Christine Benz interviews T. Rowe Price finan. planner

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Beagler
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Christine Benz interviews T. Rowe Price finan. planner

Post by Beagler » Sun Jun 16, 2013 6:38 pm

Benz: Let's talk about the challenging environment that retirees are facing, and specifically the conundrums, the multiple issues created by very low yields currently.

I'd like to look at annuities, start there, because historically they have been sort of standard planning advice for people getting ready to retire. The single premium immediate annuities that I know a lot of planners like you recommend have relatively low payouts at this point. So, does that mean that they shouldn't be part of retirees' toolkits?

Fahlund: No, I don't think so. Maybe not the single premium annuity right now, because of the very low rate. But certainly tax-deferred annuities, variable annuities, you'd have the option to go with equities, heavily into equities in those.

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sometimesinvestor
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Re: Christine Benz interviews T. Rowe Price finan. planner

Post by sometimesinvestor » Sun Jun 16, 2013 7:32 pm

It should be noted that T.Rowe Price sells a variable annuity that is low fee but not as low as Vanguard

Stonebr
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Re: Christine Benz interviews T. Rowe Price finan. planner

Post by Stonebr » Sun Jun 16, 2013 8:28 pm

sometimesinvestor wrote:It should be noted that T.Rowe Price sells a variable annuity that is low fee but not as low as Vanguard
Correct. The excessive fees that kill variable annuities are mainly the compensation paid to insurance agents and other distributors. When they are out of the picture, as with T Rowe or Vanguard products, the picture looks a lot better. Remember that the other financial intermediary in addition to the mutual fund company is the insurance company. Insurers (surprise, surprise) have profit margin requirements to meet, but the amount is almost always far, far less than the agent commissions. And mutual fund companies like T Rowe, Fidelity, and Vanguard can negotiate a better deal with an insurance company than the average Joe can.

Still, I think of variable annuities as a "product" to purchase rather than an investment. Added product features like the questionable "guarantees" and "indexing" can make them hard to understand. Just when you think you've figured one out, you read the fine print and the insurance company says, "Gotcha!" SPIAs, on the other hand, are a commodity product. Insurers make money from volume, not gimmicks. The more they sell the lower the mortality risk, and the lower the price to you and me. I'd rather save my money and wait for a better time to buy an SPIA -- like when I'm a little older.
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