Straight Talk Annuity

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hoops777
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Straight Talk Annuity

Post by hoops777 » Sat Jul 25, 2020 10:30 pm

Anyone familiar with the guy at Straight Talk Annuity and his flex plan?
Fixed Index annuity with no income riders to get fees as low as possible. Maybe use it instead of bonds in combination with your equity allocation.When stocks do well withdraw from your stocks.When stocks lose you withdraw from your annuity to preserve your stocks.
K.I.S.S........so easy to say so difficult to do.

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David Jay
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Re: Straight Talk Annuity

Post by David Jay » Sat Jul 25, 2020 10:39 pm

When you have read and completely understand the prospectus (typically 80 pages or more) including all crediting formulas, caps, guaranteed return and withdrawal penalties, come back and I will be pleased to discuss why it is not in your best interest.

At today’s bond yields (which is where the insurance companies invest your money), the crediting formulas are just plain terrible on these products.

And yes, you can lose money, check out the guaranteed payout in the prospectus (typically 85%-90% of initial investment). You pay the fees every year, even if the crediting formula calculates zero gain.
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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hoops777
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Re: Straight Talk Annuity

Post by hoops777 » Sat Jul 25, 2020 11:06 pm

David Jay wrote:
Sat Jul 25, 2020 10:39 pm
When you have read and completely understand the prospectus (typically 80 pages or more) including all crediting formulas, caps, guaranteed return and withdrawal penalties, come back and I will be pleased to discuss why it is not in your best interest.

At today’s bond yields (which is where the insurance companies invest your money), the crediting formulas are just plain terrible on these products.

And yes, you can lose money, check out the guaranteed payout in the prospectus (typically 85%-90% of initial investment). You pay the fees every year, even if the crediting formula calculates zero gain.
Well I guess the guy is a pretty good liar. He has been in business 17 years and I take it from your posts you have a 100 pct negative view of these products and they are all just scams. I will actually share your post with him and see what he says. It will be interesting.
K.I.S.S........so easy to say so difficult to do.

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FiveK
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Re: Straight Talk Annuity

Post by FiveK » Sun Jul 26, 2020 12:17 am

hoops777 wrote:
Sat Jul 25, 2020 11:06 pm
I will actually share your post with him and see what he says. It will be interesting.
Also feel free to share this: :)

What is the exact equation (and it should be simple enough to put into a single Excel formula - maybe a few cells at worst) that defines "linked" in the phrase "Potential for growth linked to a market index..." that appears on the web site?

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Re: Straight Talk Annuity

Post by tj » Sun Jul 26, 2020 12:43 am

Stan The Annuity Man has a guide on FIA's. In it, he writes that they were created to compete with CD's and MYGAs, their returns will be similar to both. He repeatedly says they should not be compared with stock funds despite how some people sell them.


Using an FIA rather than bonds does not seem like it would be a portfolio killing decision, but I don't think it is something that most bogleheads would pursue.

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Re: Straight Talk Annuity

Post by Stinky » Sun Jul 26, 2020 6:32 am

hoops777 wrote:
Sat Jul 25, 2020 10:30 pm
Anyone familiar with the guy at Straight Talk Annuity and his flex plan?
Fixed Index annuity with no income riders to get fees as low as possible. Maybe use it instead of bonds in combination with your equity allocation.When stocks do well withdraw from your stocks.When stocks lose you withdraw from your annuity to preserve your stocks.
You’re looking at Annuitystraighttalk.com, featuring a guy named Bryan Anderson?

If so, it appears that he pushes indexed annuities. There are tons of threads on this Forum about indexed annuities. If Anderson is selling annuities without riders, he’s selling a product with internal loads of 2-2.5% per year, rather than a higher load amount if the product has riders. Loads at that level are an absolute killer to product returns.

I don’t see any way that such a product could outperform an investment in bonds over the long term. He’s a not offering anything unique - just another annuity salesman.
Last edited by Stinky on Sun Jul 26, 2020 7:58 am, edited 1 time in total.
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David Jay
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Re: Straight Talk Annuity

Post by David Jay » Sun Jul 26, 2020 7:49 am

hoops777 wrote:
Sat Jul 25, 2020 11:06 pm
I take it from your posts you have a 100 pct negative view of these products and they are all just scams.
I have said no such thing. I said you need to read and understand the prospectus. I’ve done the “deep dive” on at least three FIA prospectuses for folks on this forum. If you haven’t read and understood the prospectus, you are mis-characterizing me from a position of ignorance.

(Oh, and when you talk to the salesman again, don’t forget to ask for a printed copy of the prospectus. It’s a lot more impressive if you get it in paper form instead of as a PDF.)
Last edited by David Jay on Sun Jul 26, 2020 8:22 am, edited 2 times in total.
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Re: Straight Talk Annuity

Post by Cyclesafe » Sun Jul 26, 2020 8:05 am

Salespeople have been spinning for millenniums. Try to find one person who has not regretted being ensnared into an investment annuity of any ilk. Seriously. The fact that this person has made a good living for 17 years hoodwinking people who trusted him is no endorsement. Run far away. All that glitters is not gold.

That's the bottom line. If you are still considering this investment, do yourself a solid, as suggested, and actually learn what this investment annuity will do. Do not rely on what the salesperson tells you. Only the prospectus matters. Nobody here will do the work for you. If you spend the time to fully understand the document, come back here with quotes and ask your specific questions. There are individuals here who used to actually sell these things and can be of great help as long as you do your homework first.
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petulant
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Re: Straight Talk Annuity

Post by petulant » Sun Jul 26, 2020 8:10 am

When I saw the thread title, I was worried Walmart had started selling annuities with their cellphone plans. Thank goodness it's just another insurance salesman.

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Re: Straight Talk Annuity

Post by David Jay » Sun Jul 26, 2020 8:46 am

hoops777 wrote:
Sat Jul 25, 2020 11:06 pm
Well I guess the guy is a pretty good liar.
The usual technique is one of omission. That is why you need to read and understand the prospectus rather than rely on the assurances of the salesman.

[notice the trend in my posts?]
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

tj
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Re: Straight Talk Annuity

Post by tj » Sun Jul 26, 2020 9:31 am

The biggest issue with this plan is the surrender charges. You can't withdraw from the fia for 7-8 years without incurring a surrender. Also if under 59.5, you can't withdraw without triggering the early withdrawal tax. But yes you absolutely need to read and understand the contract before embarking down that road.

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Re: Straight Talk Annuity

Post by nisiprius » Sun Jul 26, 2020 9:42 am

"Fixed index annuities" used to be called "equity-indexed annuities" and the industry changed the name because of the bad reputation they had gotten; that in itself should tell you anything. Before you buy any fixed index annuity you need to read through this FINRA alert. FINRA is the investment industry's self-regulating agency, they are not about to raise alarms where they aren't needed. In fact "alert" is soft language for what should be called a "warning." Seriously, this is just basic homework. The article will tell you some basic things you need to know and some questions you need to ask and absorb the answers to. The big message is that these products are complex and hard to understand.

Of course any who is trying to sell you a fixed index annuity will have a ready reply, "why, yes, there are a lot of bad ones out there, but mine is a good one." Maybe you really have found the one rose among the thorns.

Investor Alert: Equity-Indexed Annuities: A Complex Choice
Although one insurance company at one time included the word "simple" in the name of its product, EIAs are anything but easy to understand. One of the most confusing features of an EIA is the method used to calculate the gain in the index to which the annuity is linked. To make matters worse, there is not one, but several different indexing methods. Because of the variety and complexity of the methods used to credit interest, investors will find it difficult to compare one EIA to another....

How is an EIA's Index-linked Interest Rate Computed?

The index-linked gain depends on the particular combination of indexing features that an EIA uses. The most common indexing features are listed below. To fully understand an EIA, make sure you not only understand each feature, but also how the features work together since these features can dramatically impact the return on your investment.

Participation Rates... Spread/Margin/Asset Fee... Interest Rate Caps... Caution! Some EIAs allow the insurance company to change participation rates, cap rates, or spread/asset/margin fees either annually or at the start of the next contract term....

Indexing Methods.... Annual reset (ratchet)... High-water mark... Point-to-point... Index Averaging... Exclusion of Dividends....

Can I get my money when I need it? [No.] 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.]
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: Straight Talk Annuity

Post by nisiprius » Sun Jul 26, 2020 9:59 am

hoops777 wrote:
Sat Jul 25, 2020 11:06 pm
...I take it from your posts you have a 100 pct negative view of these products and they are all just scams. I will actually share your post with him and see what he says. It will be interesting...
You didn't say that to me but I will answer it as if you had. Because no two fixed-indexed annuities are alike--that is one of the problems, they are impossible to compare--it is impossible to say they are all bad.

With regard to sharing postings, I suggest, quite seriously, that if you take this any further you should print out and review FINRA's alert Investor Alert: Equity-Indexed Annuities: A Complex Choice, and bring that with you and make going through it part of the agenda. The point is to make sure he has answered every question about indexing methods, participation rates, surrender charges etc. that FINRA says you need to know.

Fixed indexed annuities as a class certainly do have a bad reputation. For example, in The Only Guide to Alternative Investments You'll Ever Need: The Good, the Flawed, the Bad, and the Ugly, Swedroe and Kizer discuss them:

Image

As a group, yes, they are "ugly." That is a reasonable supposition to go in with. The burden of proof is on the seller to show why his isn't like all the bad ones.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: Straight Talk Annuity

Post by Lastrun » Sun Jul 26, 2020 10:10 am

nisiprius wrote:
Sun Jul 26, 2020 9:42 am
Can I get my money when I need it? [No.] 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.]
I get SPIAs and MYGAs, and I even get Variables, but I never understood the allure of these products.

It always seemed to me you could build your own. Say you had $100,000 to invest-build a ladder of CDs or MYGAs to a nominal $100,000 in 10 years. Take the rest and put it in an S&P fund for 10 years. 10 years ago 5 years CDs were about 2.5% and MYGAs were about 4% according to DepositAccounts and AnnuityRateWatch. If you did this 10 years ago you would have made out famously-without a fee laden-squirrely contract.

Any by the way, cherry picking is not a good point because, the way I read it, the whole point of EIAs is the market upside, with little or no downside, at least from the marketing I have seen.

So with the build your own, you are all but guaranteed to get your money back, and capture a decent amount of a growing market.

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Re: Straight Talk Annuity

Post by Lastrun » Sun Jul 26, 2020 10:17 am

I guess as an amendment to my post:

It is not easy to emulate a SPIA because of the mortality credits. The best alternative is TIPS but you lack the longevity protection.

It is not easy to emulate a MYGA (higher rates) because of their stiff surrender charges. The best alternatives are CDs, but these will be at lower rates.

In the current tax environment and with the efficiency of total market funds, I can't see a compelling need for a variable annuity, absent special circumstances or a need for alternatives.

But for these fixed index products, I just can't see it for some reason.
Last edited by Lastrun on Sun Jul 26, 2020 10:22 am, edited 1 time in total.

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Re: Straight Talk Annuity

Post by nisiprius » Sun Jul 26, 2020 10:22 am

If you talk to him, here's one detail to clear up. His website says "no downside risk." Ask him to show you something in writing that guarantees that you will get back 100% of what you put in, not the 87.5% FINRA suggests is typical.

Image

Sources:
AST Flex Strategy Guidebook
Investor Alert: Equity-Indexed Annuities: A Complex Choice
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: Straight Talk Annuity

Post by abuss368 » Sun Jul 26, 2020 10:59 am

hoops777 wrote:
Sat Jul 25, 2020 10:30 pm
Anyone familiar with the guy at Straight Talk Annuity and his flex plan?
Fixed Index annuity with no income riders to get fees as low as possible. Maybe use it instead of bonds in combination with your equity allocation.When stocks do well withdraw from your stocks.When stocks lose you withdraw from your annuity to preserve your stocks.
Years ago Vanguard had a “Straight Talk” or “Plain Talk” series that Jack Brennan started. There was an annuity paper as well. I learned a lot as it was written in plain English!
John C. Bogle: Two Fund Portfolio - Total Stock & Total Bond - “Simplicity is the master key to financial success."

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Re: Straight Talk Annuity

Post by bikechuck » Sun Jul 26, 2020 11:27 am

Cyclesafe wrote:
Sun Jul 26, 2020 8:05 am
Salespeople have been spinning for millenniums. Try to find one person who has not regretted being ensnared into an investment annuity of any ilk.
I am a person that does not regret being ensnared in the fixed annuity that I purchased in the 1980's with a $2,000 investment. It did have a front end load but it also pays a guaranteed minimum 4.5% return after any fees. I pretty much forgot about this until 7 years ago when I called and asked if I could add new money to it without any front end charges and if so would the new money also earn a minimum 4.5%. The answer was yes. I asked if the new money and the accumulated balance is fully liquid. The answer is yes I can withdraw any funds at any time without penalty or any fees. There is a risk in investing too much with one insurance company but my state does insure annuities of this type up to $250K.

I also have money in TIAA Traditional which is an annuity that has been yielding 4.0% after any fees. There is a restriction that I would need to withdraw this over 10 years if I would decide to get out of it. I do not mind this restriction.

Not all annuities are evil and at least in my case I can use my annuities as bond substitutes rather than annuitizing them. Next year I intend to begin taking interest only payments on both which I will continue until I am forced to take RMDs.

Consider me happily ensnared!

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Re: Straight Talk Annuity

Post by hoops777 » Sun Jul 26, 2020 11:41 am

David Jay wrote:
Sun Jul 26, 2020 7:49 am
hoops777 wrote:
Sat Jul 25, 2020 11:06 pm
I take it from your posts you have a 100 pct negative view of these products and they are all just scams.
I have said no such thing. I said you need to read and understand the prospectus. I’ve done the “deep dive” on at least three FIA prospectuses for folks on this forum. If you haven’t read and understood the prospectus, you are mis-characterizing me from a position of ignorance.

(Oh, and when you talk to the salesman again, don’t forget to ask for a printed copy of the prospectus. It’s a lot more impressive if you get it in paper form instead of as a PDF.)
I apologize for my ignorance :D
No offense intended. I appreciate your time and your knowledge which obviously is 1000x mine regarding this.
K.I.S.S........so easy to say so difficult to do.

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Re: Straight Talk Annuity

Post by hoops777 » Sun Jul 26, 2020 11:46 am

I really appreciate all of the feedback.I know these products are held in very low regard here.
I have decided the best course of action,especially since Nisiprius went to his website, is to email him and ask him to read this thread. He has posted here in the past,years ago.
I have not spoken to him but simply exchanged a couple emails. We will see if he responds. Thanks again.
K.I.S.S........so easy to say so difficult to do.

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Re: Straight Talk Annuity

Post by ChrisBenn » Sun Jul 26, 2020 11:55 am

bikechuck wrote:
Sun Jul 26, 2020 11:27 am
Cyclesafe wrote:
Sun Jul 26, 2020 8:05 am
Salespeople have been spinning for millenniums. Try to find one person who has not regretted being ensnared into an investment annuity of any ilk.
I am a person that does not regret being ensnared in the fixed annuity that I purchased in the 1980's with a $2,000 investment. It did have a front end load but it also pays a guaranteed minimum 4.5% return after any fees. I pretty much forgot about this until 7 years ago when I called and asked if I could add new money to it without any front end charges and if so would the new money also earn a minimum 4.5%. The answer was yes. I asked if the new money and the accumulated balance is fully liquid. The answer is yes I can withdraw any funds at any time without penalty or any fees. There is a risk in investing too much with one insurance company but my state does insure annuities of this type up to $250K.

I also have money in TIAA Traditional which is an annuity that has been yielding 4.0% after any fees. There is a restriction that I would need to withdraw this over 10 years if I would decide to get out of it. I do not mind this restriction.

Not all annuities are evil and at least in my case I can use my annuities as bond substitutes rather than annuitizing them. Next year I intend to begin taking interest only payments on both which I will continue until I am forced to take RMDs.

Consider me happily ensnared!
What did you gain with this vs just dropping that 2k into the s&p 500 (and if you wanted to annuitize just purchasing a spia now?)

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Re: Straight Talk Annuity

Post by David Jay » Sun Jul 26, 2020 11:56 am

hoops777 wrote:
Sun Jul 26, 2020 11:41 am
David Jay wrote:
Sun Jul 26, 2020 7:49 am
hoops777 wrote:
Sat Jul 25, 2020 11:06 pm
I take it from your posts you have a 100 pct negative view of these products and they are all just scams.
I have said no such thing. I said you need to read and understand the prospectus. I’ve done the “deep dive” on at least three FIA prospectuses for folks on this forum. If you haven’t read and understood the prospectus, you are mis-characterizing me from a position of ignorance.

(Oh, and when you talk to the salesman again, don’t forget to ask for a printed copy of the prospectus. It’s a lot more impressive if you get it in paper form instead of as a PDF.)
I apologize for my ignorance :D
No offense intended. I appreciate your time and your knowledge which obviously is 1000x mine regarding this.
No problem, I’m just trying to save on your tuition (i.e. “Education Tax”).

My offer is dead serious, if you will read and analyze the prospectus, come back and we can go through the issues. The prospectus is the only way to evaluate the salesman’s claims. Asking the salesman to respond on this thread does not replace reading and understanding the prospectus. Only then you can determine whether or not the product is appropriate to your situation.

I like Jane Bryant Quinn’s caution: “I never invest in anything that you can’t explain to a reasonably intelligent twelve year old”.
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: Straight Talk Annuity

Post by David Jay » Sun Jul 26, 2020 12:03 pm

hoops777 wrote:
Sun Jul 26, 2020 11:46 am
I have decided the best course of action,especially since Nisiprius went to his website, is to email him and ask him to read this thread. He has posted here in the past,years ago.
The best course of action is to ask him for a link to the prospectus and then post the link here.
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: Straight Talk Annuity

Post by hoops777 » Sun Jul 26, 2020 12:10 pm

David Jay wrote:
Sun Jul 26, 2020 12:03 pm
hoops777 wrote:
Sun Jul 26, 2020 11:46 am
I have decided the best course of action,especially since Nisiprius went to his website, is to email him and ask him to read this thread. He has posted here in the past,years ago.
The best course of action is to ask him for a link to the prospectus and then post the link here.
Ok.I will ask him.Thanks.
K.I.S.S........so easy to say so difficult to do.

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Re: Straight Talk Annuity

Post by Stinky » Sun Jul 26, 2020 12:32 pm

bikechuck wrote:
Sun Jul 26, 2020 11:27 am
I am a person that does not regret being ensnared in the fixed annuity that I purchased in the 1980's with a $2,000 investment. It did have a front end load but it also pays a guaranteed minimum 4.5% return after any fees. I pretty much forgot about this until 7 years ago when I called and asked if I could add new money to it without any front end charges and if so would the new money also earn a minimum 4.5%. The answer was yes. I asked if the new money and the accumulated balance is fully liquid. The answer is yes I can withdraw any funds at any time without penalty or any fees. There is a risk in investing too much with one insurance company but my state does insure annuities of this type up to $250K.
Congratulations. You do have a very good annuity.

Back in the 1980s when you bought this policy, it was unimaginable that interest rates would be as low as they are now. So insurance companies gave away these 4.5% guaranteed rates, and added the option of making future deposits.

Of course, no annuity sold these days would have terms like yours.

It sounds like a real win for you. I’d definitely keep that annuity and consider it to be a core part of my fixed income allocation.
It's a GREAT day to be alive - Travis Tritt

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Re: Straight Talk Annuity

Post by Nate79 » Sun Jul 26, 2020 12:59 pm

Equity indexed annuities and their other ugly stepchild cousins have been discussed a gazillion times here. I doubt an insurance salesman is going to come on here to get called out on their ignorance or lies.

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Cyclesafe
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Re: Straight Talk Annuity

Post by Cyclesafe » Sun Jul 26, 2020 1:32 pm

bikechuck wrote:
Sun Jul 26, 2020 11:27 am
Cyclesafe wrote:
Sun Jul 26, 2020 8:05 am
Salespeople have been spinning for millenniums. Try to find one person who has not regretted being ensnared into an investment annuity of any ilk.
I am a person that does not regret being ensnared in the fixed annuity that I purchased in the 1980's with a $2,000 investment. It did have a front end load but it also pays a guaranteed minimum 4.5% return after any fees. I pretty much forgot about this until 7 years ago when I called and asked if I could add new money to it without any front end charges and if so would the new money also earn a minimum 4.5%. The answer was yes. I asked if the new money and the accumulated balance is fully liquid. The answer is yes I can withdraw any funds at any time without penalty or any fees. There is a risk in investing too much with one insurance company but my state does insure annuities of this type up to $250K.

I also have money in TIAA Traditional which is an annuity that has been yielding 4.0% after any fees. There is a restriction that I would need to withdraw this over 10 years if I would decide to get out of it. I do not mind this restriction.

Not all annuities are evil and at least in my case I can use my annuities as bond substitutes rather than annuitizing them. Next year I intend to begin taking interest only payments on both which I will continue until I am forced to take RMDs.

Consider me happily ensnared!
I have an investment variable annuity contract entered into when the federal funds rate was 10%. Annuitization will pay out a contracted 4%, which is crazy fine compared to anything one could get today. But its analysis is far more involved than what you are implying.

If I had invested the money instead in taxable with the same asset allocation, I would have paid lower fees, incurred favorable tax rates on both qualified dividends and LTCG, and have had penalty-free access prior to age 59 1/2. Albeit tax free compounding (after several decades) ameliorates this somewhat.

If I surrender over years, I'll be paying full income rates until basis is breached. If I annuitize for life, I'll be paying full income rates on everything other than the return of basis, complete when I reach approximately 92 years of age. After that, the annuity payment would be 100% taxable at full income rates. Also if I annuitize, I would incur off the top a California premium tax of 2.3%.
"Plans are useless; planning is indispensable.” (Dwight Eisenhower) | "Man plans, God laughs" (Yiddish proverb)

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Re: Straight Talk Annuity

Post by nisiprius » Sun Jul 26, 2020 2:49 pm

Here's an even greater dissonance between what the AnnuityStraightTalk.com website seems to be saying, and what the FINRA alert says is often the case.

Image

Sources:
AST: Pros and Cons of Fixed Indexed Annuities
Investor Alert: Equity-Indexed Annuities: A Complex Choice
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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Re: Straight Talk Annuity

Post by bikechuck » Sun Jul 26, 2020 3:02 pm

Cyclesafe wrote:
Sun Jul 26, 2020 1:32 pm
bikechuck wrote:
Sun Jul 26, 2020 11:27 am
Cyclesafe wrote:
Sun Jul 26, 2020 8:05 am
Salespeople have been spinning for millenniums. Try to find one person who has not regretted being ensnared into an investment annuity of any ilk.
I am a person that does not regret being ensnared in the fixed annuity that I purchased in the 1980's with a $2,000 investment. It did have a front end load but it also pays a guaranteed minimum 4.5% return after any fees. I pretty much forgot about this until 7 years ago when I called and asked if I could add new money to it without any front end charges and if so would the new money also earn a minimum 4.5%. The answer was yes. I asked if the new money and the accumulated balance is fully liquid. The answer is yes I can withdraw any funds at any time without penalty or any fees. There is a risk in investing too much with one insurance company but my state does insure annuities of this type up to $250K.

I also have money in TIAA Traditional which is an annuity that has been yielding 4.0% after any fees. There is a restriction that I would need to withdraw this over 10 years if I would decide to get out of it. I do not mind this restriction.

Not all annuities are evil and at least in my case I can use my annuities as bond substitutes rather than annuitizing them. Next year I intend to begin taking interest only payments on both which I will continue until I am forced to take RMDs.

Consider me happily ensnared!
I have an investment variable annuity contract entered into when the federal funds rate was 10%. Annuitization will pay out a contracted 4%, which is crazy fine compared to anything one could get today. But its analysis is far more involved than what you are implying.

If I had invested the money instead in taxable with the same asset allocation, I would have paid lower fees, incurred favorable tax rates on both qualified dividends and LTCG, and have had penalty-free access prior to age 59 1/2. Albeit tax free compounding (after several decades) ameliorates this somewhat.

If I surrender over years, I'll be paying full income rates until basis is breached. If I annuitize for life, I'll be paying full income rates on everything other than the return of basis, complete when I reach approximately 92 years of age. After that, the annuity payment would be 100% taxable at full income rates. Also if I annuitize, I would incur off the top a California premium tax of 2.3%.
Everyone's situation is a bit different. I am so happy and so thankful for the two annuities that I am choosing to remain ensnared in. They are far superior to today's bond funds, CDs or other alternatives that I hold to fill in the rest of my portfolio that supplements my equity holdings.

bikechuck
Posts: 771
Joined: Sun Aug 16, 2015 9:22 pm

Re: Straight Talk Annuity

Post by bikechuck » Sun Jul 26, 2020 3:25 pm

ChrisBenn wrote:
Sun Jul 26, 2020 11:55 am
bikechuck wrote:
Sun Jul 26, 2020 11:27 am
Cyclesafe wrote:
Sun Jul 26, 2020 8:05 am
Salespeople have been spinning for millenniums. Try to find one person who has not regretted being ensnared into an investment annuity of any ilk.
I am a person that does not regret being ensnared in the fixed annuity that I purchased in the 1980's with a $2,000 investment. It did have a front end load but it also pays a guaranteed minimum 4.5% return after any fees. I pretty much forgot about this until 7 years ago when I called and asked if I could add new money to it without any front end charges and if so would the new money also earn a minimum 4.5%. The answer was yes. I asked if the new money and the accumulated balance is fully liquid. The answer is yes I can withdraw any funds at any time without penalty or any fees. There is a risk in investing too much with one insurance company but my state does insure annuities of this type up to $250K.

I also have money in TIAA Traditional which is an annuity that has been yielding 4.0% after any fees. There is a restriction that I would need to withdraw this over 10 years if I would decide to get out of it. I do not mind this restriction.

Not all annuities are evil and at least in my case I can use my annuities as bond substitutes rather than annuitizing them. Next year I intend to begin taking interest only payments on both which I will continue until I am forced to take RMDs.

Consider me happily ensnared!
What did you gain with this vs just dropping that 2k into the s&p 500 (and if you wanted to annuitize just purchasing a spia now?)
Could the road not taken have resulted in better returns? Perhaps but the S&P 500 is not really the correct benchmark as I have never intended this to be a portion of my portfolio allocated to equities.

I like this a bit better than a SPIA because unless I decide to annuitize all or part of it in my mid to late 70s I can pass all of it on to my heirs.

The other thing that I gained is that I added no money to the fixed annuity for 27 years after investing in it. The majority of this investment was added when interest rates plunged.

Look, most of where I am at is due to historical accident rather than astute planning on my part. I was responding to the poster who said ... "Try to find one person who has not regretted being ensnared into an investment annuity of any ilk" and I am such an ensnared person without regrets. I suspect there are many more of us including many academics who invested in TIAA Traditional which is gasp a low cost, low fee variable annuity that was not subject to sales commissions if it was a component of a college or university retirement plan.

Absolute statements and condemnations are rarely true.

ChrisBenn
Posts: 375
Joined: Mon Aug 05, 2019 7:56 pm

Re: Straight Talk Annuity

Post by ChrisBenn » Sun Jul 26, 2020 4:49 pm

bikechuck wrote:
Sun Jul 26, 2020 3:25 pm
ChrisBenn wrote:
Sun Jul 26, 2020 11:55 am
bikechuck wrote:
Sun Jul 26, 2020 11:27 am
Cyclesafe wrote:
Sun Jul 26, 2020 8:05 am
Salespeople have been spinning for millenniums. Try to find one person who has not regretted being ensnared into an investment annuity of any ilk.
I am a person that does not regret being ensnared in the fixed annuity that I purchased in the 1980's with a $2,000 investment. It did have a front end load but it also pays a guaranteed minimum 4.5% return after any fees. I pretty much forgot about this until 7 years ago when I called and asked if I could add new money to it without any front end charges and if so would the new money also earn a minimum 4.5%. The answer was yes. I asked if the new money and the accumulated balance is fully liquid. The answer is yes I can withdraw any funds at any time without penalty or any fees. There is a risk in investing too much with one insurance company but my state does insure annuities of this type up to $250K.

I also have money in TIAA Traditional which is an annuity that has been yielding 4.0% after any fees. There is a restriction that I would need to withdraw this over 10 years if I would decide to get out of it. I do not mind this restriction.

Not all annuities are evil and at least in my case I can use my annuities as bond substitutes rather than annuitizing them. Next year I intend to begin taking interest only payments on both which I will continue until I am forced to take RMDs.

Consider me happily ensnared!
What did you gain with this vs just dropping that 2k into the s&p 500 (and if you wanted to annuitize just purchasing a spia now?)
Could the road not taken have resulted in better returns? Perhaps but the S&P 500 is not really the correct benchmark as I have never intended this to be a portion of my portfolio allocated to equities.

I like this a bit better than a SPIA because unless I decide to annuitize all or part of it in my mid to late 70s I can pass all of it on to my heirs.

The other thing that I gained is that I added no money to the fixed annuity for 27 years after investing in it. The majority of this investment was added when interest rates plunged.

Look, most of where I am at is due to historical accident rather than astute planning on my part. I was responding to the poster who said ... "Try to find one person who has not regretted being ensnared into an investment annuity of any ilk" and I am such an ensnared person without regrets. I suspect there are many more of us including many academics who invested in TIAA Traditional which is gasp a low cost, low fee variable annuity that was not subject to sales commissions if it was a component of a college or university retirement plan.

Absolute statements and condemnations are rarely true.
Thanks, appreciate the reply (I was asking in good faith, as I'm not familiar with the ins and outs if these investments).
I guess the non-sequiter for me is the substitution for bonds. I look at bonds as something I can rebalance against equities, and from how I understand these investments they don't have that type of liquidity.

If they do why would you not go take out every type of loan you could (heloc, margin, etc) that was less than 4.5% and enjoy the risk free money?

User avatar
Stinky
Posts: 4813
Joined: Mon Jun 12, 2017 11:38 am
Location: Sweet Home Alabama

Re: Straight Talk Annuity

Post by Stinky » Sun Jul 26, 2020 5:30 pm

ChrisBenn wrote:
Sun Jul 26, 2020 4:49 pm
bikechuck wrote:
Sun Jul 26, 2020 3:25 pm
ChrisBenn wrote:
Sun Jul 26, 2020 11:55 am
bikechuck wrote:
Sun Jul 26, 2020 11:27 am
Cyclesafe wrote:
Sun Jul 26, 2020 8:05 am
Salespeople have been spinning for millenniums. Try to find one person who has not regretted being ensnared into an investment annuity of any ilk.
I am a person that does not regret being ensnared in the fixed annuity that I purchased in the 1980's with a $2,000 investment. It did have a front end load but it also pays a guaranteed minimum 4.5% return after any fees. I pretty much forgot about this until 7 years ago when I called and asked if I could add new money to it without any front end charges and if so would the new money also earn a minimum 4.5%. The answer was yes. I asked if the new money and the accumulated balance is fully liquid. The answer is yes I can withdraw any funds at any time without penalty or any fees. There is a risk in investing too much with one insurance company but my state does insure annuities of this type up to $250K.

I also have money in TIAA Traditional which is an annuity that has been yielding 4.0% after any fees. There is a restriction that I would need to withdraw this over 10 years if I would decide to get out of it. I do not mind this restriction.

Not all annuities are evil and at least in my case I can use my annuities as bond substitutes rather than annuitizing them. Next year I intend to begin taking interest only payments on both which I will continue until I am forced to take RMDs.

Consider me happily ensnared!
What did you gain with this vs just dropping that 2k into the s&p 500 (and if you wanted to annuitize just purchasing a spia now?)
Could the road not taken have resulted in better returns? Perhaps but the S&P 500 is not really the correct benchmark as I have never intended this to be a portion of my portfolio allocated to equities.

I like this a bit better than a SPIA because unless I decide to annuitize all or part of it in my mid to late 70s I can pass all of it on to my heirs.

The other thing that I gained is that I added no money to the fixed annuity for 27 years after investing in it. The majority of this investment was added when interest rates plunged.

Look, most of where I am at is due to historical accident rather than astute planning on my part. I was responding to the poster who said ... "Try to find one person who has not regretted being ensnared into an investment annuity of any ilk" and I am such an ensnared person without regrets. I suspect there are many more of us including many academics who invested in TIAA Traditional which is gasp a low cost, low fee variable annuity that was not subject to sales commissions if it was a component of a college or university retirement plan.

Absolute statements and condemnations are rarely true.
Thanks, appreciate the reply (I was asking in good faith, as I'm not familiar with the ins and outs if these investments).
I guess the non-sequiter for me is the substitution for bonds. I look at bonds as something I can rebalance against equities, and from how I understand these investments they don't have that type of liquidity.

If they do why would you not go take out every type of loan you could (heloc, margin, etc) that was less than 4.5% and enjoy the risk free money?
Make sure you consider taxes when you do that. The 4.5% that you earn will be fully taxable income. Will all of the interest you pay be deductible?
It's a GREAT day to be alive - Travis Tritt

Topic Author
hoops777
Posts: 3175
Joined: Sun Apr 10, 2011 12:23 pm

Re: Straight Talk Annuity

Post by hoops777 » Sun Jul 26, 2020 7:05 pm

David Jay wrote:
Sun Jul 26, 2020 12:03 pm
hoops777 wrote:
Sun Jul 26, 2020 11:46 am
I have decided the best course of action,especially since Nisiprius went to his website, is to email him and ask him to read this thread. He has posted here in the past,years ago.
The best course of action is to ask him for a link to the prospectus and then post the link here.
I am asking what you would consider to be an acceptable fixed index annuity, if any? What would be the main positive details from the prospectus?
K.I.S.S........so easy to say so difficult to do.

SlowMovingInvestor
Posts: 1791
Joined: Sun Sep 11, 2016 11:27 am

Re: Straight Talk Annuity

Post by SlowMovingInvestor » Sun Jul 26, 2020 7:40 pm

bikechuck wrote:
Sun Jul 26, 2020 11:27 am

I am a person that does not regret being ensnared in the fixed annuity that I purchased in the 1980's with a $2,000 investment. It did have a front end load but it also pays a guaranteed minimum 4.5% return after any fees. I pretty much forgot about this until 7 years ago when I called and asked if I could add new money to it without any front end charges and if so would the new money also earn a minimum 4.5%. The answer was yes. I asked if the new money and the accumulated balance is fully liquid. The answer is yes I can withdraw any funds at any time without penalty or any fees. There is a risk in investing too much with one insurance company but my state does insure annuities of this type up to $250K.
Seriously ? You can add lots of new money (although you realistically don't want to go beyond 250K) and get 4.5% minimum on it ? Even if interest rates rise (unlikely in the next few years), you can just withdraw the amount you deposited ?

Of course in the early 1980s, with incredibly high interest rates, that might not have seemed like a great deal, but it's a fantastic deal now.

SlowMovingInvestor
Posts: 1791
Joined: Sun Sep 11, 2016 11:27 am

Re: Straight Talk Annuity

Post by SlowMovingInvestor » Sun Jul 26, 2020 7:49 pm

Lastrun wrote:
Sun Jul 26, 2020 10:10 am

I get SPIAs and MYGAs, and I even get Variables, but I never understood the allure of these products.

It always seemed to me you could build your own. Say you had $100,000 to invest-build a ladder of CDs or MYGAs to a nominal $100,000 in 10 years. Take the rest and put it in an S&P fund for 10 years. 10 years ago 5 years CDs were about 2.5% and MYGAs were about 4% according to DepositAccounts and AnnuityRateWatch. If you did this 10 years ago you would have made out famously-without a fee laden-squirrely contract.

Any by the way, cherry picking is not a good point because, the way I read it, the whole point of EIAs is the market upside, with little or no downside, at least from the marketing I have seen.

So with the build your own, you are all but guaranteed to get your money back, and capture a decent amount of a growing market.
Interesting idea.

You will pay taxes on dividends -- but FIAs don't give you that, so you're better off anyway.

These days with CD rates as low as they are, you probably wouldn't have much money to invest in an S&P 500 fund if you build a CD ladder. Alternatively, you could buy long term S&P options and invest the rest in CDs, so the bulk of your principal (but not all) would be safe. I'm guessing insurers do something similar, except they likely use multiple options to incorporate the 'cap'.

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David Jay
Posts: 8952
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Location: Michigan

Re: Straight Talk Annuity

Post by David Jay » Sun Jul 26, 2020 7:57 pm

hoops777 wrote:
Sun Jul 26, 2020 7:05 pm
David Jay wrote:
Sun Jul 26, 2020 12:03 pm
hoops777 wrote:
Sun Jul 26, 2020 11:46 am
I have decided the best course of action,especially since Nisiprius went to his website, is to email him and ask him to read this thread. He has posted here in the past,years ago.
The best course of action is to ask him for a link to the prospectus and then post the link here.
I am asking what you would consider to be an acceptable fixed index annuity, if any? What would be the main positive details from the prospectus?
As Nisiprius said above, every FIA underwriter is different and the terms may even be dramatically different between two products from the same underwriter. It is almost impossible to get two quotes from two different agents and compare them without reading the entire prospectus (bet you're surprised I brought that up :wink:). So the various features play off of one another such that any given annuity has one or two nice-looking features that the salesman can highlight as a valid reason for purchase. The problem is in order to make one feature look better it is necessary to "take the money" from another feature. Remember, the insurance company expects to make money, they are not giving anything away for free.

The insurance company is investing your money primarily in bonds, so they need to pay you less than the yield of bonds in order to make money. They do have the advantage that they can hold long term bonds because they expect to be a multi-generational company. But still, bond yields have been falling for a dozen years and that makes it a challenge to pretend to pay you a portion of the "S&P 500" performance. It was a lot easier when bond yields were 5%, they could claim to pay you 80% of the S&P price index and make it work with a 2% fee structure. Now, not so much.

The salesman typically gets a 6% - 8% commission on the total amount of the purchase price as soon as they get your check, so they have a huge incentive to sell you an annuity, the larger the better. Note that the salesman's commission is the primary reason for the early withdrawal penalties. The insurance company is earning more than 1% per year on your policy. But they have already paid out 8% (for instance) so they need to keep the policy in force for 7, 8, 9 years to break even after paying the salesman up front.

So what do I look for in the prospectus to evaluate the overall performance of the annuity? Here are the key items for me:

1. The guaranteed return of capital - the percentage of your money they guarantee to return at the end of the penalty period (see #4 below). The fees (see #3 below) are paid from your balance every year. If the crediting formula and the market do not return nominally 2% per year, your annuity goes underwater.

2. The full crediting formula - not just the percentage but also the frequency (annual, quarterly, etc.) They will be using the S&P500 "price index", which excludes dividends so you are already starting down about 1.8% per year. The stock market is volatile, so caps - especially annual caps - will really cut into the performance. The stock market does not go up 8% per year, it goes up 30% one year, 10% another year, has some mediocre years and then has an occasional big decline. A crediting formula that caps the maximum return needs to be evaluated to understand how it interacts with the volatility of the stock market. Remember, the insurance industry is nothing if not great actuarial experts. They know how to shape the crediting formula so that it looks great but returns little.

3. All fees - there are typically 2-3 fees that you need to find in the prospectus and add together to understand the fee drag.

4. The early withdrawal penalties - I have not seen an FIA that let you take your money out in less than 7 years without a penalty. You are making a long term commitment to this annuity, you need to understand it thoroughly.

5. Any "gotchas" - because there is no standard FIA, one has to look through the entire prospectus to see what gotcha's a particular company has built into their product.

So there is interplay between all of these items. For instance, a company could have a better crediting formula but higher fees. The whole picture needs to be seen. Then the total picture needs to be compared to the buyer's perceived needs and any alternative financial products to determine if it is a good "fit" to the need and if it outperforms the alternate methods of meeting those needs.

[wow, talk about TL;DR!]
Last edited by David Jay on Sun Jul 26, 2020 8:00 pm, edited 1 time in total.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

TheDDC
Posts: 1036
Joined: Mon Jan 08, 2018 11:11 am

Re: Straight Talk Annuity

Post by TheDDC » Sun Jul 26, 2020 8:00 pm

hoops777 wrote:
Sun Jul 26, 2020 7:05 pm
David Jay wrote:
Sun Jul 26, 2020 12:03 pm
hoops777 wrote:
Sun Jul 26, 2020 11:46 am
I have decided the best course of action,especially since Nisiprius went to his website, is to email him and ask him to read this thread. He has posted here in the past,years ago.
The best course of action is to ask him for a link to the prospectus and then post the link here.
I am asking what you would consider to be an acceptable fixed index annuity, if any? What would be the main positive details from the prospectus?
None. Invest in the market in a 20/80 mutual fund if you just want the income. Such funds (such as VASIX) are easy to understand, cheap to own, and you still own every last dime of what you invested and can pass it on as per your estate plan.

Actually a VA is probably the closest to being *OK* in the annuity world so long as you invest it hard at 100/0 in good mutual (sub)funds with a proven track record of beating the S&P and also as long as the fees aren't bad and there aren't any ripoff riders to chew away at your contributions. That's hard to find.

-TheDDC
Rules to wealth building: 90-100% VTSAX piled high and deep, 0-10% VIGAX tilt, 0% given away to banks, minimize amount given to medical-industrial complex

User avatar
David Jay
Posts: 8952
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Straight Talk Annuity

Post by David Jay » Sun Jul 26, 2020 8:12 pm

David Jay wrote:
Sun Jul 26, 2020 7:57 pm
hoops777 wrote:
Sun Jul 26, 2020 7:05 pm
David Jay wrote:
Sun Jul 26, 2020 12:03 pm
hoops777 wrote:
Sun Jul 26, 2020 11:46 am
I have decided the best course of action,especially since Nisiprius went to his website, is to email him and ask him to read this thread. He has posted here in the past,years ago.
The best course of action is to ask him for a link to the prospectus and then post the link here.
I am asking what you would consider to be an acceptable fixed index annuity, if any? What would be the main positive details from the prospectus?
As Nisiprius said above, every FIA underwriter is different and the terms may even be dramatically different between two products from the same underwriter. It is almost impossible to get two quotes from two different agents and compare them without reading the entire prospectus (bet you're surprised I brought that up :wink:). So the various features play off of one another such that any given annuity has one or two nice-looking features that the salesman can highlight as a valid reason for purchase. The problem is in order to make one feature look better it is necessary to "take the money" from another feature. Remember, the insurance company expects to make money, they are not giving anything away for free.

The insurance company is investing your money primarily in bonds, so they need to pay you less than the yield of bonds in order to make money. They do have the advantage that they can hold long term bonds because they expect to be a multi-generational company. But still, bond yields have been falling for a dozen years and that makes it a challenge to pretend to pay you a portion of the "S&P 500" performance. It was a lot easier when bond yields were 5%, they could claim to pay you 80% of the S&P price index and make it work with a 2% fee structure. Now, not so much.

The salesman typically gets a 6% - 8% commission on the total amount of the purchase price as soon as they get your check, so they have a huge incentive to sell you an annuity, the larger the better. Note that the salesman's commission is the primary reason for the early withdrawal penalties. The insurance company is earning more than 1% per year on your policy. But they have already paid out 8% (for instance) so they need to keep the policy in force for 7, 8, 9 years to break even after paying the salesman up front.

So what do I look for in the prospectus to evaluate the overall performance of the annuity? Here are the key items for me:

1. The guaranteed return of capital - the percentage of your money they guarantee to return at the end of the penalty period (see #4 below). The fees (see #3 below) are paid from your balance every year. If the crediting formula and the market do not return nominally 2% per year, your annuity goes underwater.

2. The full crediting formula - not just the percentage but also the frequency (annual, quarterly, etc.) They will be using the S&P500 "price index", which excludes dividends so you are already starting down about 1.8% per year. The stock market is volatile, so caps - especially annual caps - will really cut into the performance. The stock market does not go up 8% per year, it goes up 30% one year, 10% another year, has some mediocre years and then has an occasional big decline. A crediting formula that caps the maximum return needs to be evaluated to understand how it interacts with the volatility of the stock market. Remember, the insurance industry is nothing if not great actuarial experts. They know how to shape the crediting formula so that it looks great but returns little.

3. All fees - there are typically 2-3 fees that you need to find in the prospectus and add together to understand the fee drag.

4. The early withdrawal penalties - I have not seen an FIA that let you take your money out in less than 7 years without a penalty. You are making a long term commitment to this annuity, you need to understand it thoroughly.

5. Any "gotchas" - because there is no standard FIA, one has to look through the entire prospectus to see what gotcha's a particular company has built into their product.

So there is interplay between all of these items. For instance, a company could have a better crediting formula but higher fees. The whole picture needs to be seen. Then the total picture needs to be compared to the buyer's perceived needs and any alternative financial products to determine if it is a good "fit" to the need and if it outperforms the alternate methods of meeting those needs.

[wow, talk about TL;DR!]
I didn't really answer your question. Here is an FIA that I would consider purchasing:
1. 100% return of capital at 5 years
2. Total of all fees under 1% annually
3. 50% of the SP500 price index upside, 0% downside, calculated quarterly with a 10% (again, quarterly) cap
4. 5% initial early withdrawal fee, dropping 1% per year, all capital available after 5 years

And that, ladies and gentlemen, is unobtainium.
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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Stinky
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Location: Sweet Home Alabama

Re: Straight Talk Annuity

Post by Stinky » Sun Jul 26, 2020 8:39 pm

David Jay wrote:
Sun Jul 26, 2020 8:12 pm
Here is an FIA that I would consider purchasing:
1. 100% return of capital at 5 years
2. Total of all fees under 1% annually
3. 50% of the SP500 price index upside, 0% downside, calculated quarterly with a 10% (again, quarterly) cap
4. 5% initial early withdrawal fee, dropping 1% per year, all capital available after 5 years

And that, ladies and gentlemen, is unobtainium.
And the reason that this annuity is unavailable is because the commission would be so low that the agents wouldn’t sell it.
It's a GREAT day to be alive - Travis Tritt

User avatar
David Jay
Posts: 8952
Joined: Mon Mar 30, 2015 5:54 am
Location: Michigan

Re: Straight Talk Annuity

Post by David Jay » Sun Jul 26, 2020 8:51 pm

Stinky wrote:
Sun Jul 26, 2020 8:39 pm
David Jay wrote:
Sun Jul 26, 2020 8:12 pm
Here is an FIA that I would consider purchasing:
1. 100% return of capital at 5 years
2. Total of all fees under 1% annually
3. 50% of the SP500 price index upside, 0% downside, calculated quarterly with a 10% (again, quarterly) cap
4. 5% initial early withdrawal fee, dropping 1% per year, all capital available after 5 years

And that, ladies and gentlemen, is unobtainium.
And the reason that this annuity is unavailable is because the commission would be so low that the agents wouldn’t sell it.
And FIAs are designed to be sold, not bought.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

Topic Author
hoops777
Posts: 3175
Joined: Sun Apr 10, 2011 12:23 pm

Re: Straight Talk Annuity

Post by hoops777 » Sun Jul 26, 2020 9:47 pm

David Jay wrote:
Sun Jul 26, 2020 8:12 pm
David Jay wrote:
Sun Jul 26, 2020 7:57 pm
hoops777 wrote:
Sun Jul 26, 2020 7:05 pm
David Jay wrote:
Sun Jul 26, 2020 12:03 pm
hoops777 wrote:
Sun Jul 26, 2020 11:46 am
I have decided the best course of action,especially since Nisiprius went to his website, is to email him and ask him to read this thread. He has posted here in the past,years ago.
The best course of action is to ask him for a link to the prospectus and then post the link here.
I am asking what you would consider to be an acceptable fixed index annuity, if any? What would be the main positive details from the prospectus?
As Nisiprius said above, every FIA underwriter is different and the terms may even be dramatically different between two products from the same underwriter. It is almost impossible to get two quotes from two different agents and compare them without reading the entire prospectus (bet you're surprised I brought that up :wink:). So the various features play off of one another such that any given annuity has one or two nice-looking features that the salesman can highlight as a valid reason for purchase. The problem is in order to make one feature look better it is necessary to "take the money" from another feature. Remember, the insurance company expects to make money, they are not giving anything away for free.

The insurance company is investing your money primarily in bonds, so they need to pay you less than the yield of bonds in order to make money. They do have the advantage that they can hold long term bonds because they expect to be a multi-generational company. But still, bond yields have been falling for a dozen years and that makes it a challenge to pretend to pay you a portion of the "S&P 500" performance. It was a lot easier when bond yields were 5%, they could claim to pay you 80% of the S&P price index and make it work with a 2% fee structure. Now, not so much.

The salesman typically gets a 6% - 8% commission on the total amount of the purchase price as soon as they get your check, so they have a huge incentive to sell you an annuity, the larger the better. Note that the salesman's commission is the primary reason for the early withdrawal penalties. The insurance company is earning more than 1% per year on your policy. But they have already paid out 8% (for instance) so they need to keep the policy in force for 7, 8, 9 years to break even after paying the salesman up front.

So what do I look for in the prospectus to evaluate the overall performance of the annuity? Here are the key items for me:

1. The guaranteed return of capital - the percentage of your money they guarantee to return at the end of the penalty period (see #4 below). The fees (see #3 below) are paid from your balance every year. If the crediting formula and the market do not return nominally 2% per year, your annuity goes underwater.

2. The full crediting formula - not just the percentage but also the frequency (annual, quarterly, etc.) They will be using the S&P500 "price index", which excludes dividends so you are already starting down about 1.8% per year. The stock market is volatile, so caps - especially annual caps - will really cut into the performance. The stock market does not go up 8% per year, it goes up 30% one year, 10% another year, has some mediocre years and then has an occasional big decline. A crediting formula that caps the maximum return needs to be evaluated to understand how it interacts with the volatility of the stock market. Remember, the insurance industry is nothing if not great actuarial experts. They know how to shape the crediting formula so that it looks great but returns little.

3. All fees - there are typically 2-3 fees that you need to find in the prospectus and add together to understand the fee drag.

4. The early withdrawal penalties - I have not seen an FIA that let you take your money out in less than 7 years without a penalty. You are making a long term commitment to this annuity, you need to understand it thoroughly.

5. Any "gotchas" - because there is no standard FIA, one has to look through the entire prospectus to see what gotcha's a particular company has built into their product.

So there is interplay between all of these items. For instance, a company could have a better crediting formula but higher fees. The whole picture needs to be seen. Then the total picture needs to be compared to the buyer's perceived needs and any alternative financial products to determine if it is a good "fit" to the need and if it outperforms the alternate methods of meeting those needs.

[wow, talk about TL;DR!]
I didn't really answer your question. Here is an FIA that I would consider purchasing:
1. 100% return of capital at 5 years
2. Total of all fees under 1% annually
3. 50% of the SP500 price index upside, 0% downside, calculated quarterly with a 10% (again, quarterly) cap
4. 5% initial early withdrawal fee, dropping 1% per year, all capital available after 5 years

And that, ladies and gentlemen, is unobtainium.
Thank you again for the fantastic analysis. I suspect the annuity guy will not be responding when he checks this thread. You have convinced me to steer clear.This is why the Bogleheads forum is the best source of information out there on so many different topics.
K.I.S.S........so easy to say so difficult to do.

tj
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Re: Straight Talk Annuity

Post by tj » Sun Jul 26, 2020 10:10 pm

It seems a bit disingenuous that the guy at the annuitystraighttalk website repeatedly says there are no fees and that you can't lose $$.

There certainly are fees, and I don't see how there could be a contract that guarantees you won't lose any $$$.

bikechuck
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Re: Straight Talk Annuity

Post by bikechuck » Sun Jul 26, 2020 10:11 pm

ChrisBenn wrote:
Sun Jul 26, 2020 4:49 pm
bikechuck wrote:
Sun Jul 26, 2020 3:25 pm
ChrisBenn wrote:
Sun Jul 26, 2020 11:55 am
bikechuck wrote:
Sun Jul 26, 2020 11:27 am
Cyclesafe wrote:
Sun Jul 26, 2020 8:05 am
Salespeople have been spinning for millenniums. Try to find one person who has not regretted being ensnared into an investment annuity of any ilk.
I am a person that does not regret being ensnared in the fixed annuity that I purchased in the 1980's with a $2,000 investment. It did have a front end load but it also pays a guaranteed minimum 4.5% return after any fees. I pretty much forgot about this until 7 years ago when I called and asked if I could add new money to it without any front end charges and if so would the new money also earn a minimum 4.5%. The answer was yes. I asked if the new money and the accumulated balance is fully liquid. The answer is yes I can withdraw any funds at any time without penalty or any fees. There is a risk in investing too much with one insurance company but my state does insure annuities of this type up to $250K.

I also have money in TIAA Traditional which is an annuity that has been yielding 4.0% after any fees. There is a restriction that I would need to withdraw this over 10 years if I would decide to get out of it. I do not mind this restriction.

Not all annuities are evil and at least in my case I can use my annuities as bond substitutes rather than annuitizing them. Next year I intend to begin taking interest only payments on both which I will continue until I am forced to take RMDs.

Consider me happily ensnared!
What did you gain with this vs just dropping that 2k into the s&p 500 (and if you wanted to annuitize just purchasing a spia now?)
Could the road not taken have resulted in better returns? Perhaps but the S&P 500 is not really the correct benchmark as I have never intended this to be a portion of my portfolio allocated to equities.

I like this a bit better than a SPIA because unless I decide to annuitize all or part of it in my mid to late 70s I can pass all of it on to my heirs.

The other thing that I gained is that I added no money to the fixed annuity for 27 years after investing in it. The majority of this investment was added when interest rates plunged.

Look, most of where I am at is due to historical accident rather than astute planning on my part. I was responding to the poster who said ... "Try to find one person who has not regretted being ensnared into an investment annuity of any ilk" and I am such an ensnared person without regrets. I suspect there are many more of us including many academics who invested in TIAA Traditional which is gasp a low cost, low fee variable annuity that was not subject to sales commissions if it was a component of a college or university retirement plan.

Absolute statements and condemnations are rarely true.
Thanks, appreciate the reply (I was asking in good faith, as I'm not familiar with the ins and outs if these investments).
I guess the non-sequiter for me is the substitution for bonds. I look at bonds as something I can rebalance against equities, and from how I understand these investments they don't have that type of liquidity.

If they do why would you not go take out every type of loan you could (heloc, margin, etc) that was less than 4.5% and enjoy the risk free money?
Because it is not risk free money. If the insurance company were to fail your investment in excess of the annuity insurance provided by your state would be at risk.

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Stinky
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Re: Straight Talk Annuity

Post by Stinky » Mon Jul 27, 2020 5:13 am

tj wrote:
Sun Jul 26, 2020 10:10 pm
It seems a bit disingenuous that the guy at the annuitystraighttalk website repeatedly says there are no fees and that you can't lose $$.

There certainly are fees, and I don't see how there could be a contract that guarantees you won't lose any $$$.
Saying a fixed indexed annuity has no fees is like saying that an individual M&M doesn’t show a calorie count, and therefore has no calories.

At least M&Ms and other food items are required to show calorie counts on their packaging, so consumers can fully understand what they are buying. Unfortunately, there is no such requirement for “truth in labeling” on fixed indexed annuities.
It's a GREAT day to be alive - Travis Tritt

ChrisBenn
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Re: Straight Talk Annuity

Post by ChrisBenn » Mon Jul 27, 2020 10:11 am

bikechuck wrote:
Sun Jul 26, 2020 10:11 pm
ChrisBenn wrote:
Sun Jul 26, 2020 4:49 pm
bikechuck wrote:
Sun Jul 26, 2020 3:25 pm
ChrisBenn wrote:
Sun Jul 26, 2020 11:55 am
bikechuck wrote:
Sun Jul 26, 2020 11:27 am


I am a person that does not regret being ensnared in the fixed annuity that I purchased in the 1980's with a $2,000 investment. It did have a front end load but it also pays a guaranteed minimum 4.5% return after any fees. I pretty much forgot about this until 7 years ago when I called and asked if I could add new money to it without any front end charges and if so would the new money also earn a minimum 4.5%. The answer was yes. I asked if the new money and the accumulated balance is fully liquid. The answer is yes I can withdraw any funds at any time without penalty or any fees. There is a risk in investing too much with one insurance company but my state does insure annuities of this type up to $250K.

I also have money in TIAA Traditional which is an annuity that has been yielding 4.0% after any fees. There is a restriction that I would need to withdraw this over 10 years if I would decide to get out of it. I do not mind this restriction.

Not all annuities are evil and at least in my case I can use my annuities as bond substitutes rather than annuitizing them. Next year I intend to begin taking interest only payments on both which I will continue until I am forced to take RMDs.

Consider me happily ensnared!
What did you gain with this vs just dropping that 2k into the s&p 500 (and if you wanted to annuitize just purchasing a spia now?)
Could the road not taken have resulted in better returns? Perhaps but the S&P 500 is not really the correct benchmark as I have never intended this to be a portion of my portfolio allocated to equities.

I like this a bit better than a SPIA because unless I decide to annuitize all or part of it in my mid to late 70s I can pass all of it on to my heirs.

The other thing that I gained is that I added no money to the fixed annuity for 27 years after investing in it. The majority of this investment was added when interest rates plunged.

Look, most of where I am at is due to historical accident rather than astute planning on my part. I was responding to the poster who said ... "Try to find one person who has not regretted being ensnared into an investment annuity of any ilk" and I am such an ensnared person without regrets. I suspect there are many more of us including many academics who invested in TIAA Traditional which is gasp a low cost, low fee variable annuity that was not subject to sales commissions if it was a component of a college or university retirement plan.

Absolute statements and condemnations are rarely true.
Thanks, appreciate the reply (I was asking in good faith, as I'm not familiar with the ins and outs if these investments).
I guess the non-sequiter for me is the substitution for bonds. I look at bonds as something I can rebalance against equities, and from how I understand these investments they don't have that type of liquidity.

If they do why would you not go take out every type of loan you could (heloc, margin, etc) that was less than 4.5% and enjoy the risk free money?
Because it is not risk free money. If the insurance company were to fail your investment in excess of the annuity insurance provided by your state would be at risk.
So it does have full liquidity? That is definitely surprising.

But otherwise just amend the question to 250k?

Topic Author
hoops777
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Re: Straight Talk Annuity

Post by hoops777 » Mon Jul 27, 2020 11:36 am

The annuity guy responded to my emails about all of your comments. I do not think he is coming on the forum, but he was offended by a lot of your remarks and said you all do not really understand how this product works if sold correctly. He did say I am 100 pct guaranteed to get my full investment back at the end of the contract as long as I stay within the rules of the contract.
It would be great if he would actually post here to debate your assertions.
K.I.S.S........so easy to say so difficult to do.

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Stinky
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Re: Straight Talk Annuity

Post by Stinky » Mon Jul 27, 2020 11:49 am

hoops777 wrote:
Mon Jul 27, 2020 11:36 am
The annuity guy responded to my emails about all of your comments. I do not think he is coming on the forum, but he was offended by a lot of your remarks and said you all do not really understand how this product works if sold correctly. He did say I am 100 pct guaranteed to get my full investment back at the end of the contract as long as I stay within the rules of the contract.
It would be great if he would actually post here to debate your assertions.
Trust me, the vast majority of the information posted in this thread is 100% correct.

I worked in the home office of a major life insurance company for over 40 years. I was involved in the design and pricing of fixed indexed annuities, which my company sold.

The Boglehead criticisms are correct. The salesman is just that - a salesman - who is seeing a potential commission walk away. Better that the salesman be “offended” by the Forum comments than you get ripped off with a mis-represented product.

If you’re choosing to not purchase a fixed indexed annuity, you’re making a good decision.
It's a GREAT day to be alive - Travis Tritt

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FiveK
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Re: Straight Talk Annuity

Post by FiveK » Mon Jul 27, 2020 12:01 pm

hoops777 wrote:
Mon Jul 27, 2020 11:36 am
He did say I am 100 pct guaranteed to get my full investment back at the end of the contract as long as I stay within the rules of the contract.
That might be correct. The FINRA guidance does say that only "many" insurance companies won't guarantee this, so maybe....

But you can get the same protection by putting your money in a bank.

Did he comment on any other issues, beyond claiming to be offended?

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nisiprius
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Re: Straight Talk Annuity

Post by nisiprius » Mon Jul 27, 2020 12:08 pm

hoops777 wrote:
Mon Jul 27, 2020 11:36 am
The annuity guy responded to my emails about all of your comments. I do not think he is coming on the forum, but he was offended by a lot of your remarks and said you all do not really understand how this product works if sold correctly.
Ask him to provide a link to the prospectus for the actual product he is proposing that you buy, or at least mail the paper prospectus to you. How can anybody understand "how this product works" without being able to look at how this product works?
He did say I am 100 pct guaranteed to get my full investment back at the end of the contract as long as I stay within the rules of the contract.
Do you not see a difference between "you will never lose money" and "you will get your full investment back at the end of the contract as long as you stay within the rules of the contract?"

Also, is he suggesting that an early surrender is "breaking the rules of the contract?"

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hoops777
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Re: Straight Talk Annuity

Post by hoops777 » Mon Jul 27, 2020 1:06 pm

nisiprius wrote:
Mon Jul 27, 2020 12:08 pm
hoops777 wrote:
Mon Jul 27, 2020 11:36 am
The annuity guy responded to my emails about all of your comments. I do not think he is coming on the forum, but he was offended by a lot of your remarks and said you all do not really understand how this product works if sold correctly.
Ask him to provide a link to the prospectus for the actual product he is proposing that you buy, or at least mail the paper prospectus to you. How can anybody understand "how this product works" without being able to look at how this product works?
He did say I am 100 pct guaranteed to get my full investment back at the end of the contract as long as I stay within the rules of the contract.
Do you not see a difference between "you will never lose money" and "you will get your full investment back at the end of the contract as long as you stay within the rules of the contract?"

Also, is he suggesting that an early surrender is "breaking the rules of the contract?"

Image
You only lose money if you cancel early. He said that annuities do not have a prospectus,and if someone knows what they are talking about they would know that.
K.I.S.S........so easy to say so difficult to do.

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