Am I being lead down a bad road- Fixed Index Annuities

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Foodeefish
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Am I being lead down a bad road- Fixed Index Annuities

Post by Foodeefish »

Wife and I met with a Financial Advisor- AKA Insurance Salesman in this case.

A Bit of background.

Wife is 65 and will be retiring in June @ 66 years old.
I am 58 and will work to at least 60-62.

Wife's Roth IRA - $137K
My IRA - $700K
CDs and savings account- $200K
Etrade Stocks - $700K
Wifes 401K- $80K- She maxes it out each year but will stop once she retires in June

My 401K and 457B Plan- $60K- And I deposit $1000 every two weeks . Don't need the money so take tax advantage , I defer most of my paycheck.

The "Financial Adviser suggested I take my current Vanguard IRA ($500K in Low Fee Funds) and move it over to a Flexible Premium Fixed Index Deferred Annuity (F&G) . I am 58 years old . He says this will allow me to withdraw $2000 each month until I think 85 years old starting in year two.

He also advised I cash out my Etrade account ($700K) and put it in a different "Fixed Index Annuity." which would allow me to withdraw $3000 per month. Our bills are around $5000 per month currently and we are not concerned about leaving any family members our assets.

When we both are retired, our SS checks will cover at least 80% of our bills if SS is still healthy


A few Questions:

1) Does it make sense to purchase these annuities when I know I can get guaranteed at least 2-3% on this $1.2 Million in Bonds or should I leave the monies in my IRA and Stock Market?

2) Should Wife take SS starting in June? We really don't need the money but she needs to retire- she deserves it

3) Should I continue to invest my 401K in all Bonds rather than Mutual Funds seeing my portfolio only has 15% bonds currently

4) What am I missing that you Bogleheads think I should know?

Thnx a Million
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David Jay
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by David Jay »

Selling you 1.2M of Equity Indexed Annuities will likely give him a $80,000 - $90,000 paycheck. Guess why he is recommending those stinkers?
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by bloom2708 »

Run away as fast as you can. Or a brisk walk away.
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Nate79
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by Nate79 »

Danger Danger Danger! This insurance salesman is trying to sell you a load of ....... sorry almost slipped. This is a family website.
dandinsac
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by dandinsac »

Foodeefish wrote: Wed Mar 04, 2020 9:05 pm Should Wife take SS starting in June? We really don't need the money but she needs to retire- she deserves it
Assuming your wife is in good health, it’s not worth taking social security until you either need it or when she reaches 70. You will get a higher payment, indexed for inflation. Social security is a type of annuity that you can’t buy on the open market.
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Atomic
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by Atomic »

I may use a small stake (<20% of total retirement funds) in annuities someday. This would be to cover my risk in case I have the enviable problem of living a long time. I would use it to pay only after age 85 and after I max the social security by delaying until 70. I plan to buy on Vanguard, or price on an open market site, not buy through a broker. I do not like the scale or hidden costs in this plan.
helloeveryone
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by helloeveryone »

Foodeefish wrote: Wed Mar 04, 2020 9:05 pm Wife and I met with a Financial Advisor- AKA Insurance Salesman in this case.

A Bit of background.

Wife is 65 and will be retiring in June @ 66 years old.
I am 58 and will work to at least 60-62.

Wife's Roth IRA - $137K
My IRA - $700K
CDs and savings account- $200K
Etrade Stocks - $700K
Wifes 401K- $80K- She maxes it out each year but will stop once she retires in June

My 401K and 457B Plan- $60K- And I deposit $1000 every two weeks . Don't need the money so take tax advantage , I defer most of my paycheck.

The "Financial Adviser suggested I take my current Vanguard IRA ($500K in Low Fee Funds) and move it over to a Flexible Premium Fixed Index Deferred Annuity (F&G) . I am 58 years old . He says this will allow me to withdraw $2000 each month until I think 85 years old starting in year two.

He also advised I cash out my Etrade account ($700K) and put it in a different "Fixed Index Annuity." which would allow me to withdraw $3000 per month. Our bills are around $5000 per month currently and we are not concerned about leaving any family members our assets.

When we both are retired, our SS checks will cover at least 80% of our bills if SS is still healthy


A few Questions:

1) Does it make sense to purchase these annuities when I know I can get guaranteed at least 2-3% on this $1.2 Million in Bonds or should I leave the monies in my IRA and Stock Market?

2) Should Wife take SS starting in June? We really don't need the money but she needs to retire- she deserves it

3) Should I continue to invest my 401K in all Bonds rather than Mutual Funds seeing my portfolio only has 15% bonds currently

4) What am I missing that you Bogleheads think I should know?

Thnx a Million
Congrats on saving enough so that your SS checks will cover 80% of your needs. I would NOT do anything he recommends. You’ve done well for yourselves without sales people selling you stuff all these years. Now is not the time to change what you have done. Educate yourself on the forum, read up on when is the best time to take SS, and don’t schedule anymore meetings with FA’s/salespeople etc.... If you went to a car dealer they’ll try to sell you a car, to a TV store, a tv. you went to a annuity dealer and he’s trying to sell you annuities!
prozario01
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by prozario01 »

Foodeefish wrote: Wed Mar 04, 2020 9:05 pm Wife and I met with a Financial Advisor- AKA Insurance Salesman in this case.

A Bit of background.

Wife is 65 and will be retiring in June @ 66 years old.
I am 58 and will work to at least 60-62.

Wife's Roth IRA - $137K
My IRA - $700K
CDs and savings account- $200K
Etrade Stocks - $700K
Wifes 401K- $80K- She maxes it out each year but will stop once she retires in June

My 401K and 457B Plan- $60K- And I deposit $1000 every two weeks . Don't need the money so take tax advantage , I defer most of my paycheck.

The "Financial Adviser suggested I take my current Vanguard IRA ($500K in Low Fee Funds) and move it over to a Flexible Premium Fixed Index Deferred Annuity (F&G) . I am 58 years old . He says this will allow me to withdraw $2000 each month until I think 85 years old starting in year two.

He also advised I cash out my Etrade account ($700K) and put it in a different "Fixed Index Annuity." which would allow me to withdraw $3000 per month. Our bills are around $5000 per month currently and we are not concerned about leaving any family members our assets.

When we both are retired, our SS checks will cover at least 80% of our bills if SS is still healthy


A few Questions:

1) Does it make sense to purchase these annuities when I know I can get guaranteed at least 2-3% on this $1.2 Million in Bonds or should I leave the monies in my IRA and Stock Market?

2) Should Wife take SS starting in June? We really don't need the money but she needs to retire- she deserves it

3) Should I continue to invest my 401K in all Bonds rather than Mutual Funds seeing my portfolio only has 15% bonds currently

4) What am I missing that you Bogleheads think I should know?

Thnx a Million
Something does not add up - $2K per month = $24K per year. With $500K ... you can just give the money to yourself for 20.8 years. So starting at 60, you can get just do it yourself until 80 years old. Why would you give up $500K right now to make it last only for 4 more years?


Look at it this way: to get $24K per year out of $500K, you need to earn 4.8% return. You can earn that yourself with stock market (with moderate risk & long term investment strategy). So you can earn the monthly income they are promising you - by investing it yourself, and at the end of it at 85 years - you'll still have that $500K.


The larger issue I see - this guy obviously does not have your best interest. I look at it this way - what if I have an emergency and I need to access the $500K right away? What if I see a great business/investment opportunity and I need $300K right away? You will lose those flexibility as well.
tibbitts
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by tibbitts »

Foodeefish wrote: Wed Mar 04, 2020 9:05 pm 1) Does it make sense to purchase these annuities when I know I can get guaranteed at least 2-3% on this $1.2 Million in Bonds or should I leave the monies in my IRA and Stock Market?
Maybe I missed it in the thread but how is that you're going to get that much from bonds?
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Brianmcg321
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by Brianmcg321 »

Good Lord, NO!
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bayview
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by bayview »

Foodeefish wrote: Wed Mar 04, 2020 9:05 pm Wife and I met with a Financial Advisor- AKA Insurance Salesman in this case.

A Bit of background.

Wife is 65 and will be retiring in June @ 66 years old.
I am 58 and will work to at least 60-62.

Wife's Roth IRA - $137K
My IRA - $700K
CDs and savings account- $200K
Etrade Stocks - $700K
Wifes 401K- $80K- She maxes it out each year but will stop once she retires in June

My 401K and 457B Plan- $60K- And I deposit $1000 every two weeks . Don't need the money so take tax advantage , I defer most of my paycheck.

The "Financial Adviser suggested I take my current Vanguard IRA ($500K in Low Fee Funds) and move it over to a Flexible Premium Fixed Index Deferred Annuity (F&G) . I am 58 years old . He says this will allow me to withdraw $2000 each month until I think 85 years old starting in year two.

He also advised I cash out my Etrade account ($700K) and put it in a different "Fixed Index Annuity." which would allow me to withdraw $3000 per month.
Our bills are around $5000 per month currently and we are not concerned about leaving any family members our assets.

When we both are retired, our SS checks will cover at least 80% of our bills if SS is still healthy


A few Questions:

1) Does it make sense to purchase these annuities when I know I can get guaranteed at least 2-3% on this $1.2 Million in Bonds or should I leave the monies in my IRA and Stock Market?

2) Should Wife take SS starting in June? We really don't need the money but she needs to retire- she deserves it

3) Should I continue to invest my 401K in all Bonds rather than Mutual Funds seeing my portfolio only has 15% bonds currently

4) What am I missing that you Bogleheads think I should know?

Thnx a Million
Well, of course he advised that you do these things. That’s exactly how he makes his living, and you and your wife would be signing his paycheck.

First: cut off all further communication. No explanation needed. “Thanks, we appreciate your advice, but we’re going in another direction” if you feel that you simply must reply, and then no other responses, even if he contacts you repeatedly.

Second: do what you’re doing and harvest the wisdom from the Boglehead hive brain. :D If someone asks you to repost your finances in the recommended BH format, do so, over on the Personal Investments sub-forum. If retiredjg replies, thank your lucky stars. She is wonderful.

Welcome to Bogleheads!
The continuous execution of a sound strategy gives you the benefit of the strategy. That's what it's all about. --Rick Ferri
mptfan
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by mptfan »

Here is what I think about your advisor...

Grab a cop gun kinda crazy
He's poison but tasty
Yea, people say "Run, don't walk away!"
Cause he's sweet but a psycho
A little bit psycho.

- Ava Max
(I replaced "she" with "he")
Last edited by mptfan on Wed Mar 04, 2020 10:36 pm, edited 5 times in total.
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Sandtrap
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by Sandtrap »

Foodeefish wrote: Wed Mar 04, 2020 9:05 pm Wife and I met with a Financial Advisor- AKA Insurance Salesman in this case.
. . . . . .

A few Questions:

1) Does it make sense to purchase these annuities when I know I can get guaranteed at least 2-3% on this $1.2 Million in Bonds or should I leave the monies in my IRA and Stock Market?

2) Should Wife take SS starting in June? We really don't need the money but she needs to retire- she deserves it

3) Should I continue to invest my 401K in all Bonds rather than Mutual Funds seeing my portfolio only has 15% bonds currently

4) What am I missing that you Bogleheads think I should know?

Thnx a Million
1. Absolutely doesn't make sense. Unless you want to buy "someone" a BMW.
2. You have good positions so this is a 6 or half.dozen choice.
3. Yes.
4. Your instincts are already on alert. Follow them.
5. Next step is to do an overall comprehensive strategy by doing this:
Portfolio Review Request
https://www.bogleheads.org/forum/viewt ... =1&t=6212

j :happy
Wiki Bogleheads Wiki: Everything You Need to Know
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nisiprius
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by nisiprius »

Yes, I think you are.

Here are two starting points.

First, a test of this advisor's basic honesty. When he explained this product to you, did he explain the difference between the S&P 500 price index and the S&P 500 total return index? Did he say anything about this at all?

These annuities track the S&P 500 numbers you see quoted on TV or the internet, which is based on the price per share. But stocks make money in two ways: growth in the price per share, and dividend payments. The S&P price index does not include dividends. An S&P 500 index fund gives you the total return of the stocks in the S&P 500 index, including dividends. How important is this? Check this calculator. If you had bought an S&P 500 fund, receiving the total return of the stocks every dollar in the fund would have grown to $3.55:

Image

But, in the fixed indexed annuity, in the price index it tracks, every dollar would have only grown to $2.88:

Image

So compared to an actual mutual fund investment, they are stiffing you by not giving you the dividends.

A sane person could decide to buy one anyway, but my point is: did he explain this?

Second, if you are tempted by the product you should not touch it until you have read through an official FINRA "alert." (FINRA is the organization that regulate financial advisors). The alert is: Equity-Indexed Annuities: A Complex Choice. (Another red flag: they used to be called "equity-indexed annuities" but they got a bad reputation so the industry changed the name to "fixed indexed annuity.") You need to be sure you have answers to the questions it raises, and that you understand those answers. Print it out. Read it through. Have your wife read it through. A few comments from the alert:
Although one insurance company at one time included the word “simple” in the name of their product, EIAs are anything but easy to understand....

Most EIAs only count equity index gains from market price changes, excluding any gains from dividends. Since you’re not earning dividends, you won’t earn as much as if you invested directly in the market....

Participation Rates. A participation rate determines how much of the gain in the index will be credited to the annuity. For example, the insurance company may set the participation rate at 80 percent, which means the annuity would only be credited with 80 percent of the gain experienced by the index....

Can I Get My Money When I Need It?EIAs are long-term investments. Getting out early may mean taking a loss. Many EIAs have surrender charges. The surrender charge can be a percentage of the amount withdrawn or a reduction in the interest rate credited to the EIA.

Do EIAs and Other Tax-deferred Annuities Provide the Same Advantages as 401(k)s and Other Before-tax Retirement Plans? No....

Is It Possible to Lose Money In an EIA? Yes. Many insurance companies only guarantee that you’ll receive 87.5 percent of the premiums you paid, plus 1 to 3 percent interest. Therefore, if you don’t receive any index-linked interest, you could lose money on your investment. One way that you could not receive any index-linked interest is if the index linked to your annuity declines...
Last edited by nisiprius on Wed Mar 04, 2020 10:21 pm, edited 1 time in total.
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Katietsu
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by Katietsu »

1) No to the salesman plan.
2) If you have no pension and plan to have both of you retired in a few years, 85% in equities would be extremely aggressive. Much riskier than most would be comfortable with.
3) We do not know how much you and your wife will each receive under the various claiming strategies. This is something that should be examined carefully. I would say that there is a good chance that you would be better served to stop saving for retirement if that allows your wife to delay social security.
4) Consider a fee only advisor that sells nothing, whom you pay by the hour, and who can help with some of these analyses.
5) A single premium annuity is a reasonable product to consider at a later date. But, it would not be applicable now and is not what was offered to you.
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David Jay
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by David Jay »

Atomic wrote: Wed Mar 04, 2020 9:34 pm I may use a small stake (<20% of total retirement funds) in annuities someday. This would be to cover my risk in case I have the enviable problem of living a long time. I would use it to pay only after age 85 and after I max the social security by delaying until 70. I plan to buy on Vanguard, or price on an open market site, not buy through a broker. I do not like the scale or hidden costs in this plan.
My response was only referring to “Fixed Index Annuities”.

The use of SPIA (single premium indexed annuity) type annuities can provide useful functions in one’s financial plan. They are easy to understand (I give you $xxxx,xxx and you pay me $zzzz a month for the rest of my life) and can be purchased competitively.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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cheese_breath
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by cheese_breath »

Yes, a very bad road for you. But a road paved with gold for the salesman.
The surest way to know the future is when it becomes the past.
prozario01
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by prozario01 »

nisiprius wrote: Wed Mar 04, 2020 10:17 pm Yes, I think you are.

Here are two starting points.

First, a test of this advisor's basic honesty. When he explained this product to you, did he explain the difference between the S&P 500 price index and the S&P 500 total return index? Did he say anything about this at all?

These annuities track the S&P 500 numbers you see quoted on TV or the internet, which is based on the price per share. But stocks make money in two ways: growth in the price per share, and dividend payments. The S&P price index does not include dividends. An S&P 500 index fund gives you the total return of the stocks in the S&P 500 index, including dividends. How important is this? Check this calculator. If you had bought an S&P 500 fund, receiving the total return of the stocks every dollar in the fund would have grown to $3.55:

Image

But, in the fixed indexed annuity, in the price index it tracks, every dollar would have only grown to $2.88:

Image

So compared to an actual mutual fund investment, they are stiffing you by not giving you the dividends.

A sane person could decide to buy one anyway, but my point is: did he explain this?

Second, if you are tempted by the product you should not touch it until you have read through an official FINRA "alert." (FINRA is the organization that regulate financial advisors). The alert is: Equity-Indexed Annuities: A Complex Choice. (Another red flag: they used to be called "equity-indexed annuities" but they got a bad reputation so the industry changed the name to "fixed indexed annuity.") You need to be sure you have answers to the questions it raises, and that you understand those answers. Print it out. Read it through. Have your wife read it through. A few comments from the alert:
Although one insurance company at one time included the word “simple” in the name of their product, EIAs are anything but easy to understand....

Most EIAs only count equity index gains from market price changes, excluding any gains from dividends. Since you’re not earning dividends, you won’t earn as much as if you invested directly in the market....

Participation Rates. A participation rate determines how much of the gain in the index will be credited to the annuity. For example, the insurance company may set the participation rate at 80 percent, which means the annuity would only be credited with 80 percent of the gain experienced by the index....

Can I Get My Money When I Need It?EIAs are long-term investments. Getting out early may mean taking a loss. Many EIAs have surrender charges. The surrender charge can be a percentage of the amount withdrawn or a reduction in the interest rate credited to the EIA.

Do EIAs and Other Tax-deferred Annuities Provide the Same Advantages as 401(k)s and Other Before-tax Retirement Plans? No....

Is It Possible to Lose Money In an EIA? Yes. Many insurance companies only guarantee that you’ll receive 87.5 percent of the premiums you paid, plus 1 to 3 percent interest. Therefore, if you don’t receive any index-linked interest, you could lose money on your investment. One way that you could not receive any index-linked interest is if the index linked to your annuity declines...
I've seen this in few annuity threads, but don't understand it. Are you saying SP500 price does not take into account dividend paid? It is a total return index right? So I'm not sure if you track SP500 number - how you lose the dividends.

https://www.investopedia.com/terms/t/to ... _index.asp
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FIREchief
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by FIREchief »

Short accurate answer: "YES"
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
mptfan
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by mptfan »

prozario01 wrote: Wed Mar 04, 2020 10:29 pmAre you saying SP500 price does not take into account dividend paid? It is a total return index right? So I'm not sure if you track SP500 number - how you lose the dividends.
Yes, that is what he is saying, the S&P index commonly cited by the media is a price index, not a total return index, and it only reflects the price of the stocks in the index and does NOT include the total return of those stocks over the course of time because it does not include dividends. Standard and Poors does have a total return index, but the media does not report that.

You "lose" the dividends in the price index because after the dividends are paid (usually each quarter) they are no longer included in the price of the stocks in the index. Once you become educated you start to realize how you have been fooled by the media and the financial services industry.
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by suemarkp »

When an index fund pay a dividend of $1, the price of that fund drops $1. Most people reinvest that $1 into buying new shares so your total portfolio is a wash (more shares at a slightly lower price). But if the dividends are being siphoned off (e.g. you don't reinvest them or an insurance company is taking them), you are following the index but missing the return of the dividend.
Mark | Somewhere in WA State
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Eagle33
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by Eagle33 »

OP,
Go to this social security strategy calculator to determine when each of you should start social security.
Run it in non-advanced mode until you are comfortable with the calculator, then you can click the advanced options box and run enhanced scenarios.
Rocket science is not “rocket science” to a rocket scientist, just as personal finance is not “rocket science” to a Boglehead.
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unclescrooge
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by unclescrooge »

prozario01 wrote: Wed Mar 04, 2020 9:47 pm
Foodeefish wrote: Wed Mar 04, 2020 9:05 pm Wife and I met with a Financial Advisor- AKA Insurance Salesman in this case.

A Bit of background.

Wife is 65 and will be retiring in June @ 66 years old.
I am 58 and will work to at least 60-62.

Wife's Roth IRA - $137K
My IRA - $700K
CDs and savings account- $200K
Etrade Stocks - $700K
Wifes 401K- $80K- She maxes it out each year but will stop once she retires in June

My 401K and 457B Plan- $60K- And I deposit $1000 every two weeks . Don't need the money so take tax advantage , I defer most of my paycheck.

The "Financial Adviser suggested I take my current Vanguard IRA ($500K in Low Fee Funds) and move it over to a Flexible Premium Fixed Index Deferred Annuity (F&G) . I am 58 years old . He says this will allow me to withdraw $2000 each month until I think 85 years old starting in year two.

He also advised I cash out my Etrade account ($700K) and put it in a different "Fixed Index Annuity." which would allow me to withdraw $3000 per month. Our bills are around $5000 per month currently and we are not concerned about leaving any family members our assets.

When we both are retired, our SS checks will cover at least 80% of our bills if SS is still healthy


A few Questions:

1) Does it make sense to purchase these annuities when I know I can get guaranteed at least 2-3% on this $1.2 Million in Bonds or should I leave the monies in my IRA and Stock Market?

2) Should Wife take SS starting in June? We really don't need the money but she needs to retire- she deserves it

3) Should I continue to invest my 401K in all Bonds rather than Mutual Funds seeing my portfolio only has 15% bonds currently

4) What am I missing that you Bogleheads think I should know?

Thnx a Million
Something does not add up - $2K per month = $24K per year. With $500K ... you can just give the money to yourself for 20.8 years. So starting at 60, you can get just do it yourself until 80 years old. Why would you give up $500K right now to make it last only for 4 more years?


Look at it this way: to get $24K per year out of $500K, you need to earn 4.8% return. You can earn that yourself with stock market (with moderate risk & long term investment strategy). So you can earn the monthly income they are promising you - by investing it yourself, and at the end of it at 85 years - you'll still have that $500K.


The larger issue I see - this guy obviously does not have your best interest. I look at it this way - what if I have an emergency and I need to access the $500K right away? What if I see a great business/investment opportunity and I need $300K right away? You will lose those flexibility as well.
They are basically offering a 1.95% return on the money. :oops:
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unclescrooge
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by unclescrooge »

prozario01 wrote: Wed Mar 04, 2020 9:47 pm
Foodeefish wrote: Wed Mar 04, 2020 9:05 pm Wife and I met with a Financial Advisor- AKA Insurance Salesman in this case.

A Bit of background.

Wife is 65 and will be retiring in June @ 66 years old.
I am 58 and will work to at least 60-62.

Wife's Roth IRA - $137K
My IRA - $700K
CDs and savings account- $200K
Etrade Stocks - $700K
Wifes 401K- $80K- She maxes it out each year but will stop once she retires in June

My 401K and 457B Plan- $60K- And I deposit $1000 every two weeks . Don't need the money so take tax advantage , I defer most of my paycheck.

The "Financial Adviser suggested I take my current Vanguard IRA ($500K in Low Fee Funds) and move it over to a Flexible Premium Fixed Index Deferred Annuity (F&G) . I am 58 years old . He says this will allow me to withdraw $2000 each month until I think 85 years old starting in year two.

He also advised I cash out my Etrade account ($700K) and put it in a different "Fixed Index Annuity." which would allow me to withdraw $3000 per month. Our bills are around $5000 per month currently and we are not concerned about leaving any family members our assets.

When we both are retired, our SS checks will cover at least 80% of our bills if SS is still healthy


A few Questions:

1) Does it make sense to purchase these annuities when I know I can get guaranteed at least 2-3% on this $1.2 Million in Bonds or should I leave the monies in my IRA and Stock Market?

2) Should Wife take SS starting in June? We really don't need the money but she needs to retire- she deserves it

3) Should I continue to invest my 401K in all Bonds rather than Mutual Funds seeing my portfolio only has 15% bonds currently

4) What am I missing that you Bogleheads think I should know?

Thnx a Million
Something does not add up - $2K per month = $24K per year. With $500K ... you can just give the money to yourself for 20.8 years. So starting at 60, you can get just do it yourself until 80 years old. Why would you give up $500K right now to make it last only for 4 more years?


Look at it this way: to get $24K per year out of $500K, you need to earn 4.8% return. You can earn that yourself with stock market (with moderate risk & long term investment strategy). So you can earn the monthly income they are promising you - by investing it yourself, and at the end of it at 85 years - you'll still have that $500K.


The larger issue I see - this guy obviously does not have your best interest. I look at it this way - what if I have an emergency and I need to access the $500K right away? What if I see a great business/investment opportunity and I need $300K right away? You will lose those flexibility as well.
I think your math is wrong. It's only 1.95% return on the money.
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by BL »

How fortunate you asked before signing the dotted line! Then you would be seeing surrender charges on your invested money (somebody has to pay the lucrative broker's rebate if you don't keep paying the company) instead of trying to decide what to do with your money before you committed it. Stay away from that guy! Nobody understands these things, except that they are bad for you, and there are hidden costs and fees all over the place that are of course not easily found unless you study every inch of that 80 or so page contract that protects them, not you.

Good advice given above this post.

Buying a SPIA (single premium immediate annuity) at age 70+ might be a reasonable move to guarantee income for life. You can shop at sites like immediateAnnuities.com to get some competitive rates from good companies, and/or see a local independent insurance broker to shop around for you: they are easy to understand and compare and rates are higher than cash rates because you give them the money permanently and you receive some return of premium with each monthly check. Sort of buying your own pension. There is also a deferred (for 10 years) non-immediate one that may be an option, also some inflation-increased ones that start paying at a much lower rate (I would rather buy again later to get more that way.) These wouldn't pay the salesman much, so they won't bother to mention them to you.

SS: At least the higher income spouse should delay to age 70 if possible, in order to guarantee the highest possible inflation-indexed annuity money can buy for the longest living survivor. The other spouse is a matter of choice or math (calculator suggested above). Mike Piper, who can be searched for here, is our current expert and has also written a little book available on Amazon with the latest changes to SS included from a couple years ago. Delaying SS is the best annuity choice money can buy!

Minor detail: wife could increase 401k contributions to reach the 19.5 max by retirement date this year. Perhaps consider Roth version if available to make more money available without tax.

Having more money in fixed income at retirement makes sense: bonds, CDs, savings, Vanguard Money Market funds, I-bonds, are all possibilities.

There is a Boglehead's Guide to Retirement book and I also like Jane Bryant Quinn's How to Make Your Money Last, for an easy common-sense book full of good ideas. Your public library or Amazon.com (there is a link here) are both good options.

You are fortunate/wise to have many options.
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by nisiprius »

prozario01 wrote: Wed Mar 04, 2020 10:29 pmI've seen this in few annuity threads, but don't understand it. Are you saying SP500 price does not take into account dividend paid? It is a total return index right? So I'm not sure if you track SP500 number - how you lose the dividends.
Yes, you lose the dividends. The annuity providers are, in my opinion, deliberately taking advantage of the fact that people do not understand this. Just in case you don't believe me, this is a direct quote from FINRA, the industry's self-regulating body:
Most EIAs only count equity index gains from market price changes, excluding any gains from dividends. Since you’re not earning dividends, you won’t earn as much as if you invested directly in the market.
There are two different indexes.

The one you hear quoted on the news all the time, "the" S&P 500 index, is a price index.
There is also an "S&P 500 total return index."

Image

There is an "S&P 500 total return index," and it is the one that is used as a benchmark for mutual funds, and charted as the comparison lines in mutual fund growth charts. It does include dividends. That is not "the" S&P 500 index you see quoted all the time.

"The" S&P 500 index that you see quoted all the time is a price index. It doesn't include dividends.

The blue line is what you get in the Vanguard 500 Index Fund, the SPDR S&P 500 ETF (SPY), etc. The red line is what the annuity company is using, before doing even more jiggery-pokery. The blue line is the way your money would grow in an S&P 500 mutual fund or ETF if you invest dividends. The red line is approximately the way it would grow in your brokerage account if you let it pay out the dividends and spent them--but you would in fact get those dividends to spend.

The S&P 500 includes the shares of 500 "leading companies in leading industries." For each company, we know the price of the stock and the number of shares available for trading, the "public float." The S&P 500 includes:

Apple, 4.37 billion shares at $302.74/shares = $1,322.97 total in "market capitalization" ("market cap")
Mattel, 345 million shares at $12.78/share = $4.43 billion total

Add up the grand total for all 500 stocks and you get about $25.75 trillion, which is about 80% of the total capitalization of the whole stock market.

Now, consider what happens when Apple pays a dividend. Apple just pays money to shareholders. The market capitalization calculation doesn't say anything about dividends, it's just a total of 505 share x price numbers. In reality, when Apple has just paid out $0.77/share, investors know they have just missed out on that dividend and they are willing to pay less for it, so the price drops $0.77/share. Effectively, Apple, and thus the S&P 500 as a whole, has just paid out 4.37 billion x $0.77 = $3.4 billion that it had the day before, so all of Apple's stock, and the grand total of all the stocks in the S&P 500, has just gone down $3.4 billion.

The regular S&P 500 index you hear on the news basically tracks the market capitalization--price x number of shares--of the stocks in the S&P 500.
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by 260chrisb »

You kids have done very well. Congrats!! Yes, you are being lead down a bad road. Good for him, bad for you. No, don't do this. I'd like to ask this person how they built their wealth and have him share that success with you.
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by Jack FFR1846 »

David Jay wrote: Wed Mar 04, 2020 9:22 pm Selling you 1.2M of Equity Indexed Annuities will likely give him a $80,000 - $90,000 paycheck. Guess why he is recommending those stinkers?
To be clear, before a penny goes into this Annuity, you are giving this sales guy $80k - $90k. That's very generous of you.
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by Mel Lindauer »

Run, don't walk.

Here's a Forbes column I did some time ago about these lousy products:

https://www.forbes.com/2010/08/10/truth ... 922b6c1257
Best Regards - Mel | | Semper Fi
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by student »

I echo the opinion: This is a bad idea.
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by David Jay »

Jack FFR1846 wrote: Thu Mar 05, 2020 7:07 am
David Jay wrote: Wed Mar 04, 2020 9:22 pm Selling you 1.2M of Equity Indexed Annuities will likely give him a $80,000 - $90,000 paycheck. Guess why he is recommending those stinkers?
To be clear, before a penny goes into this Annuity, you are giving this sales guy $80k - $90k. That's very generous of you.
And this is why the annuity companies have early withdrawal penalties, typically for 7-10 years. They have already paid
the salesperson and need to suck fees out of your account for those years to recoup the commission that was paid on day one.
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by Tamarind »

As everyone has already said, run don't walk away from the index annuity. I'll focus on your other questions.
Foodeefish wrote: Wed Mar 04, 2020 9:05 pm 1) Does it make sense to purchase these annuities when I know I can get guaranteed at least 2-3% on this $1.2 Million in Bonds or should I leave the monies in my IRA and Stock Market?

2) Should Wife take SS starting in June? We really don't need the money but she needs to retire- she deserves it

3) Should I continue to invest my 401K in all Bonds rather than Mutual Funds seeing my portfolio only has 15% bonds currently

4) What am I missing that you Bogleheads think I should know?
1). No, it doesn't make sense. You have done fine investing for yourself and should continue to do so. Will social security covering 80%, you don't need to pay for extra "protection from loss". This wouldn't make sense even if the annuity weren't a scam, but it is.

2) First, your wife can retire and stop working even if she doesn't claim social security yet. Age credits mean that her benefit will keep going up every month she delays claiming even if she never earns another cent.

Often the older spouse is also the higher earner and it can be good to have them wait. We don't know which of you has the bigger expected social security, or whether you can both live on just your income if she retired. It might be that she should claim now, or maybe she should wait until 70 even if that means you need to reduce 401k contributions. We just don't know. Search for Social Security calculators - there are lots of threads on them and they'll help you do the math.

3) This depends on your tax situation, which we don't know. 401k is usually a good place to put bonds vs your taxable account.

4) I suggest starting a new thread where you follow the whole template laid out in the thread linked in my signature. Leave out the annuity thing and you will get lots of good advice with a bit more detail about your expenses and allocations.
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by lostdog »

Turn around and run.

My brother in law is an annuity salesman. He has a 600k+ home, luxury cars and spends like a drunken sailor.

It's very hard for me to refrain myself when he talks about hitting his year end goal so he can get a free vacation from his employer. If I open my mouth and call him a thief in front of family, my wife will be mad at me forever. She also knows how much of a thief he is but we get over it. I get tortured seeing how smug he is knowing that he is ripping people off.

A boglehead and an annuity salesman in a room together, can you imagine? That's me a few times a year.

Good luck.
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by prozario01 »

nisiprius wrote: Thu Mar 05, 2020 6:53 am
prozario01 wrote: Wed Mar 04, 2020 10:29 pmI've seen this in few annuity threads, but don't understand it. Are you saying SP500 price does not take into account dividend paid? It is a total return index right? So I'm not sure if you track SP500 number - how you lose the dividends.
Yes, you lose the dividends. The annuity providers are, in my opinion, deliberately taking advantage of the fact that people do not understand this. Just in case you don't believe me, this is a direct quote from FINRA, the industry's self-regulating body:
Most EIAs only count equity index gains from market price changes, excluding any gains from dividends. Since you’re not earning dividends, you won’t earn as much as if you invested directly in the market.
There are two different indexes.

The one you hear quoted on the news all the time, "the" S&P 500 index, is a price index.
There is also an "S&P 500 total return index."

Image

There is an "S&P 500 total return index," and it is the one that is used as a benchmark for mutual funds, and charted as the comparison lines in mutual fund growth charts. It does include dividends. That is not "the" S&P 500 index you see quoted all the time.

"The" S&P 500 index that you see quoted all the time is a price index. It doesn't include dividends.

The blue line is what you get in the Vanguard 500 Index Fund, the SPDR S&P 500 ETF (SPY), etc. The red line is what the annuity company is using, before doing even more jiggery-pokery. The blue line is the way your money would grow in an S&P 500 mutual fund or ETF if you invest dividends. The red line is approximately the way it would grow in your brokerage account if you let it pay out the dividends and spent them--but you would in fact get those dividends to spend.

The S&P 500 includes the shares of 500 "leading companies in leading industries." For each company, we know the price of the stock and the number of shares available for trading, the "public float." The S&P 500 includes:

Apple, 4.37 billion shares at $302.74/shares = $1,322.97 total in "market capitalization" ("market cap")
Mattel, 345 million shares at $12.78/share = $4.43 billion total

Add up the grand total for all 500 stocks and you get about $25.75 trillion, which is about 80% of the total capitalization of the whole stock market.

Now, consider what happens when Apple pays a dividend. Apple just pays money to shareholders. The market capitalization calculation doesn't say anything about dividends, it's just a total of 505 share x price numbers. In reality, when Apple has just paid out $0.77/share, investors know they have just missed out on that dividend and they are willing to pay less for it, so the price drops $0.77/share. Effectively, Apple, and thus the S&P 500 as a whole, has just paid out 4.37 billion x $0.77 = $3.4 billion that it had the day before, so all of Apple's stock, and the grand total of all the stocks in the S&P 500, has just gone down $3.4 billion.

The regular S&P 500 index you hear on the news basically tracks the market capitalization--price x number of shares--of the stocks in the S&P 500.
Many thanks for detailed explanation - I assumed there is only one index that adjusts for the dividend. I was looking at MorningStar, and Vanguard SP500 Fund tracks exactly close to S&P500 Index - so I was wondering if Fund included divided and Index did not, then Fund should outperform the Index. What you explained clarifies it.

I was doing some research on broadridge shield annuity - and saw this same point mentioned, but didn't understand it. Many many thanks.
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by Stinky »

Other Bogleheads have said it all. RUN AWAY!

OP, I see that this is only your third post on the Forum. I’m really happy for you that you thought to post your question before signing on the bottom line. You’ve saved yourself a whole lot of money by getting honest, objective feedback from the BH community.

Cut off all communication with this snake of a salesman. Don’t buy anything from him - ever.
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by Foodeefish »

WOW!

Thank You all for the great feedback each of You have given me up til now. We have worked very hard for our money and through many hours of reading the advice on this forum, we have built a nice nestegg. Now comes time to be sure we are ready for retirement and make our money work efficiently for us.

It looks as though I have some "Homework" to do and so I get the best advice, I think I need to put together a "Portfolio review request" this weekend and post it.

Thank You all again and it's great to know there are people who just want to share their wisdom with others

Namaste

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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by Dinosaur Dad »

lostdog wrote: Thu Mar 05, 2020 9:21 am Turn around and run.

My brother in law is an annuity salesman. He has a 600k+ home, luxury cars and spends like a drunken sailor.

It's very hard for me to refrain myself when he talks about hitting his year end goal so he can get a free vacation from his employer. If I open my mouth and call him a thief in front of family, my wife will be mad at me forever. She also knows how much of a thief he is but we get over it. I get tortured seeing how smug he is knowing that he is ripping people off.

A boglehead and an annuity salesman in a room together, can you imagine? That's me a few times a year.

Good luck.
+1

lostdog, that's about the best articulation I've heard in a long time of the inherent conflicts of interest that cost people so much! My god these products are oversold, they are often not in people's best interests, and people just get caught up in the complexity. I'm helping my older brother, a successful lawyer with a $300k+ income, get out of awful Nationwide annuities with 1.5% expense ratios and other fees. What a ripoff!
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by FIREchief »

lostdog wrote: Thu Mar 05, 2020 9:21 am A boglehead and an annuity salesman in a room together, can you imagine? That's me a few times a year.
As long as there is a nice big juicy "free" steak involved, it can happen a lot! Dinner and a show!! 8-)

Unfortunately, I just keep getting invites from the same clowns advisors that say "first time participants only." They've figured us plate lickers out.... :annoyed
I am not a lawyer, accountant or financial advisor. Any advice or suggestions that I may provide shall be considered for entertainment purposes only.
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by lostdog »

FIREchief wrote: Thu Mar 05, 2020 12:45 pm
lostdog wrote: Thu Mar 05, 2020 9:21 am A boglehead and an annuity salesman in a room together, can you imagine? That's me a few times a year.
As long as there is a nice big juicy "free" steak involved, it can happen a lot! Dinner and a show!! 8-)

Unfortunately, I just keep getting invites from the same clowns advisors that say "first time participants only." They've figured us plate lickers out.... :annoyed
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by Oicuryy »

Which of these F&G annuities is the salesman recommending? Have you read the Statement of Understanding?
https://www.fglife.com/annuities.html

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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by neilpilot »

FIREchief wrote: Thu Mar 05, 2020 12:45 pm
lostdog wrote: Thu Mar 05, 2020 9:21 am A boglehead and an annuity salesman in a room together, can you imagine? That's me a few times a year.
As long as there is a nice big juicy "free" steak involved, it can happen a lot! Dinner and a show!! 8-)

Unfortunately, I just keep getting invites from the same clowns advisors that say "first time participants only." They've figured us plate lickers out.... :annoyed
Coincidence....after a few years out of circulation, tonight I'm headed to a "free" dinner. The talk is billed as "Trump Tax Code Opens The Window To Potentially Saving Thousands On Your IRAs". I'm certain I'll learn something new, and equally certain I can resist any sales pitch that comes my way. What I couldn't resist is dinner at that high end steakhouse.
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by Atomic »

David Jay wrote: Wed Mar 04, 2020 10:22 pm
Atomic wrote: Wed Mar 04, 2020 9:34 pm I may use a small stake (<20% of total retirement funds) in annuities someday. This would be to cover my risk in case I have the enviable problem of living a long time. I would use it to pay only after age 85 and after I max the social security by delaying until 70. I plan to buy on Vanguard, or price on an open market site, not buy through a broker. I do not like the scale or hidden costs in this plan.
My response was only referring to “Fixed Index Annuities”.

The use of SPIA (single premium indexed annuity) type annuities can provide useful functions in one’s financial plan. They are easy to understand (I give you $xxxx,xxx and you pay me $zzzz a month for the rest of my life) and can be purchased competitively.
Right on. I tried to relate so as not to paint with too broad a brush. I should have lead with what the OP was being sold is toxic.
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by Foodeefish »

Well,

I called the Annuity salesman and told Him I was taking my planning in another direction thanks to input from the Boglehead Community.

He tried to make it even more complicated and when I ask the exact questions some of you told me to ask Him, I think he realized he was not getting his new BMW off my back. Many of You were right that if asked specific questions, he may not have the answers and that's exactly what happened. I showed him the Dividends that have built my portfolio over the years and I told him I was not willing to just give an insurance company $1.2 Million for them to buy stocks and take my dividends.

Thank You all for caring about people You hardly even know.There is good in this world - especially the Boglehead World.

I am working on my Portfolio request as was suggested and please let me know where I may be going off course.

Thank You

Foodee
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by Stinky »

Foodeefish wrote: Mon Mar 09, 2020 12:40 pm Well,

I called the Annuity salesman and told Him I was taking my planning in another direction thanks to input from the Boglehead Community.

He tried to make it even more complicated and when I ask the exact questions some of you told me to ask Him, I think he realized he was not getting his new BMW off my back. Many of You were right that if asked specific questions, he may not have the answers and that's exactly what happened. I showed him the Dividends that have built my portfolio over the years and I told him I was not willing to just give an insurance company $1.2 Million for them to buy stocks and take my dividends.

Thank You all for caring about people You hardly even know.There is good in this world - especially the Boglehead World.

I am working on my Portfolio request as was suggested and please let me know where I may be going off course.

Thank You

Foodee
Wow! Congratulations on making the call.

I’m really glad that you posted your question here. You’ll be the richer for not buying those annuities.
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Re: Am I being lead down a bad road- Fixed Index Annuities

Post by FBN2014 »

Just some general advice for anyone also tempted with a free steak dinner to buy an annuity. Always ask the salesman what are the contractual guarantees in the annuity contract. He/she will show you all sorts of pie in the sky illustrations but that is just marketing fluff. What counts is the guarantees only. FIAs are among the most complicated financial products to understand buy they are all designed to confuse the buyer.
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