I am around your age. No I don't think you need to consider annuities. But I wouldn't buy CDs either.

We know nothing about your financial situation from this thread other than you seem to be fearful and anxious. Why?
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Dandy
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Re: Annuities

Post by Dandy » Wed Oct 10, 2018 7:50 am

Most annuities sold at a bank when people are usually buying CDs are not a great idea. 62 is rather young for purchasing any annuity even a good one. You need to provide more information on your need for income and your financial situation and the actual annuity product offered to get a better response.

If you are in the CD market the rates vary greatly by bank and credit union. Major brick banks like B of A, Chase etc. usually provide very bad CD rates. For example, Bank of America's 5 year CD pays 0.75% vs Discover Bank 3%. 2.75% more each year for 5 years for the same product, same FDIC insurance and 24/7 service. And there are even better rates out there. I only mention Discover because I have used them for years with no issues.

adamthesmythe
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Re: Annuities

Post by adamthesmythe » Wed Oct 10, 2018 10:05 am

SPIA maybe.

Other annuities no.

Age 62 almost certainly not.

At age 62: target date retirement funds. Or all bonds or CDs if you are really really risk-averse.

Jack FFR1846
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Re: Annuities

Post by Jack FFR1846 » Wed Oct 10, 2018 10:07 am

edvest wrote:
Wed Oct 10, 2018 6:56 am
My question, do you think a 62 year old man should consider annuities?
No
Bogle: Smart Beta is stupid

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David Jay
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Re: Annuities

Post by David Jay » Wed Oct 10, 2018 10:10 am

The WIKI has some information on annuities:

Normally, when sales people are talking annuities, they are talking about the high commission products like:
1. Variable Annuities, Wiki link: https://www.bogleheads.org/wiki/Variable_annuity
2. Fixed Index Annuities, Wiki link: https://www.bogleheads.org/wiki/Equity-indexed_annuity

As others have said, you are a little bit young for an SPIA (the "good" annuity), those can make sense after, say, age 70.
Single Premium Immediate Annuity, Wiki link: https://www.bogleheads.org/wiki/Immediate_fixed_annuity
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megabad
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Re: Annuities

Post by megabad » Wed Oct 10, 2018 11:27 am

edvest wrote:
Wed Oct 10, 2018 6:56 am
Last year, while renewing a CD a my local bank I offered up my annual gripe about the interest.
She told me I was in luck that their bank's annuity guy here that day.

After an hour of promises of super high rates, his notes scribbled all over a paper and a handful of papers I left excited but confused.
I got home and for the first time started noticing prime time tv ads promoting annuities. That scared me so I let it sit.

My question, do you think a 62 year old man should consider annuities?

I've had a lot of losses in my life, mostly real estate, and am very wary of being screwed.

tu
I think annuities are generally a poor financial solution for the vast majority of people, but David's suggestion to review the wiki articles and educate yourself is a great one. SPIAs can be good in rare cases, but most folks in the US already have the best inflation adjusted annuity available with Social Security. I only know of one other fixed inflation adjusted annuity available on the open market (Principal). I have only recommended a SPIA once (the only annuity I would consider) and it was a relative that had a foreign disabled spouse and very little Social Security. They took a very small part of their portfolio and bought an inflation adjusted annuity that they estimated would cover spouses additional care indefinitely. SPIAs are very easily quoted. In 30 seconds, you can get an estimate from immediateannuities.com without any personal information. No insurance salesperson will ever be pushing them as they don't make much on them typically.

123
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Re: Annuities

Post by 123 » Wed Oct 10, 2018 12:38 pm

Most annuities in many states include a provision for a "free look" (or similar phrase) often for 7 to 10 days during which you can back out of the annuity and get your money back. So look over your annuity contract carefully and see if it still seems as wonderful as the salesguy made it seem. Pay particular attention to the cancelation privilage, if included, and act quickly if necessary.

We had an aunt who one day told us that the "nice investment man" at her bank had signed her up for an annuity when her CD matured. She proudly showed us the paperwork about how much higher the interest rate was then the bank was offering as a CD. She did not understand that the rate he told her about was projected and not guaranteed, nor that the principle value of her annuity could decline with market conditions, and that she could not get her money out of the investment without paying surrender charges for the next 7 years. The next day (which was within the cancelation period) we went into her bank branch with her and got the annuity contract canceled and her money refunded.

The aunt was not interested whatsoever in investing in the stock market but that is exactly what the annuity she was sold did.
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yohac
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Re: Annuities

Post by yohac » Wed Oct 10, 2018 12:47 pm

My mother-in-law was also taken in by her banker's annuity sales pitch, to our great dismay. Even if I wanted an annuity I wouldn't buy it through a bank.

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Cyclesafe
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Re: Annuities

Post by Cyclesafe » Wed Oct 10, 2018 3:03 pm

After committing to an investment annuity, one spends a lifetime trying to get out of it as efficiently as possible. Tax deferred compounded interest from a fixed investment annuity at usually a higher rate than a CD is the positive, while higher risk (not FDIC insured), onerous surrender fees, higher investment fees, and tax penalties (prior to age 59 1/2) are the negatives. Another possible advantage, however, is the option to possibly annuitize at a contracted return greater than what is on offer at some time in the future.

A CD is as close to a free lunch that a small retail investor can get. The tax deferred compounding of the fixed investment annuity becomes noticible only after 15-20 years at today's relevant interest rates. Furthermore, there is no guarantee that one's future marginal tax rate will be lower than today's - always a sweetener when considering tax deferral.

In sum, steer clear. Build a CD ladder and be done with it.

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Cyclesafe
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Re: Annuities

Post by Cyclesafe » Wed Oct 10, 2018 3:14 pm

yohac wrote:
Wed Oct 10, 2018 12:47 pm
My mother-in-law was also taken in by her banker's annuity sales pitch, to our great dismay. Even if I wanted an annuity I wouldn't buy it through a bank.
After expressly in writing warning my FIL to NOT enter into a fixed investment annuity, he was sweet talked into one at his bank. The only thing he heard was "higher interest rate". He was oblivious to surrender fees and that fact that at 86 he might soon need the money. My dress down of the bank manager at my next visit was epic, but ultimately useless when I was asked to leave the premises.

Well, the years went by, the 6 year surrender period ended, and he was compelled to move to an assisted living facility. He needed sufficient ADL assistance that his costs were medical deductions and over the final three years of his life, he depleted his fixed investment annuity without paying a penny of tax.

Sometimes maybe we think too much....

edvest
Posts: 13
Joined: Sat Oct 06, 2018 3:27 pm

Re: Annuities

Post by edvest » Wed Oct 10, 2018 9:44 pm

Wow guys, I'm overwhelmed.
It sounds like my instincts were right. I'll steer clear and keep studying.

Thanks again! :beer

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