Annuity question

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Figuring_it_out
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Annuity question

Post by Figuring_it_out »

I got pitched but an agent a fund that offered to take a $400k initial investment and grow it to $800K in 10 years. Then offered a 48K/year for life guarantee.

I said NO out of hand, but now I'm wondering if I should have at least looked at it. I tried looked up annuities online and they don't give details. Only refer you to an agent. :oops:

Not wanting another sales pitch, I thought I would ask you folks if you ever got pitched a similar product and what were the details?
venkman
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Re: Annuity question

Post by venkman »

Generally speaking, the only "good" type of annuity is a single premium immediate annuity (SPIA), in which you pay a lump sum up front to an insurance company, and in exchange they guarantee to provide you with a set income for the rest of your life. It's not an investment; it's insurance against outliving your portfolio.

Annuity fees are notoriously high. Rather than investing through an annuity, you'll almost always be better off investing on your own, then using the money to purchase an SPIA when you're ready.
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willthrill81
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Re: Annuity question

Post by willthrill81 »

Your first inclination, an emphatic no, was the correct one. There is no way that they will guarantee a doubling of your money (7.2% nominal) in 10 years without requiring you to keep that money with them. The only way that they can make it seem like that is through some cleverly deceptive accounting.

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fire5soon
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Re: Annuity question

Post by fire5soon »

Your cash value doesn't double. The benefit base that they use to calculate the income the rider will provide will double. That variable contract probably has around 3.5% in annual fees (at least} which can increase as a percentage of the contract value.

VA's with an income Rider is a bad idea 99.998% of the time.
A man is a success if he gets up in the morning and gets to bed at night, and in between he does what he wants to do. - Bob Dylan
billfromct
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Re: Annuity question

Post by billfromct »

A variable annuity is the best way to turn long term capital gains, normally taxed at 15% for most people, to ordinary income, probably taxed at 22% or 24% for many people on this site.

With this said, I have bought 3 Vanguard variable annuities.

One for my spouse in the early 1990's when she was a stay at home mom & there were very few specific retirement savings alternatives. An IRA had a $2,000 maximum contribution limit if working & $250 for a non-working spouse.

Two for my kids, with $5,000 each from their grandmother so "they would remember" her in 50 or 60 years. I remind them of their grandmother's gift each year when we go over their balance sheets at Christmas time.

bill
HEDGEFUNDIE
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Re: Annuity question

Post by HEDGEFUNDIE »

Whether this is a good deal or not depends entirely on how old you are.
usagi
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Re: Annuity question

Post by usagi »

billfromct wrote: Tue Sep 17, 2019 12:27 am A variable annuity is the best way to turn long term capital gains, normally taxed at 15% for most people, to ordinary income, probably taxed at 22% or 24% for many people on this site.
That also applies to an IRA or 401K plan where you take what would otherwise be long term capital gains and end up taxing them as ordinary income. Not that I am defending annuities.
MathIsMyWayr
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Re: Annuity question

Post by MathIsMyWayr »

usagi wrote: Tue Sep 17, 2019 2:54 am
billfromct wrote: Tue Sep 17, 2019 12:27 am A variable annuity is the best way to turn long term capital gains, normally taxed at 15% for most people, to ordinary income, probably taxed at 22% or 24% for many people on this site.
That also applies to an IRA or 401K plan where you take what would otherwise be long term capital gains and end up taxing them as ordinary income. Not that I am defending annuities.
Don't forget that money going into IRA or 401k is not taxed while you buy a nonqualified annuity with after-tax dollars. Tax deferral makes all the difference, contributions and earnings vs. earnings only.
David Althaus
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Re: Annuity question

Post by David Althaus »

Those who promise high return with low risk are either criminals or fools. (please reread the last sentence).

All the best
Topic Author
Figuring_it_out
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Re: Annuity question

Post by Figuring_it_out »

Anyone have the details on a similar annuity that they got the detailed paperwork on?

So you put the money in up front and it magically grows to double in 10 years. Then they give you 6% of that final amount for the rest of your life. This is the headline. I'm looking for the gottchas for the investor and the investors heirs. Where is the commission paid to the broker? Where are the fees paid to the annuity?

What if you die on year 11 (first year after you start getting payments)? Do your heirs get the cash value which is much less than double the original amount i'm sure. I'm going to guess the cash value grows at ~3% not 7.2%. At that 6% withdrawal rate you will, in theory, spend down the doubled amount in 16 years. Then you are living off "their" money. :twisted:

Is the cash value reduced by the same dollar amount and reaches zero before the 16 years? So in the original case let say the cash value was 500K vs the 800K annuity value. Is the calculation that every time the 48K was paid out, the 500K cash value gets deducted by 48K as well. This would cause the cash value to go to zero in 11 years? I'm guessing when the cash value goes to zero and you die then the heirs get nothing?

I'm assuming this same type of annuity is offered by several large companies so they should have similar money mechanics on who profits from the deal.
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grabiner
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Re: Annuity question

Post by grabiner »

usagi wrote: Tue Sep 17, 2019 2:54 am
billfromct wrote: Tue Sep 17, 2019 12:27 am A variable annuity is the best way to turn long term capital gains, normally taxed at 15% for most people, to ordinary income, probably taxed at 22% or 24% for many people on this site.
That also applies to an IRA or 401K plan where you take what would otherwise be long term capital gains and end up taxing them as ordinary income. Not that I am defending annuities.
But in an IRA or 401(k), you get a tax deduction on contributions, which cancels out the effect of the taxes. If you contribute $1000 to a traditional IRA in a 22% tax bracket, and withdraw in the same 22% tax bracket, you will get the same amount as if you invested $780 tax-free in a Roth IRA.

The argument above does apply to a non-deductible traditional IRA. Stocks may be better in a taxable account than in a non-deductible traditional IRA if you are unable to convert to a Roth IRA.
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usagi
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Re: Annuity question

Post by usagi »

grabiner wrote: Tue Sep 17, 2019 8:20 pm
usagi wrote: Tue Sep 17, 2019 2:54 am
billfromct wrote: Tue Sep 17, 2019 12:27 am A variable annuity is the best way to turn long term capital gains, normally taxed at 15% for most people, to ordinary income, probably taxed at 22% or 24% for many people on this site.
That also applies to an IRA or 401K plan where you take what would otherwise be long term capital gains and end up taxing them as ordinary income. Not that I am defending annuities.
But in an IRA or 401(k), you get a tax deduction on contributions, which cancels out the effect of the taxes. If you contribute $1000 to a traditional IRA in a 22% tax bracket, and withdraw in the same 22% tax bracket, you will get the same amount as if you invested $780 tax-free in a Roth IRA.

The argument above does apply to a non-deductible traditional IRA. Stocks may be better in a taxable account than in a non-deductible traditional IRA if you are unable to convert to a Roth IRA.
Only a maybe. One thing most forget is that you never actually have to pay capital gain taxes on a taxable account unless you want to simply because your heirs can get a stepped up cost basis and if you do liquidate you only have to pay capital gains on the profit, not the entire amount you take out. But the stepped up cost basis is a huge thing.
Blue456
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Re: Annuity question

Post by Blue456 »

Figuring_it_out wrote: Mon Sep 16, 2019 8:51 pm I got pitched but an agent a fund that offered to take a $400k initial investment and grow it to $800K in 10 years. Then offered a 48K/year for life guarantee.

I said NO out of hand, but now I'm wondering if I should have at least looked at it. I tried looked up annuities online and they don't give details. Only refer you to an agent. :oops:

Not wanting another sales pitch, I thought I would ask you folks if you ever got pitched a similar product and what were the details?
I’m pretty new here. Can someone break down to me why this is a bad deal?

Let’s say you are 40, put down 400,000 then starting age of 50 for next 27 years (I believe life expectancy is 77 in US for males), you collect $1,296,000 in benefits. Seems like [a very -- mod oldcomputerguy] good deal.
HEDGEFUNDIE
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Re: Annuity question

Post by HEDGEFUNDIE »

Blue456 wrote: Wed Sep 18, 2019 1:56 am
Figuring_it_out wrote: Mon Sep 16, 2019 8:51 pm I got pitched but an agent a fund that offered to take a $400k initial investment and grow it to $800K in 10 years. Then offered a 48K/year for life guarantee.

I said NO out of hand, but now I'm wondering if I should have at least looked at it. I tried looked up annuities online and they don't give details. Only refer you to an agent. :oops:

Not wanting another sales pitch, I thought I would ask you folks if you ever got pitched a similar product and what were the details?
I’m pretty new here. Can someone break down to me why this is a bad deal?

Let’s say you are 40, put down 400,000 then starting age of 50 for next 27 years (I believe life expectancy is 77 in US for males), you collect $1,296,000 in benefits. Seems like [a very -- mod oldcomputerguy] good deal.
That is a [very -- mod oldcomputerguy] good deal. But I’m guessing the OP is much older than 40.
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Stinky
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Re: Annuity question

Post by Stinky »

HEDGEFUNDIE wrote: Wed Sep 18, 2019 2:09 am
Blue456 wrote: Wed Sep 18, 2019 1:56 am
Figuring_it_out wrote: Mon Sep 16, 2019 8:51 pm I got pitched but an agent a fund that offered to take a $400k initial investment and grow it to $800K in 10 years. Then offered a 48K/year for life guarantee.

I said NO out of hand, but now I'm wondering if I should have at least looked at it. I tried looked up annuities online and they don't give details. Only refer you to an agent. :oops:

Not wanting another sales pitch, I thought I would ask you folks if you ever got pitched a similar product and what were the details?
I’m pretty new here. Can someone break down to me why this is a bad deal?

Let’s say you are 40, put down 400,000 then starting age of 50 for next 27 years (I believe life expectancy is 77 in US for males), you collect $1,296,000 in benefits. Seems like [a very -- mod oldcomputerguy] good deal.
That is a [very -- mod oldcomputerguy] good deal. But I’m guessing the OP is much older than 40.
And I expect that you won’t get a 6% payout rate for lifetime at age 50.
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Rob5TCP
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Re: Annuity question

Post by Rob5TCP »

For comparison - try out a SPIA from this site.
You can then compare how good or bad your offer is.
Assuming there are not a ton of gotchas on your.

https://www.immediateannuities.com/
jimishooch
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Re: Annuity question

Post by jimishooch »

Figuring_it_out wrote: Mon Sep 16, 2019 8:51 pm I got pitched but an agent a fund that offered to take a $400k initial investment and grow it to $800K in 10 years. Then offered a 48K/year for life guarantee.

I said NO out of hand, but now I'm wondering if I should have at least looked at it. I tried looked up annuities online and they don't give details. Only refer you to an agent. :oops:

Not wanting another sales pitch, I thought I would ask you folks if you ever got pitched a similar product and what were the details?
sounds like a DIA (deferred income annuity) what is the annual fee for the lifetime income rider?
capjak
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Re: Annuity question

Post by capjak »

If it is a FIA with an income rider, which I suspect that it is, one of the most sold FIA with income rider (10 year) is Allianz 222 FIA.



Here is some information on that one:

https://www.annuitygator.com/independen ... 2-annuity/

others like this are similar
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Re: Annuity question

Post by oldcomputerguy »

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fire5soon
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Re: Annuity question

Post by fire5soon »

Figuring_it_out wrote: Tue Sep 17, 2019 6:21 am Anyone have the details on a similar annuity that they got the detailed paperwork on?

So you put the money in up front and it magically grows to double in 10 years. Then they give you 6% of that final amount for the rest of your life. This is the headline. I'm looking for the gottchas for the investor and the investors heirs. Where is the commission paid to the broker? Where are the fees paid to the annuity?

What if you die on year 11 (first year after you start getting payments)? Do your heirs get the cash value which is much less than double the original amount i'm sure. I'm going to guess the cash value grows at ~3% not 7.2%. At that 6% withdrawal rate you will, in theory, spend down the doubled amount in 16 years. Then you are living off "their" money. :twisted:

Is the cash value reduced by the same dollar amount and reaches zero before the 16 years? So in the original case let say the cash value was 500K vs the 800K annuity value. Is the calculation that every time the 48K was paid out, the 500K cash value gets deducted by 48K as well. This would cause the cash value to go to zero in 11 years? I'm guessing when the cash value goes to zero and you die then the heirs get nothing?

I'm assuming this same type of annuity is offered by several large companies so they should have similar money mechanics on who profits from the deal.
There is no guarantee to your cash value. The doubling is to an "income benefit base" that is a made up number by the insurance company. That number only serves as what they multiply your withdrawal rate against to determine what the income rider will pay. The withdrawal rates are also typically age banded based on how old you are when you begin taking income.

If this is a variable annuity (which it sounds like) you pay an M&E fee, you pay an income rider fee, sometimes they charge death benefit fees, and you pay subaccount fees. All in these fees can be anywhere from 3% on the very low end up to over 4.50%.

Your contract value is destroyed very quickly with these types of contracts. Not only is your withdrawal being taken out but so are the fees described earlier.

These are typically very bad ideas for nearly every investor.
A man is a success if he gets up in the morning and gets to bed at night, and in between he does what he wants to do. - Bob Dylan
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