Variable Annuities: Emerging from the Dark Side?

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DaleMaley
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Variable Annuities: Emerging from the Dark Side?

Post by DaleMaley »

I see situations where an immediate annuity purchased from a low cost provider has a place as a financial planning tool.

I stay away from variable annuities because of their perplexing nature, high expenses, and high surrender fees.

This article in the Journal of Financial Planning explores some of the pros and cons of variable annuities.

Variable Annuities: Emerging from the Dark Side?
Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. – Warren Buffett
yobria
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Post by yobria »

Dale,

Run, don't walk, from these sleazy, complex, high fee investments, that are designed to be sold, not owned. There may be a place in some ports for simple, fixed annuities, but that's it IMO.

Nick
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bob90245
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Post by bob90245 »

I am still on the initial steep slope of the learning curve when it comes to annuities. But I found a very instructive article on this site here at the Reference Library on the subject of immediate variable annuities:

http://www.diehards.org/forum/viewtopic.php?p=1372#1372

2. Annuities and Inflation By Thomas G. Walsh, F.S.A., C.F.P.
Link:http://www.tiaa-crefinstitute.org/resea ... 040902.pdf

Quote:
A guaranteed lifetime annuity can maximize a retiree�s annual income and provide an income that cannot be outlived, as discussed in our first paper, �The (Mostly) Pros and (Few) Cons of Lifetime Payout Annuities.� However, fixed-rate annuities do not protect a retiree�s income from purchasing power losses because of inflation (e.g. as measured by changes in the CPI). The purpose of this paper is to describe types of annuities and other strategies that will offer the possibility of growing payments during retirement.
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DaleMaley
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Post by DaleMaley »

Nick:

I agree with you........I have a dim view of variable annuities.

I do try to keep an open mind though.......and see how the sellers of variable annuities are either improving them......or figuring out more devious ways of selling them.

I was pretty negative on immediate annuities also.......until late last year on the old Diehards site.....plus an investor I know who is using them successfully for his given situtation......where I learned that immediate annuities from low cost providers.....may have a place in an investment strategy. I now believe there are certain circumstances where immediate annuities should be used. I base that opinion on posters on the old Diehard site......as well as recent research papers illustrating how low cost immediate annuities can be beneficial.

Good Conversations on old Diehards site on Immediate Annuities:

Conversation #54229
Conversation #52310
Conversation #53132
Conversation #56170
Conversation #54719

Article and Papers on Immediate Annuities:

Updegrave on Variable & Fixed Annuities
The Future is Immediate Annuities by Mary Rowland
Utkus of Vanguard on Immediate Annuities
Clements on Annuities
Updegrave on fixed and variable annuities
Kaplan research paper on annuities
Immediate Annuities by Hoffman
Creating a retirement paycheck by Updegrave

Articles and papers on negative aspects of Variable Annuities:

Annuities 101 - How to sell to Senior Citizens
The Great Annuity Rip-Off by Lankford
Retirement Deals you can do without by Updegrave
Smoke and mirrors can't disguise bad aspects of variable annuities by Lankford
Buyer Beware of annuities by Motley Fool
Last edited by DaleMaley on Sun Mar 18, 2007 12:47 pm, edited 1 time in total.
Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. – Warren Buffett
Gregory
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VA's

Post by Gregory »

First, a diclaimer: I own a Vanguard VA which I purchased as a holding vehicle for the VG REIT fund; I read Dr. Bernstein's article on this, and figured it was worth it.

There certainly seems to be a limited use for VA's in the mathematical sense; I do read with interest the "sleep better at night" component. I've never seen a comparison between purchasing a VA now vs. converting index fund holdings to an immediate annuity at retirement.

Taxation is a moving target. Like many people I have serious doubts about whether the current dividend and capital gains taxation rates will remain the same. I have a funny feeling they'll go up, up, up in years to come. At that point, those who have held VA's for a long time may find that the long-term tax-deferred growth have benefited them. Taxation rates can change with the stroke of a congressional pen, right?

Greg
yobria
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Post by yobria »

Dale,

I agree, when I said "fixed annuities" I was talking about fixed immediate annuities.

But the exotic products mentioned in that post are only going to benefit the seller. In my experience, very few who buy such products understand them, and most wind up trying to get out of them.

Nick
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bob90245
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Fixing M*'s broken links

Post by bob90245 »

Part of my homework assignment in studying annuities is to read the conversations that Dale had so graceously provided in this thread HERE. However, Morningstar's recent upgrade to their discussion area has broken his links. Unfortunately, M*'s discussion area runs much, much slower than it did before the upgrade. A big problem for those with dial-up connections. Fortunately, I am able to use the high-speed connection at my local library. There, I was able to get all the links in M*'s new conversation numbering scheme. Perhaps I'm the only one interested in this stuff. But on the outside chance that there are others also interested, here are the new links:

Good Conversations on Morningstar's Vanguard Diehards site on Immediate Annuities:

Conversation #38119
Conversation #52310
Conversation #53132
Conversation #54229
Conversation #54719
Conversation #56170
Conversation #60279
Valuethinker
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Joined: Fri May 11, 2007 11:07 am

Post by Valuethinker »

DaleMaley wrote:Nick:

I agree with you........I have a dim view of variable annuities.

I do try to keep an open mind though.......and see how the sellers of variable annuities are either improving them......or figuring out more devious ways of selling them.

I was pretty negative on immediate annuities also.......until late last year on the old Diehards site.....plus an investor I know who is using them successfully for his given situtation......where I learned that immediate annuities from low cost providers.....may have a place in an investment strategy. I now believe there are certain circumstances where immediate annuities should be used. I base that opinion on posters on the old Diehard site......as well as recent research papers illustrating how low cost immediate annuities can be beneficial.

Good Conversations on old Diehards site on Immediate Annuities:

Conversation #54229
Conversation #52310
Conversation #53132
Conversation #56170
Conversation #54719

Article and Papers on Immediate Annuities:

Updegrave on Variable & Fixed Annuities
The Future is Immediate Annuities by Mary Rowland
Utkus of Vanguard on Immediate Annuities
Clements on Annuities
Updegrave on fixed and variable annuities
Kaplan research paper on annuities
Immediate Annuities by Hoffman
Creating a retirement paycheck by Updegrave

Articles and papers on negative aspects of Variable Annuities:

Annuities 101 - How to sell to Senior Citizens
The Great Annuity Rip-Off by Lankford
Retirement Deals you can do without by Updegrave
Smoke and mirrors can't disguise bad aspects of variable annuities by Lankford
Buyer Beware of annuities by Motley Fool
Hi.

Would it be possible to publish this in the research library sub-board?

I found it very useful.
heyyou
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Joined: Tue Feb 20, 2007 4:58 pm

Post by heyyou »

I expect to buy an immediate annuity when I'm too feeble minded to rebalance. I hope I'm old before that happens. My wife thinks it may be next year.
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