Fixed Annuity

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Paisley
Posts: 123
Joined: Sun Apr 14, 2019 12:32 pm

Fixed Annuity

Post by Paisley » Mon Jul 15, 2019 8:40 pm

I was wondering if anyone out there has an opinion about using fixed annuities as a supplemental source of income in today's low interest rate environment?

dbr
Posts: 29798
Joined: Sun Mar 04, 2007 9:50 am

Re: Fixed Annuity

Post by dbr » Mon Jul 15, 2019 9:16 pm

A single premium immediate fixed annuity is a possible (not supplementary) source of income in any environment. Keep in mind annuity payout depends on prevailing interest rates so an SPIA payout is not as high when interest rates are low. Generally an SPIA works better for people when purchased at older ages. A significant issue is having a fixed rather than inflation indexed payout though an inflation indexed annuity can be found but is expensive. An SPIA is an insurance product and not an investment. In particular an SPIA pools longevity risk. The best "annuity" of this type going is to delay taking Social Security.

If you are thinking of a fixed index annuity, then don't.

Here 4,550 entries on the forum relevant to SPIAs: https://www.google.com/search?sitesearc ... org&q=SPIA

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Cyclesafe
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Joined: Wed Dec 31, 2014 1:03 pm

Re: Fixed Annuity

Post by Cyclesafe » Mon Jul 15, 2019 10:06 pm

Lots of threads. Just how bad is the specific fixed investment annuity you are considering is in the contract details. Never invest in anything until you thoroughly understand it - read the contract (not the brochure with the happy retired couples barbequing). Beware of surrender charge schedules, hidden expenses, tax penalties for withdrawals before age 59 1/2, below-market annuitization offers, etc.

Having said this, my FIL at 85 years old was duped at a bank into a fixed investment annuity that paid 6% when CD rates had dropped to 4%. It had a 6 year surrender charge schedule. He "invested" nearly 80% of his net worth into this. We were devastated; he was oblivious.

As the years passed, CD rates continued to drop. When he was 91, the surrender charge period ended, and it happened at the same time that he and MIL were enrolled in assisted living. Three years latter they both passed after having paid for their care by withdrawing from this fixed investment annuity. Since they always needed assistance with the requisite number of ADL's, these expenses were always deductible, so no taxes, federal or state, ever needed to be paid. They even had a little left over for a legacy.

If they hadn't had a fixed investment annuity, they would have run out of money before the end.

Go figure.

Investment annuities are the automobile undercoating of the financial world.
"Plans are useless; planning is indispensable.” - Dwight Eisenhower

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