fixed annuity

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k1982
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fixed annuity

Post by k1982 »

why do some insurers offer guaranteed 3.5% returns over 10 years?
and others only 1.75% over 10 years?

1) insurer offering 3.5% has B++ rating
2) insurer offering 1.75% has a A + rating

I never done an annuity before since I'm a Boglehead at heart but wouldn't that be the best choice if you are 60 + years old?

what do those ratings mean? am I MORE guaranteed to receive my money back from the 2nd insurer with A+ rating ?
Dottie57
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Re: fixed annuity

Post by Dottie57 »

Yes..
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ruralavalon
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Re: fixed annuity

Post by ruralavalon »

k1982 wrote: Wed Sep 30, 2020 11:55 am why do some insurers offer guaranteed 3.5% returns over 10 years?
and others only 1.75% over 10 years?

1) insurer offering 3.5% has B++ rating
2) insurer offering 1.75% has a A + rating

I never done an annuity before since I'm a Boglehead at heart but wouldn't that be the best choice if you are 60 + years old?

what do those ratings mean? am I MORE guaranteed to receive my money back from the 2nd insurer with A+ rating ?
An annuity from an A+ rated insurance company is more certain.

It might be better to defer purchase of a fixed annuity until age 70+.
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Rex66
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Re: fixed annuity

Post by Rex66 »

Guarantee is only as good as company’s ability to pay.

State guarantee association has relatively low limits and isn’t funded/backed by the state. It does offer some protection.


If the rates were the same why would anyone chose the lower rated company?
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nisiprius
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Re: fixed annuity

Post by nisiprius »

I once did a little slogging and found that one of the ratings agencies, I forget which, gave 3/4ths of all insurers one of the A ratings for financial strength. I suppose they would justify this by saying "in fact, 3/4ths of all insurers really financially strong."

In other words, I think there is "grade inflation" and I think life is too short to mess around with any insurer that doesn't have a rating in the A's.

If you do decide to go for one in the B's, I would, very seriously, really take the time to verify that this kind of annuity is covered by your state guaranty association. And I would go to this website:

https://www.nolhga.com/policyholderinfo/main.cfm

choose your state guaranty association, and read the "Frequently Asked Questions" section carefully.
Last edited by nisiprius on Wed Sep 30, 2020 12:13 pm, edited 1 time in total.
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Topic Author
k1982
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Re: fixed annuity

Post by k1982 »

has there ever been a time where someone didn't get paid back by an insurer on an annuity before?
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nisiprius
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Re: fixed annuity

Post by nisiprius »

k1982 wrote: Wed Sep 30, 2020 12:12 pm has there ever been a time where someone didn't get paid back by an insurer on an annuity before?
Yes.

OK, this isn't specifically "annuities" but an insolvency would affect all of the insurer's customers. I'm pretty sure that in most cases, the state guaranty association would have taken care of policyholders in some way to some extent. But as you see, insurer failures are not rare, and this list only covers insurers that were so big that the national association got involved.

https://www.nolhga.com/factsandfigures/ ... solvencies

2020 Senior Health Insurance Company of Pennsylvania * PA
2019 Senior American Insurance Company PA
2019 Pavonia Life Insurance Company of Michigan * MI
2019 Bankers Life Insurance Company * NC
2019 Southland National Insurance Company * NC
2019 Colorado Bankers Life Insurance Company * NC
2019 Northwestern National Insurance Company of Milwaukee Wisconsin WI
2018 North Carolina Mutual Life Insurance Company * NC
2017 Penn Treaty Network America Insurance Company PA
2017 American Network Insurance Company PA
2016 American Medical and Life Insurance Company NY
2015 CoOportunity Health IA
2015 SeeChange Health Insurance Company CA
2013 Executive Life Insurance Company of New York NY
2013 Lumbermens Mutual Casualty Company IL
2013 Universal Health Care Insurance Company, Inc. FL
2012 Standard Life Insurance Company of Indiana IN
2011 Golden State Mutual Life Insurance Company CA
2010 National States Insurance Company MO
2010 Booker T Washington Insurance Company, Inc. AL
2010 Universal Life Insurance Company AL
2010 Imerica Life and Health Insurance Company AR
2009 Old Standard Life Insurance Company ID
2009 Medical Savings Insurance Company IN
2008 Lincoln Memorial Life Insurance Company TX
2007 Benicorp Insurance Company IN
2005 States General Life Insurance Company TX
2004 London Pacific Life & Annuity Company NC
2004 Life & Health Insurance Company of America PA
2004 Western United Life Assurance Co. * WA
2004 Old West Annuity & Life Insurance Company * AZ
2003 Villanova Insurance Company PA
2003 Legion Insurance Company PA
2001 Reliance Insurance Company PA
2000 Bankers Commercial Life Insurance Company TX
2000 American Chambers Life Insurance Company OH
2000 National Affiliated Investors Life Insurance Company LA
2000 Farmers and Ranchers Life Insurance Company OK
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7eight9
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Re: fixed annuity

Post by 7eight9 »

There have been several good discussions recently about fixed annuities (also know as Multi-year guaranteed annuities (MYGAs)).

Here is one of them --- Need direction_understanding MYGA(multi-year guaranteed annuity --- viewtopic.php?f=1&t=325889 You will probably want to search using the term "MYGA".

I believe fixed annuities represent one of the best low-risk fixed income investments available today.
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Topic Author
k1982
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Re: fixed annuity

Post by k1982 »

oh wow. that is good to know!
thank you for the replies

so that is why it's called investing
nothing is ever 100% guaranteed

chose A++ rating if you need that money back for retirement
chose B+ rating if you willing to gamble somewhat for better returns like stocks

:)
in simplest form
ddiaz396
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Re: fixed annuity

Post by ddiaz396 »

ruralavalon, why is that?
"It might be better to defer purchase of a fixed annuity until age 70+."
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Stinky
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Re: fixed annuity

Post by Stinky »

k1982 wrote: Wed Sep 30, 2020 11:55 am why do some insurers offer guaranteed 3.5% returns over 10 years?
and others only 1.75% over 10 years?

1) insurer offering 3.5% has B++ rating
2) insurer offering 1.75% has a A + rating

I never done an annuity before since I'm a Boglehead at heart but wouldn't that be the best choice if you are 60 + years old?

what do those ratings mean? am I MORE guaranteed to receive my money back from the 2nd insurer with A+ rating ?
Are you looking at purchasing a multi year guarantee annuity (MYGA)? If so, there’s a good recent thread on those annuities here:
viewtopic.php?f=1&t=313935

As to the interest rate differences, it’s typical for higher-rated companies to pay lower interest rates than lower-rated companies. Those companies with higher ratings need to hold more capital to maintain those high ratings, and holding more capital decreases what they can afford to pay policyholders.

MYGAs do not have FDIC insurance. Rather, protection is provided by the life and health guaranty association of your state. See the following link for more information on guaranty associations. Be sure to check out the limits for your state:
https://www.blueprintincome.com/resourc ... contracts/

Finally, if you’re considering buying a 10 year contract, be darned sure that you can leave the money untouched for the entire 10 years. If you take any more out of the annuity than is permitted, you will be hit with punishing surrender charges. (Annuities have different “permitted withdrawals”. Make sure you understand your contract).

Post back if you have more questions.
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Topic Author
k1982
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Re: fixed annuity

Post by k1982 »

ok so my mom has 2 fixed annuities with Lincoln Financial
one with 3% interest rate
the other with 1.5% interest rate

there is no surrender charges anymore (she had them for over 10 years now)
if she does NOT touch them does that mean she will get paid 1.5% for one and 3% for the other until she withdrawals?
can she keep them for 10 more years with that rate??
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Stinky
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Re: fixed annuity

Post by Stinky »

k1982 wrote: Wed Sep 30, 2020 12:36 pm ok so my mom has 2 fixed annuities with Lincoln Financial
one with 3% interest rate
the other with 1.5% interest rate

there is no surrender charges anymore (she had them for over 10 years now)
if she does NOT touch them does that mean she will get paid 1.5% for one and 3% for the other until she withdrawals?
can she keep them for 10 more years with that rate??
It sounds like she has old-style deferred annuities. That is, not indexed annuities, MYGAs, variable annuities, etc.

If that’s the case, and if the minimum guaranteed rates are 3% and 1.5%, then she’ll earn those rates for as long as she keeps them.
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crefwatch
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Re: fixed annuity

Post by crefwatch »

Because it's from my area of the country, I want to mention one actual annuity payment failure in my lifetime. The long-existing, Newark NJ company Mutual Benefit Life, failed around 1991. The state took it over, and it took quite a few years to collect the facts and the funds to resume any payments at all to the annuitants. I don't know what happened to un-annuitized balances and other policies. I also don't know if any compensation was paid for the years of receiving no payments.

https://www.nytimes.com/1996/12/06/busi ... ersey.html

(The NY Times usually offers five free articles per month.)
Rex66
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Re: fixed annuity

Post by Rex66 »

This has been reported before but historically IF a company goes bust then 94% of the time has the associations made people whole. If under the state limits it’s near 100%. It can take years and there is no additional payments bc of the delay.
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Re: fixed annuity

Post by ruralavalon »

ddiaz396 wrote: Wed Sep 30, 2020 12:26 pm ruralavalon, why is that?
"It might be better to defer purchase of a fixed annuity until age 70+."
Higher annual payouts per dollar premium the older you are.
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7eight9
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Re: fixed annuity

Post by 7eight9 »

ruralavalon wrote: Wed Sep 30, 2020 3:29 pm
ddiaz396 wrote: Wed Sep 30, 2020 12:26 pm ruralavalon, why is that?
"It might be better to defer purchase of a fixed annuity until age 70+."
Higher annual payouts per dollar premium the older you are.
I think you may be confusing fixed annuities with a different type of annuity.

Multi-Year Guarantee Annuities (MYGAs) are also called fixed-rate annuities and are a specific annuity product type that functions similarly to a CD (Certificate of Deposit).
Both MYGAs and CDs contractually guarantee an annual interest rate for a specified period, have no annual fees and are fully principal protected.

https://www.stantheannuityman.com/myga-rates
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David Jay
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Re: fixed annuity

Post by David Jay »

ruralavalon wrote: Wed Sep 30, 2020 3:29 pm
ddiaz396 wrote: Wed Sep 30, 2020 12:26 pm ruralavalon, why is that?
"It might be better to defer purchase of a fixed annuity until age 70+."
Higher annual payouts per dollar premium the older you are.
You are confusing this product (MGYA) for a different product. Age is immaterial.
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GibsonL6s
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Re: fixed annuity

Post by GibsonL6s »

David Jay wrote: Wed Sep 30, 2020 3:50 pm
ruralavalon wrote: Wed Sep 30, 2020 3:29 pm
ddiaz396 wrote: Wed Sep 30, 2020 12:26 pm ruralavalon, why is that?
"It might be better to defer purchase of a fixed annuity until age 70+."
Higher annual payouts per dollar premium the older you are.
You are confusing this product (MGYA) for a different product. Age is immaterial.
For a MYGA I thought there are penalties for withdrawals before 59.5. So age is not immaterial if you want to cash out before 59.5
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David Jay
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Re: fixed annuity

Post by David Jay »

GibsonL6s wrote: Wed Sep 30, 2020 5:40 pmFor a MYGA I thought there are penalties for withdrawals before 59.5. So age is not immaterial if you want to cash out before 59.5
Please follow along with the conversation. Context matters.

Rural Avalon says:
ruralavalon wrote: Wed Sep 30, 2020 3:29 pm It might be better to defer purchase of a fixed annuity until age 70+.
D Diaz asks :
ddiaz396 wrote: Wed Sep 30, 2020 12:26 pm ruralavalon, why is that?
Rural Avalon replies:
ruralavalon wrote: Wed Sep 30, 2020 3:29 pm Higher annual payouts per dollar premium the older you are.
to which I say:
David Jay wrote: Wed Sep 30, 2020 3:50 pm You are confusing this product (MYGA) for a different product. Age is immaterial.
He is clearly confusing this with a single premium (or similar) annuity as follows:

1. An MYGA has no annual payout, the interest is deferred until the end of the contract.

2. The age of the purchaser has no effect on the interest rate.
Last edited by David Jay on Wed Sep 30, 2020 6:11 pm, edited 1 time in total.
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David Jay
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Re: fixed annuity

Post by David Jay »

Oh, and no 59.5 limitation if purchased with unqualified funds...

[I have seen conflicting information, see below]
Last edited by David Jay on Fri Oct 02, 2020 6:23 pm, edited 1 time in total.
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Stinky
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Re: fixed annuity

Post by Stinky »

GibsonL6s wrote: Wed Sep 30, 2020 5:40 pm
David Jay wrote: Wed Sep 30, 2020 3:50 pm
ruralavalon wrote: Wed Sep 30, 2020 3:29 pm
ddiaz396 wrote: Wed Sep 30, 2020 12:26 pm ruralavalon, why is that?
"It might be better to defer purchase of a fixed annuity until age 70+."
Higher annual payouts per dollar premium the older you are.
You are confusing this product (MGYA) for a different product. Age is immaterial.
For a MYGA I thought there are penalties for withdrawals before 59.5. So age is not immaterial if you want to cash out before 59.5
OP implied in the first post that he was over 60.
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Re: fixed annuity

Post by fsrph »

Rex66 wrote: Wed Sep 30, 2020 1:22 pm This has been reported before but historically IF a company goes bust then 94% of the time has the associations made people whole. If under the state limits it’s near 100%. It can take years and there is no additional payments bc of the delay.
This may be true but you should check with your state association for issues specific to your state. For example, California only covers 80% of the policy value up to 300k. https://www.califega.org/FAQ/Print

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Rex66
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Re: fixed annuity

Post by Rex66 »

Absolutely

In the end people need to understand guaranteed is based on claims paying ability of company
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Re: fixed annuity

Post by capjak »

David Jay wrote: Wed Sep 30, 2020 6:10 pm Oh, and no 59.5 limitation if purchased with unqualified funds...
There is a 10% penalty on the gains (i.e. if you take the interest credited) and are under 59.5. I own 2 MYGAs that allow interest withdrawal prior to the surrender date that has 0 fees on taking the interest out (other allow 10% withdrawal without fees), however the IRS will require a 10% tax if under 59.5 on any interest taken.
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Re: fixed annuity

Post by David Jay »

capjak wrote: Fri Oct 02, 2020 11:49 am
David Jay wrote: Wed Sep 30, 2020 6:10 pm Oh, and no 59.5 limitation if purchased with unqualified funds...
There is a 10% penalty on the gains (i.e. if you take the interest credited) and are under 59.5. I own 2 MYGAs that allow interest withdrawal prior to the surrender date that has 0 fees on taking the interest out (other allow 10% withdrawal without fees), however the IRS will require a 10% tax if under 59.5 on any interest taken.
Then apparently you purchased the MYGAs with “qualified funds” (i.e. money that is or was inside a qualified retirement plan, including personal retirement accounts).

[edit]. This is interesting. I see conflicting information on this subject from sources that have found to be reliable in the past. I withdraw my strong affirmations above. It doesn’t affect the OP because he is over age 60.
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quisp65
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Re: fixed annuity

Post by quisp65 »

If I trusted my state guaranty I would just go with what paid the highest percent and wouldn't care about rating, but I live in Cali where I only get 80% back in case of insurance insolvency. I'm not touching MYGAs because of that, but I could see reasonable people disagree. It's still like an individual bond with 80% insured with California's rules. Might still be a smarter move than individual bonds for a Cali resident.
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Stinky
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Re: fixed annuity

Post by Stinky »

quisp65 wrote: Sat Oct 03, 2020 9:56 am If I trusted my state guaranty I would just go with what paid the highest percent and wouldn't care about rating, but I live in Cali where I only get 80% back in case of insurance insolvency. I'm not touching MYGAs because of that, but I could see reasonable people disagree. It's still like an individual bond with 80% insured with California's rules. Might still be a smarter move than individual bonds for a Cali resident.
Personally, I’d be hard pressed to accept a B+ or B++ rating if I had only 80% coverage. There are still some good rates available for CA residents from A- and higher rated companies.

It’s also too bad that some states have $100k limits on MYGA type policies. Better to have a higher limit like $250k.
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