Sell a CD early buy a fixed annuity

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hoops777
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Sell a CD early buy a fixed annuity

Post by hoops777 »

I have a bunch of brokered CD’s coming due in 2022 yielding in the 2.5 range. I was thinking it might be a good idea to sell some now and buy a fixed annuity with a longer term to help with reinvestment risk. I can buy a fixed annuity with a higher rate now even with today’s almost zero cd rates.
With that being said should I assume fixed annuity rates will still be much better than CD’S in a couple years or is this an anomaly?
A 5 yr brokered CD at Schwab is .45. I just bought a 4 yr fixed annuity at 3.05. As I said, I do not know if that difference is normal.
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antiqueman
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Re: Sell a CD early buy a fixed annuity

Post by antiqueman »

hoops777, I don't think I can give you any solid advice on your question, because I have a similar question and cannot make a decision on what to do.

Do you mind informing me from what company you obtain the 4 year 3.05 CD?

Thank you.
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Re: Sell a CD early buy a fixed annuity

Post by 000 »

Brokered CDs typically have lower yield than direct CDs. Direct CDs typically have lower yield than annuities.
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hoops777
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Re: Sell a CD early buy a fixed annuity

Post by hoops777 »

antiqueman wrote: Sat Aug 01, 2020 7:50 pm hoops777, I don't think I can give you any solid advice on your question, because I have a similar question and cannot make a decision on what to do.

Do you mind informing me from what company you obtain the 4 year 3.05 CD?

Thank you.
Blueprint income.The insurance company is Oxford Life rated A-. This was good for California. There were higher rates for other states.
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hoops777
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Re: Sell a CD early buy a fixed annuity

Post by hoops777 »

000 wrote: Sat Aug 01, 2020 7:56 pm Brokered CDs typically have lower yield than direct CDs. Direct CDs typically have lower yield than annuities.
Thee is quite a difference right now. Is it typical for there to be such a spread ?
Last edited by hoops777 on Sat Aug 01, 2020 8:37 pm, edited 1 time in total.
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000
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Re: Sell a CD early buy a fixed annuity

Post by 000 »

hoops777 wrote: Sat Aug 01, 2020 8:13 pm
000 wrote: Sat Aug 01, 2020 7:56 pm Brokered CDs typically have lower yield than direct CDs. Direct CDs typically have lower yield than annuities.
Thee is quite a difference right now. Is it typical fir there to be such a spread ?
Sorry, I don't have any historical data about spreads.
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Re: Sell a CD early buy a fixed annuity

Post by Lastrun »

hoops777 wrote: Sat Aug 01, 2020 5:56 pm With that being said should I assume fixed annuity rates will still be much better than CD’S in a couple years or is this an anomaly?
It seems to me that you could get at least get some idea from looking at historic Fed rates, CD rates and MYGA rates for a rough sense of correlation. Of course, you would still need predict the future but it seems like the interest rate drop after the Great Financial Crisis and the years that followed would be a good study.

https://www.bankrate.com/banking/cds/hi ... est-rates/

https://www.annuityratewatch.com/rates/ ... _rates.cfm
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Re: Sell a CD early buy a fixed annuity

Post by hoops777 »

Forgot to ask but my research is a bit confusing on the state guarantee. I know California has a 250,000 limit on a policy. What if you have multiple policies all from different insurance companies ? 200K ,100K, 100K...All 3 go bankrupt. Are all 3 under the guarantee or just a 250,000 total ? I was on the state website and it said 250,000 limit from one insurer but did not address multiple companies.
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Re: Sell a CD early buy a fixed annuity

Post by Stinky »

hoops777 wrote: Sat Aug 01, 2020 8:36 pm Forgot to ask but my research is a bit confusing on the state guarantee. I know California has a 250,000 limit on a policy. What if you have multiple policies all from different insurance companies ? 200K ,100K, 100K...All 3 go bankrupt. Are all 3 under the guarantee or just a 250,000 total ? I was on the state website and it said 250,000 limit from one insurer but did not address multiple companies.
It is $250k per company. So if all three of your companies go under, you will be covered for all policies.

Interestingly - the back and forth on your prior thread caused me to look at MYGAs a lot more carefully for my situation. I actually applied for my first MYGA ever, through Blueprint. They seem like a fine company.
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Re: Sell a CD early buy a fixed annuity

Post by hoops777 »

Stinky wrote: Sat Aug 01, 2020 8:53 pm
hoops777 wrote: Sat Aug 01, 2020 8:36 pm Forgot to ask but my research is a bit confusing on the state guarantee. I know California has a 250,000 limit on a policy. What if you have multiple policies all from different insurance companies ? 200K ,100K, 100K...All 3 go bankrupt. Are all 3 under the guarantee or just a 250,000 total ? I was on the state website and it said 250,000 limit from one insurer but did not address multiple companies.
It is $250k per company. So if all three of your companies go under, you will be covered for all policies.

Interestingly - the back and forth on your prior thread caused me to look at MYGAs a lot more carefully for my situation. I actually applied for my first MYGA ever, through Blueprint. They seem like a fine company.
Great! I have found their customer service to be excellent.It was kind of funny because I was just thinking I hope Stinky responds and boom! am seeing a 5 year from Americo rated A with a 100 yr history paying 3.20 for Calif. I am strongly considering selling several brokered CDs maturing in 2022. I turn 70 in 2022 and was obsessed with guaranteeing my retirement when I turned 70 and start SS. I bought too many CD’s with that maturity not worrying about reinvestment risk at the time. Never thought yields would go down like today.
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Re: Sell a CD early buy a fixed annuity

Post by indexfundfan »

I bought two MYGAs recently through Blueprint. The rates are certainly better than CDs but I told myself not to go overboard with MYGAs. They do have additional risks compared to CDs. There is a non zero chance that widespread bankruptcies could cause the state insurance guaranty fund to fail. I know many would say that if this happens, we would have more pressing issues to worry about ...

But, regardless, the risk of state insurance guaranty fund failing is higher than that of FDIC/NCUA. A MYGA is not as safe as treasuries or CDs.
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Re: Sell a CD early buy a fixed annuity

Post by jeffyscott »

hoops777 wrote: Sat Aug 01, 2020 9:02 pmI turn 70 in 2022 and was obsessed with guaranteeing my retirement when I turned 70 and start SS. I bought too many CD’s with that maturity not worrying about reinvestment risk at the time. Never thought yields would go down like today.
I did the same sort of thing, not for the same reasons, it was just that it did not seem to pay to extend maturities beyond about 3 years during the time I was buying most of them. I figured why lock in a slightly higher rate for 5 years, since interest rates will be increasing over the next few years :oops: .

It also just happened to be that right after a rollover to an IRA, brokered CDs were better than most direct ones, so I got used to that convenience. I did have a few shorter ones that matured earlier this year and stashed those funds in an ultrashort bond fund for a while, due to the low brokered CD rates. But, I finally bit the bullet and moved some to a direct CD at 1.9% for 3 years. I am just planning to look for more direct CD specials when CDs mature next year.

Anyway, since investing in these annuities presumably involves a level of hassle and effort equal to or greater than that required to find the better CD deals and to then move IRA money to the offering credit union or bank, I think those make a better comparison rather than the brokered CD rates. For me the best available CD recently was 1.9% for 3, 4, or 5 years, that is still a lot less than the 3.05% that you got from an annuity but not nearly as great as the spread vs. brokered CDs.

Also, I understand the transaction costs can be pretty high for selling CDs early, maybe around 1%?
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Re: Sell a CD early buy a fixed annuity

Post by hoops777 »

jeffyscott wrote: Sun Aug 02, 2020 8:56 am
hoops777 wrote: Sat Aug 01, 2020 9:02 pmI turn 70 in 2022 and was obsessed with guaranteeing my retirement when I turned 70 and start SS. I bought too many CD’s with that maturity not worrying about reinvestment risk at the time. Never thought yields would go down like today.
I did the same sort of thing, not for the same reasons, it was just that it did not seem to pay to extend maturities beyond about 3 years during the time I was buying most of them. I figured why lock in a slightly higher rate for 5 years, since interest rates will be increasing over the next few years :oops: .

It also just happened to be that right after a rollover to an IRA, brokered CDs were better than most direct ones, so I got used to that convenience. I did have a few shorter ones that matured earlier this year and stashed those funds in an ultrashort bond fund for a while, due to the low brokered CD rates. But, I finally bit the bullet and moved some to a direct CD at 1.9% for 3 years. I am just planning to look for more direct CD specials when CDs mature next year.

Anyway, since investing in these annuities presumably involves a level of hassle and effort equal to or greater than that required to find the better CD deals and to then move IRA money to the offering credit union or bank, I think those make a better comparison rather than the brokered CD rates. For me the best available CD recently was 1.9% for 3, 4, or 5 years, that is still a lot less than the 3.05% that you got from an annuity but not nearly as great as the spread vs. brokered CDs.

Also, I understand the transaction costs can be pretty high for selling CDs early, maybe around 1%?
To be honest I guess I need to look at the cost. I sold one a month ago in my HSA that was 15K and I received something like 15,125. I do not believe there is a 1 pct fee and they are all worth more than I bought them for. My HSA is not at Schwab so I will check.
I checked and it appears to be $1 per 1000 with a $10 minimum and $250 max.
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Re: Sell a CD early buy a fixed annuity

Post by jeffyscott »

hoops777 wrote: Sun Aug 02, 2020 10:40 am
jeffyscott wrote: Sun Aug 02, 2020 8:56 am
hoops777 wrote: Sat Aug 01, 2020 9:02 pmI turn 70 in 2022 and was obsessed with guaranteeing my retirement when I turned 70 and start SS. I bought too many CD’s with that maturity not worrying about reinvestment risk at the time. Never thought yields would go down like today.
I did the same sort of thing, not for the same reasons, it was just that it did not seem to pay to extend maturities beyond about 3 years during the time I was buying most of them. I figured why lock in a slightly higher rate for 5 years, since interest rates will be increasing over the next few years :oops: .

It also just happened to be that right after a rollover to an IRA, brokered CDs were better than most direct ones, so I got used to that convenience. I did have a few shorter ones that matured earlier this year and stashed those funds in an ultrashort bond fund for a while, due to the low brokered CD rates. But, I finally bit the bullet and moved some to a direct CD at 1.9% for 3 years. I am just planning to look for more direct CD specials when CDs mature next year.

Anyway, since investing in these annuities presumably involves a level of hassle and effort equal to or greater than that required to find the better CD deals and to then move IRA money to the offering credit union or bank, I think those make a better comparison rather than the brokered CD rates. For me the best available CD recently was 1.9% for 3, 4, or 5 years, that is still a lot less than the 3.05% that you got from an annuity but not nearly as great as the spread vs. brokered CDs.

Also, I understand the transaction costs can be pretty high for selling CDs early, maybe around 1%?
To be honest I guess I need to look at the cost. I sold one a month ago in my HSA that was 15K and I received something like 15,125. I do not believe there is a 1 pct fee and they are all worth more than I bought them for. My HSA is not at Schwab so I will check.
I checked and it appears to be $1 per 1000 with a $10 minimum and $250 max.
Right you pay that 0.1% commission (as does the buyer) but there may be a large spread. The CD that you sold for $15,125 would cost more than that were you to buy it. Suppose it would cost $15,375 to buy it, if the value is assumed to be the mid point, $15,250 then the cost of selling was $125 or about 0.8% then add the commission and total cost was near 1% (just an example, I have no idea if that's a realistic spread or not). I have never sold one, I have only read that spreads can be large.
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Re: Sell a CD early buy a fixed annuity

Post by hoops777 »

jeffyscott wrote: Sun Aug 02, 2020 11:03 am
hoops777 wrote: Sun Aug 02, 2020 10:40 am
jeffyscott wrote: Sun Aug 02, 2020 8:56 am
hoops777 wrote: Sat Aug 01, 2020 9:02 pmI turn 70 in 2022 and was obsessed with guaranteeing my retirement when I turned 70 and start SS. I bought too many CD’s with that maturity not worrying about reinvestment risk at the time. Never thought yields would go down like today.
I did the same sort of thing, not for the same reasons, it was just that it did not seem to pay to extend maturities beyond about 3 years during the time I was buying most of them. I figured why lock in a slightly higher rate for 5 years, since interest rates will be increasing over the next few years :oops: .

It also just happened to be that right after a rollover to an IRA, brokered CDs were better than most direct ones, so I got used to that convenience. I did have a few shorter ones that matured earlier this year and stashed those funds in an ultrashort bond fund for a while, due to the low brokered CD rates. But, I finally bit the bullet and moved some to a direct CD at 1.9% for 3 years. I am just planning to look for more direct CD specials when CDs mature next year.

Anyway, since investing in these annuities presumably involves a level of hassle and effort equal to or greater than that required to find the better CD deals and to then move IRA money to the offering credit union or bank, I think those make a better comparison rather than the brokered CD rates. For me the best available CD recently was 1.9% for 3, 4, or 5 years, that is still a lot less than the 3.05% that you got from an annuity but not nearly as great as the spread vs. brokered CDs.

Also, I understand the transaction costs can be pretty high for selling CDs early, maybe around 1%?
To be honest I guess I need to look at the cost. I sold one a month ago in my HSA that was 15K and I received something like 15,125. I do not believe there is a 1 pct fee and they are all worth more than I bought them for. My HSA is not at Schwab so I will check.
I checked and it appears to be $1 per 1000 with a $10 minimum and $250 max.
Right you pay that 0.1% commission (as does the buyer) but there may be a large spread. The CD that you sold for $15,125 would cost more than that were you to buy it. Suppose it would cost $15,375 to buy it, if the value is assumed to be the mid point, $15,250 then the cost of selling was $125 or about 0.8% then add the commission and total cost was near 1% (just an example, I have no idea if that's a realistic spread or not). I have never sold one, I have only read that spreads can be large.
The main point is I would be making a small profit by selling early and exchanging them for a higher yield myga.I will see tomorrow.
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Re: Sell a CD early buy a fixed annuity

Post by nalor511 »

Are you guys going direct to institutions to buy these Annuities, or is this something you can do through your brokerage where you had the CDs?
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Re: Sell a CD early buy a fixed annuity

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nalor511 wrote: Sun Aug 02, 2020 12:12 pm Are you guys going direct to institutions to buy these Annuities, or is this something you can do through your brokerage where you had the CDs?
Schwab and Fidelity offer annuities but selection is small,at least at Schwab, and not sure how the process works.
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Re: Sell a CD early buy a fixed annuity

Post by nisiprius »

Stinky wrote: Sat Aug 01, 2020 8:53 pm
hoops777 wrote: Sat Aug 01, 2020 8:36 pm Forgot to ask but my research is a bit confusing on the state guarantee. I know California has a 250,000 limit on a policy. What if you have multiple policies all from different insurance companies ? 200K ,100K, 100K...All 3 go bankrupt. Are all 3 under the guarantee or just a 250,000 total ? I was on the state website and it said 250,000 limit from one insurer but did not address multiple companies.
It is $250k per company. So if all three of your companies go under, you will be covered for all policies.
Not so fast. It's... complicated. Go to nolhga.com, policyholder information, find your guaranty association. Pick "California" in the dropdown menu, then "FAQs." The direct link to that page is:

https://www.califega.org/FAQ

Now read item #13 carefully. The boldfacing is mine. There are two big gotchas. One is that it only covers 80% of the policy value, not all of it; that's unusual, most states I've looked at--mine for sure--covers all. The second is what is sometimes called the "aggregate cap," the guaranty association won't pay out more than $300,000 to any individual, period. Most states do have an aggregate cap of some kind, varying quite a bit in how they compare with the amount per insurer.
Are covered life insurance and annuity policies fully protected?

The maximum amount of protection for which the Guarantee Association may become liable for life insurance and annuity policies is as follows:

Life insurance death benefit protection: 80% of the policy death benefit up to a maximum of $300,000;

Life insurance net cash surrender and net cash withdrawal values: 80% of the policy value up to a maximum of $100,000;

Present value of annuity benefits including net cash surrender and net cash withdrawal values: 80% of the present value up to a maximum of $250,000.

Life insurance benefits including net cash surrender and net cash withdrawal values, and annuity benefits including net cash surrender and net cash withdrawal values are subject to interest rate adjustments. Generally, interest rate reductions are made when an insolvent insurer promised a rate of interest in excess of that provided for in the California Life & Health Insurance Guarantee Association Act. The maximum total amount the Guarantee Association will provide for any one individual for life insurance and annuity coverage is $300,000, even if that individual is covered by multiple life insurance policies and annuities.
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Re: Sell a CD early buy a fixed annuity

Post by hoops777 »

nisiprius wrote: Sun Aug 02, 2020 12:26 pm
Stinky wrote: Sat Aug 01, 2020 8:53 pm
hoops777 wrote: Sat Aug 01, 2020 8:36 pm Forgot to ask but my research is a bit confusing on the state guarantee. I know California has a 250,000 limit on a policy. What if you have multiple policies all from different insurance companies ? 200K ,100K, 100K...All 3 go bankrupt. Are all 3 under the guarantee or just a 250,000 total ? I was on the state website and it said 250,000 limit from one insurer but did not address multiple companies.
It is $250k per company. So if all three of your companies go under, you will be covered for all policies.
Not so fast. It's... complicated. Go to nolhga.com, policyholder information, find your guaranty association. Pick "California" in the dropdown menu, then "FAQs." The direct link to that page is:

https://www.califega.org/FAQ

Now read item #13 carefully. The boldfacing is mine. There are two big gotchas. One is that it only covers 80% of the policy value, not all of it; that's unusual, most states I've looked at--mine for sure--covers all. The second is what is sometimes called the "aggregate cap," the guaranty association won't pay out more than $300,000 to any individual, period. Most states do have an aggregate cap of some kind, varying quite a bit in how they compare with the amount per insurer.
Are covered life insurance and annuity policies fully protected?

The maximum amount of protection for which the Guarantee Association may become liable for life insurance and annuity policies is as follows:

Life insurance death benefit protection: 80% of the policy death benefit up to a maximum of $300,000;

Life insurance net cash surrender and net cash withdrawal values: 80% of the policy value up to a maximum of $100,000;

Present value of annuity benefits including net cash surrender and net cash withdrawal values: 80% of the present value up to a maximum of $250,000.

Life insurance benefits including net cash surrender and net cash withdrawal values, and annuity benefits including net cash surrender and net cash withdrawal values are subject to interest rate adjustments. Generally, interest rate reductions are made when an insolvent insurer promised a rate of interest in excess of that provided for in the California Life & Health Insurance Guarantee Association Act. The maximum total amount the Guarantee Association will provide for any one individual for life insurance and annuity coverage is $300,000, even if that individual is covered by multiple life insurance policies and annuities.
Thanks Nisiprius.I had seen the 300,000 but had seen something different elsewhere. I misssed the 80 pct. I was looking at a different site and did not see all of the questions and answers.Makes this investment riskier than I thought. I wonder what the odds of a A- rated company going bankrupt are.....
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Re: Sell a CD early buy a fixed annuity

Post by indexfundfan »

It's not good if there is a 80% limit.

My state's insurance guaranty association does not have this 80% language, neither did it have the aggregate coverage limitation verbiage.
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Re: Sell a CD early buy a fixed annuity

Post by hoops777 »

Any insurance experts out there familiar with Oxford Life or Americo ? Both have been around a long time and rated A- and A by AM Best.
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Re: Sell a CD early buy a fixed annuity

Post by Stinky »

nisiprius wrote: Sun Aug 02, 2020 12:26 pm
Stinky wrote: Sat Aug 01, 2020 8:53 pm
hoops777 wrote: Sat Aug 01, 2020 8:36 pm Forgot to ask but my research is a bit confusing on the state guarantee. I know California has a 250,000 limit on a policy. What if you have multiple policies all from different insurance companies ? 200K ,100K, 100K...All 3 go bankrupt. Are all 3 under the guarantee or just a 250,000 total ? I was on the state website and it said 250,000 limit from one insurer but did not address multiple companies.
It is $250k per company. So if all three of your companies go under, you will be covered for all policies.
Not so fast. It's... complicated. Go to nolhga.com, policyholder information, find your guaranty association. Pick "California" in the dropdown menu, then "FAQs." The direct link to that page is:

https://www.califega.org/FAQ

Now read item #13 carefully. The boldfacing is mine. There are two big gotchas. One is that it only covers 80% of the policy value, not all of it; that's unusual, most states I've looked at--mine for sure--covers all. The second is what is sometimes called the "aggregate cap," the guaranty association won't pay out more than $300,000 to any individual, period. Most states do have an aggregate cap of some kind, varying quite a bit in how they compare with the amount per insurer.
Are covered life insurance and annuity policies fully protected?

The maximum amount of protection for which the Guarantee Association may become liable for life insurance and annuity policies is as follows:

Life insurance death benefit protection: 80% of the policy death benefit up to a maximum of $300,000;

Life insurance net cash surrender and net cash withdrawal values: 80% of the policy value up to a maximum of $100,000;

Present value of annuity benefits including net cash surrender and net cash withdrawal values: 80% of the present value up to a maximum of $250,000.

Life insurance benefits including net cash surrender and net cash withdrawal values, and annuity benefits including net cash surrender and net cash withdrawal values are subject to interest rate adjustments. Generally, interest rate reductions are made when an insolvent insurer promised a rate of interest in excess of that provided for in the California Life & Health Insurance Guarantee Association Act. The maximum total amount the Guarantee Association will provide for any one individual for life insurance and annuity coverage is $300,000, even if that individual is covered by multiple life insurance policies and annuities.
Excellent points!

I was not aware of these limitations in California’s law. I know that neither of these limitations are in my home state’s (Alabama) law, and I believe that the majority of states don’t have such limitations.

I know that California has been the home domicile of some major insolvencies, most notably Executive Life back in the early 1990s. Maybe that had an influence on CA law.

That being said, I’ll be sure to temper my comments on life insurance company products. Folks do need to fully understand the guaranty fund coverage in their home states.

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Re: Sell a CD early buy a fixed annuity

Post by indexfundfan »

This report by AM Best studies the impairment rates of AM Best rated insurance companies in the US.

https://www3.ambest.com/bestweekpdfs/sr ... 21full.pdf

From my interpretation, Exhibit 3 shows the probability (using historic data) that a company could be labeled as "financially impaired" over time.

For example, for a A- rated company, the probability that it becomes "financially impaired" after 3 years is 1.22%. This probability increases to 5.8% after 10 years.

In general, the longer the time period, the higher the probability that the company could become "financially impaired". For this reason, it is better to select highly rated companies if you are taking up a longer term MYGA.

Note: AM Best designates an insurer as "financially impaired" upon the first official regulatory action taken by a state insurance department.
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Re: Sell a CD early buy a fixed annuity

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Re: Sell a CD early buy a fixed annuity

Post by nalor511 »

"Present value of annuity benefits including net cash surrender and net cash withdrawal values: 80% of the present value up to a maximum of $250,000."

That makes these a pretty dicey proposition in CA, IMO. Even if you're under the $250k (even way under), a potential 20% haircut more than wipes out any interest rate upside.
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Re: Sell a CD early buy a fixed annuity

Post by hoops777 »

indexfundfan wrote: Sun Aug 02, 2020 1:10 pm Image
Thank you for the charts.A 2 pct chance of having a problem in 4 years is pretty low risk. Staying short term seems reasonable.

If I buy a $200,000 myga paying 3 pct for 4 years how does the 80 pct work ?
After 3 years the company goes poof, but has paid out 18K over the 3 years. To keep it simple, my acct value is 218,000. Am I returned 80 pct of my initial 200K, 160,000 and I keep all of the 18,000 in interest ? Or, is the 18,000 also cut by 20 pct ?
Last edited by hoops777 on Sun Aug 02, 2020 1:34 pm, edited 1 time in total.
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Re: Sell a CD early buy a fixed annuity

Post by indexfundfan »

hoops777 wrote: Sun Aug 02, 2020 1:23 pm
indexfundfan wrote: Sun Aug 02, 2020 1:10 pm Image
Thank you for the charts.A 2 pct chance of having a problem in 4 years is pretty low risk. Staying short term seems reasonable.
My goal is to stay under the 2% in the table. In addition, I still have full coverage from my state's insurance guaranty association.
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Re: Sell a CD early buy a fixed annuity

Post by hoops777 »

indexfundfan wrote: Sun Aug 02, 2020 1:31 pm
hoops777 wrote: Sun Aug 02, 2020 1:23 pm
indexfundfan wrote: Sun Aug 02, 2020 1:10 pm Image
Thank you for the charts.A 2 pct chance of having a problem in 4 years is pretty low risk. Staying short term seems reasonable.
My goal is to stay under the 2% in the table. In addition, I still have full coverage from my state's insurance guaranty association.
The one I am in the process of buying would be at 1.74 in the risk table. It was all so much rosier when I thought the guarantee was 100 pct. Such is life.
K.I.S.S........so easy to say so difficult to do.
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Re: Sell a CD early buy a fixed annuity

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hoops777 wrote: Sun Aug 02, 2020 1:23 pm
Thank you for the charts.A 2 pct chance of having a problem in 4 years is pretty low risk. Staying short term seems reasonable.

If I buy a $200,000 myga paying 3 pct for 4 years how does the 80 pct work ?
After 3 years the company goes poof, but has paid out 18K over the 3 years. To keep it simple, my acct value is 218,000. Am I returned 80 pct of my initial 200K, 160,000 and I keep all of the 18,000 in interest ? Or, is the 18,000 also cut by 20 pct ?
Since it says "80% of present value", I'd think it would be $218k * 0.8 = $174.4k returned, or, a potential loss of all the interest plus $25.6k principle. Unless you took some of that $ as withdrawals each year/month, which would mean that $ would not longer be part of your present value, but also that you would not have been earning interest on that value inside the annuity.
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Re: Sell a CD early buy a fixed annuity

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nalor511 wrote: Sun Aug 02, 2020 1:45 pm
hoops777 wrote: Sun Aug 02, 2020 1:23 pm
Thank you for the charts.A 2 pct chance of having a problem in 4 years is pretty low risk. Staying short term seems reasonable.

If I buy a $200,000 myga paying 3 pct for 4 years how does the 80 pct work ?
After 3 years the company goes poof, but has paid out 18K over the 3 years. To keep it simple, my acct value is 218,000. Am I returned 80 pct of my initial 200K, 160,000 and I keep all of the 18,000 in interest ? Or, is the 18,000 also cut by 20 pct ?
Since it says "80% of present value", I'd think it would be $218k * 0.8 = $174.4k returned, or, a potential loss of all the interest plus $25.6k principle. Unless you took some of that $ as withdrawals each year/month, which would mean that $ would not longer be part of your present value, but also that you would not have been earning interest on that value inside the annuity.
That is what I was assuming. Thanks.
K.I.S.S........so easy to say so difficult to do.
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Re: Sell a CD early buy a fixed annuity

Post by nalor511 »

hoops777 wrote: Sun Aug 02, 2020 1:47 pm
nalor511 wrote: Sun Aug 02, 2020 1:45 pm
hoops777 wrote: Sun Aug 02, 2020 1:23 pm
Thank you for the charts.A 2 pct chance of having a problem in 4 years is pretty low risk. Staying short term seems reasonable.

If I buy a $200,000 myga paying 3 pct for 4 years how does the 80 pct work ?
After 3 years the company goes poof, but has paid out 18K over the 3 years. To keep it simple, my acct value is 218,000. Am I returned 80 pct of my initial 200K, 160,000 and I keep all of the 18,000 in interest ? Or, is the 18,000 also cut by 20 pct ?
Since it says "80% of present value", I'd think it would be $218k * 0.8 = $174.4k returned, or, a potential loss of all the interest plus $25.6k principle. Unless you took some of that $ as withdrawals each year/month, which would mean that $ would not longer be part of your present value, but also that you would not have been earning interest on that value inside the annuity.
That is what I was assuming. Thanks.
Considering that the whole point of rate chasing is to increase stash, potential loss of initial funds really kills it in CA (IMO). It's one thing to have an EWP, which is under the investor's control to incur or not-incur, but another thing to have a 20% haircut if the investee goes insolvent.
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Re: Sell a CD early buy a fixed annuity

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hoops777 wrote: Sun Aug 02, 2020 1:38 pm
indexfundfan wrote: Sun Aug 02, 2020 1:31 pm My goal is to stay under the 2% in the table. In addition, I still have full coverage from my state's insurance guaranty association.
The one I am in the process of buying would be at 1.74 in the risk table. It was all so much rosier when I thought the guarantee was 100 pct. Such is life.
If the insurance guaranty has a 80% limit, I would probably opt for a lower risk insurer, like below 1% in the table. But then, it would probably make MYGAs not competitive with CDs anymore.
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Re: Sell a CD early buy a fixed annuity

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indexfundfan wrote: Sun Aug 02, 2020 1:58 pm
hoops777 wrote: Sun Aug 02, 2020 1:38 pm
indexfundfan wrote: Sun Aug 02, 2020 1:31 pm My goal is to stay under the 2% in the table. In addition, I still have full coverage from my state's insurance guaranty association.
The one I am in the process of buying would be at 1.74 in the risk table. It was all so much rosier when I thought the guarantee was 100 pct. Such is life.
If the insurance guaranty has a 80% limit, I would probably opt for a lower risk insurer, like below 1% in the table. But then, it would probably make MYGAs not competitive with CDs anymore.
There's an "A 3.20% 5YRS" , but that's still 1.48 on the risk chart
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Re: Sell a CD early buy a fixed annuity

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nalor511 wrote: Sun Aug 02, 2020 2:05 pm
indexfundfan wrote: Sun Aug 02, 2020 1:58 pm
hoops777 wrote: Sun Aug 02, 2020 1:38 pm
indexfundfan wrote: Sun Aug 02, 2020 1:31 pm My goal is to stay under the 2% in the table. In addition, I still have full coverage from my state's insurance guaranty association.
The one I am in the process of buying would be at 1.74 in the risk table. It was all so much rosier when I thought the guarantee was 100 pct. Such is life.
If the insurance guaranty has a 80% limit, I would probably opt for a lower risk insurer, like below 1% in the table. But then, it would probably make MYGAs not competitive with CDs anymore.
There's an "A 3.20% 5YRS" , but that's still 1.48 on the risk chart
It will have to be a A+ from North American 2.4% 5-yr Jumbo.
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Re: Sell a CD early buy a fixed annuity

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Like everything else, what is the worst that can happen. The odds of me taking a 20 pct haircut on this are extreme.If it did happen, it would not do any real harm to my retirement. I believe an almost 99 pct chance of success is pretty good.
I have to think there is a huge difference in risk buying a 4 year vs a 10 or 20 year. I would imagine it takes time for an A- rated company to ruin itself unless there is some type of fraud.
K.I.S.S........so easy to say so difficult to do.
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Re: Sell a CD early buy a fixed annuity

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hoops777 wrote: Sun Aug 02, 2020 2:21 pmI would imagine it takes time for an A- rated company to ruin itself unless there is some type of fraud.
The rating transition matrices from Exhibit 10 in the link I posted earlier could be interesting information for you.
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Re: Sell a CD early buy a fixed annuity

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indexfundfan wrote: Sun Aug 02, 2020 1:58 pm If the insurance guaranty has a 80% limit, I would probably opt for a lower risk insurer, like below 1% in the table. But then, it would probably make MYGAs not competitive with CDs anymore.
Mass Mutual and NY Life have 1.60% for 3 year MYGAs. NY Life is A++. 1.6% beats 3 year CDs.
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Re: Sell a CD early buy a fixed annuity

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SlowMovingInvestor wrote: Sun Aug 02, 2020 5:06 pm
indexfundfan wrote: Sun Aug 02, 2020 1:58 pm If the insurance guaranty has a 80% limit, I would probably opt for a lower risk insurer, like below 1% in the table. But then, it would probably make MYGAs not competitive with CDs anymore.
Mass Mutual and NY Life have 1.60% for 3 year MYGAs. NY Life is A++. 1.6% beats 3 year CDs.
You can get 3-yr CDs with rates as high as 2% from a few credit unions. But I'm not in their locale. The best CD I can get is around 1.4%. With only a 20 basis point difference, I don't find MYGAs particularly attractive with their punitive surrender charges.

The 1.6% MYGA also require a $100k investment, any amount less than that, you only get 1.35%, which is worse off than a CD.
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Re: Sell a CD early buy a fixed annuity

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indexfundfan wrote: Sun Aug 02, 2020 4:49 pm
hoops777 wrote: Sun Aug 02, 2020 2:21 pmI would imagine it takes time for an A- rated company to ruin itself unless there is some type of fraud.
The rating transition matrices from Exhibit 10 in the link I posted earlier could be interesting information for you.
Thank you.Am I correct that the chart says an A- company has a 1.93 chance to be impaired after 5 years and 5.73 after 15 years or am I missing the point ? Thanks
K.I.S.S........so easy to say so difficult to do.
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Re: Sell a CD early buy a fixed annuity

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hoops777 wrote: Sun Aug 02, 2020 5:43 pm
indexfundfan wrote: Sun Aug 02, 2020 4:49 pm
hoops777 wrote: Sun Aug 02, 2020 2:21 pmI would imagine it takes time for an A- rated company to ruin itself unless there is some type of fraud.
The rating transition matrices from Exhibit 10 in the link I posted earlier could be interesting information for you.
Thank you.Am I correct that the chart says an A- company has a 1.93 chance to be impaired after 5 years and 5.73 after 15 years or am I missing the point ? Thanks
The report gives a definition of what is net (as opposed to gross) impairment on p.9.

But the point I wanted to raise about Exhibit 10 is that it shows, historically, how an A- rated company could be rated say 5 years later. From the table, 5 years later,

49.21% of them remain rated at A-
22.53% of them improved to A
6.84% of them dropped to B++

and so on.

Of course all these are based on data from 1977-2018. COVID-19 could have a huge negative impact in the years to come.
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Re: Sell a CD early buy a fixed annuity

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indexfundfan wrote: Sun Aug 02, 2020 6:48 pm
hoops777 wrote: Sun Aug 02, 2020 5:43 pm
indexfundfan wrote: Sun Aug 02, 2020 4:49 pm
hoops777 wrote: Sun Aug 02, 2020 2:21 pmI would imagine it takes time for an A- rated company to ruin itself unless there is some type of fraud.
The rating transition matrices from Exhibit 10 in the link I posted earlier could be interesting information for you.
Thank you.Am I correct that the chart says an A- company has a 1.93 chance to be impaired after 5 years and 5.73 after 15 years or am I missing the point ? Thanks
The report gives a definition of what is net (as opposed to gross) impairment on p.9.

But the point I wanted to raise about Exhibit 10 is that it shows, historically, how an A- rated company could be rated say 5 years later. From the table, 5 years later,

49.21% of them remain rated at A-
22.53% of them improved to A
6.84% of them dropped to B++

and so on.

Of course all these are based on data from 1977-2018. COVID-19 could have a huge negative impact in the years to come.
Thanks. I guess I did not understand. I will take another look. It really helps to read the explanations before the charts :D which I did not do.
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Re: Sell a CD early buy a fixed annuity

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Too much principle risk for my blood
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Re: Sell a CD early buy a fixed annuity

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nalor511 wrote: Sun Aug 02, 2020 7:19 pm Too much principle risk for my blood
Just curious what you think the actual risk is ? I may be wrong but I think even on the less than 2 pct chance of financial default, that very often another insurance company comes in and takes over making the loss even less likely.
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Re: Sell a CD early buy a fixed annuity

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hoops777 wrote: Sun Aug 02, 2020 7:26 pm
nalor511 wrote: Sun Aug 02, 2020 7:19 pm Too much principle risk for my blood
Just curious what you think the actual risk is ? I may be wrong but I think even on the less than 2 pct chance of financial default, that very often another insurance company comes in and takes over making the loss even less likely.
Maybe. Not worth it since I don't understand it well enough, then. I'll be watching this thread though.
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Re: Sell a CD early buy a fixed annuity

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hoops777 wrote: Sun Aug 02, 2020 7:26 pm
nalor511 wrote: Sun Aug 02, 2020 7:19 pm Too much principle risk for my blood
Just curious what you think the actual risk is ? I may be wrong but I think even on the less than 2 pct chance of financial default, that very often another insurance company comes in and takes over making the loss even less likely.
Another insurance company stepping into the shoes of a troubled life insurer and making good on all claims for existing policies happens with some frequency.

Presuming that there are embedded profits in the inforce business (which there almost always are), other life insurers usually pay a premium price to acquire such a book of business.
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Re: Sell a CD early buy a fixed annuity

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Stinky wrote: Sun Aug 02, 2020 8:00 pm
hoops777 wrote: Sun Aug 02, 2020 7:26 pm
nalor511 wrote: Sun Aug 02, 2020 7:19 pm Too much principle risk for my blood
Just curious what you think the actual risk is ? I may be wrong but I think even on the less than 2 pct chance of financial default, that very often another insurance company comes in and takes over making the loss even less likely.
Another insurance company stepping into the shoes of a troubled life insurer and making good on all claims for existing policies happens with some frequency.

Presuming that there are embedded profits in the inforce business (which there almost always are), other life insurers usually pay a premium price to acquire such a book of business.
Both of the companies I am looking at have been around a very long time. Again I may be wrong but adding in what Stinky just shared, I would think that gets the risk down even more,say 1 pct.

So if I look at the investment with the possibility of losing maybe 15 pct after a 4 year period,since probably 2 or 3 years of interest years of interest would have been paid, I can live with that.

It is money I can afford to lose. What are the chances of really bad outcomes investing in stocks and bonds the next 4 years with a 1 pct or so probability?
K.I.S.S........so easy to say so difficult to do.
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Re: Sell a CD early buy a fixed annuity

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hoops777 wrote: Sun Aug 02, 2020 9:11 pm
Stinky wrote: Sun Aug 02, 2020 8:00 pm
hoops777 wrote: Sun Aug 02, 2020 7:26 pm
nalor511 wrote: Sun Aug 02, 2020 7:19 pm Too much principle risk for my blood
Just curious what you think the actual risk is ? I may be wrong but I think even on the less than 2 pct chance of financial default, that very often another insurance company comes in and takes over making the loss even less likely.
Another insurance company stepping into the shoes of a troubled life insurer and making good on all claims for existing policies happens with some frequency.

Presuming that there are embedded profits in the inforce business (which there almost always are), other life insurers usually pay a premium price to acquire such a book of business.
Both of the companies I am looking at have been around a very long time. Again I may be wrong but adding in what Stinky just shared, I would think that gets the risk down even more,say 1 pct.

So if I look at the investment with the possibility of losing maybe 15 pct after a 4 year period,since probably 2 or 3 years of interest years of interest would have been paid, I can live with that.

It is money I can afford to lose. What are the chances of really bad outcomes investing in stocks and bonds the next 4 years with a 1 pct or so probability?
Any chance that you might move out of your current state? :-)
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Re: Sell a CD early buy a fixed annuity

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indexfundfan wrote: Sun Aug 02, 2020 9:38 pm
hoops777 wrote: Sun Aug 02, 2020 9:11 pm
Stinky wrote: Sun Aug 02, 2020 8:00 pm
hoops777 wrote: Sun Aug 02, 2020 7:26 pm
nalor511 wrote: Sun Aug 02, 2020 7:19 pm Too much principle risk for my blood
Just curious what you think the actual risk is ? I may be wrong but I think even on the less than 2 pct chance of financial default, that very often another insurance company comes in and takes over making the loss even less likely.
Another insurance company stepping into the shoes of a troubled life insurer and making good on all claims for existing policies happens with some frequency.

Presuming that there are embedded profits in the inforce business (which there almost always are), other life insurers usually pay a premium price to acquire such a book of business.
Both of the companies I am looking at have been around a very long time. Again I may be wrong but adding in what Stinky just shared, I would think that gets the risk down even more,say 1 pct.

So if I look at the investment with the possibility of losing maybe 15 pct after a 4 year period,since probably 2 or 3 years of interest years of interest would have been paid, I can live with that.

It is money I can afford to lose. What are the chances of really bad outcomes investing in stocks and bonds the next 4 years with a 1 pct or so probability?
Any chance that you might move out of your current state? :-)
No chance. Grandkids to babysit :D
K.I.S.S........so easy to say so difficult to do.
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Re: Sell a CD early buy a fixed annuity

Post by nalor511 »

According to the FAQ

Penalties for Withdrawals Under Age 59½
Fixed annuities are really meant to be used for retirement savings. The IRS issues a 10% penalty on gains withdrawn from a fixed annuity for account holders under age 59½ .

https://www.blueprintincome.com/resourc ... annuities/

The way I read that is that once the fixed contract is over, you have to pay a penalty on the gains, unless you are 60+?
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Re: Sell a CD early buy a fixed annuity

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nalor511 wrote: Mon Aug 03, 2020 1:01 am According to the FAQ

Penalties for Withdrawals Under Age 59½
Fixed annuities are really meant to be used for retirement savings. The IRS issues a 10% penalty on gains withdrawn from a fixed annuity for account holders under age 59½ .

https://www.blueprintincome.com/resourc ... annuities/

The way I read that is that once the fixed contract is over, you have to pay a penalty on the gains, unless you are 60+?
You will pay a tax penalty if you withdraw from a fixed annuity contract prior to age 59.5.

When the fixed term of a MYGA is over, you can do a couple of things to avoid making a withdrawal. Most MYGAs will automatically roll over to a new fixed term, at the then-current rate, if the annuitant does not take action. Alternatively, the annuitant can do a 1035 exchange to an annuity with another company. In both those cases there is no tax (or tax penalty) due at the time that the original annuity term ends.
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