Fixed Indexed Annuities - Non Haters Thread

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HENRYGRUGER
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Fixed Indexed Annuities - Non Haters Thread

Post by HENRYGRUGER »

I am curious as to whether or not there is a Thread on BHs where people have discussed using FIA or SPIAs to fund a guaranteed income in retirement, at least for "flooring Income" purposes.

I have seen a number of threads with comments basically dismissing annuities as being unworthy of even rational discussion and those are not discussions I want to enter.

I have been looking closely at building an annuity strategy to accompany my SS benefits when I retire in January of 2024.

Has anyone else built annuity strategies?
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by AlwaysLearningMore »

FWIW, in anticipation of retirement this summer we have purchased a number of 5- and 7-year MYGA's (all at over 5%), and a SPIA. All insurers are A or A+.

PS Poster "Stinky" started a very interesting thread on MYGA's.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by Artful Dodger »

HENRYGRUGER wrote: Sat Jun 10, 2023 7:01 pm I am curious as to whether or not there is a Thread on BHs where people have discussed using FIA or SPIAs to fund a guaranteed income in retirement, at least for "flooring Income" purposes.

I have seen a number of threads with comments basically dismissing annuities as being unworthy of even rational discussion and those are not discussions I want to enter.

I have been looking closely at building an annuity strategy to accompany my SS benefits when I retire in January of 2024.

Has anyone else built annuity strategies?
There are many threads on using SPIAs, almost all positive. Put SPIA in the search box for the personal investing and investing theory sub forums.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by nisiprius »

I think SPIAs are useful and I use them.

I think so-called fixed indexed annuities are deceptive trash, and the fact that they changed the name (from "equity-indexed annuities") adds evidence for that.

In The Only Guide to Alternative Investments You Will Ever Need: The Good, the Flawed, the Bad, and the Ugly, Larry Swedroe and Jared Kizer, chapter 5, "Fixed Annuities" (not "fixed index annuities!") is in the "Good" section.

Chapter 18, "Equity-Indexed Annuities" (the original name for "fixed indexed annuities") is in the "Ugly" section.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by Stinky »

You’re not going to find much support for indexed annuities on this Forum.

My personal pet peeve about indexed annuities is that insurers retain total discretion in setting caps and participation rates in policy years after the first. These companies routinely overpromise and underperform, with consumers trapped for up to a decade by high surrender charges. (“Hating” stops here.)

Please consider multi year guaranteed annuities (MYGAs) if you want full guarantees of interest rates, and arguably better consumer value than indexed annuities because the commissions are less. Here’s the long thread about MYGAs mentioned above. You’re welcome to post MYGA questions on this thread. viewtopic.php?t=334589
Last edited by Stinky on Sat Jun 10, 2023 7:43 pm, edited 1 time in total.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by arcticpineapplecorp. »

There's a 2 page thread right now on SPIAs: viewtopic.php?f=10&t=405577&newpost=7306337

And i believe Taylor himself has used SPIAs.

I agree with nisiprius. Fixed index annuities are expensive. SPIAS are cheaper. A deferred annuity may also have a place.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by Tdubs »

nisiprius wrote: Sat Jun 10, 2023 7:30 pm I think SPIAs are useful and I use them.

I think so-called fixed indexed annuities are deceptive trash, and the fact that they changed the name (from "equity-indexed annuities") adds evidence for that.

In The Only Guide to Alternative Investments You Will Ever Need: The Good, the Flawed, the Bad, and the Ugly, Larry Swedroe and Jared Kizer, chapter 5, "Fixed Annuities" (not "fixed index annuities!") is in the "Good" section.

Chapter 18, "Equity-Indexed Annuities" (the original name for "fixed indexed annuities") is in the "Ugly" section.
Any studies that show FIAs provide inferior payouts compared to SPIAs?
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by backpacker61 »

HENRYGRUGER wrote: Sat Jun 10, 2023 7:01 pm I have been looking closely at building an annuity strategy to accompany my SS benefits when I retire in January of 2024.

Has anyone else built annuity strategies?
In effect, I have.

I was offered lump sum buyout offers of a pension benefit I am qualified for (actually, a couple times now), but I did not act on them, so in effect, I "bought" into a SPIA by not accepting a lump sum in place of it. I think you are mistaken that there have been "a number of threads with comments basically dismissing annuities as being unworthy of even rational discussion". SPIA's are competitively priced, you can check 'immediateannuities.com' or even get a quote on one from Fidelity.

https://www.fidelity.com/annuities/overview

I will say that I think the best annuity benefit you can "buy" is to delay filing for your Social Security benefit to age 70, and instead spend some of your cash to support your lifestyle in the meantime. In effect, you are "buying" an annuity from the Social Security Administration, with the premium being one or more years' benefits, and the payout being in the form of the 'Delayed Retirement Credits' for an increased annual benefit. If you want more annuitized income than you would receive just from delaying Social Security, then delay filing for Social Security to age 70 first and then purchase a SPIA in addition to that.

Delayed Retirement Credits
https://www.ssa.gov/benefits/retirement ... ayret.html

OTOH, I think the 'fixed index annuities' are fully deserving of all the disrespectful comments that have been thrown their way on the forum.
Last edited by backpacker61 on Sat Jun 10, 2023 8:20 pm, edited 3 times in total.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by Stinky »

Tdubs wrote: Sat Jun 10, 2023 7:52 pm
Any studies that show FIAs provide inferior payouts compared to SPIAs?
That would be like a study comparing apples and oranges.

Indexed annuities and SPIAs are entirely different critters. Indexed annuities are for accumulation purposes, while SPIAs provide lifetime payments (that is, decumulation).
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by Tdubs »

Stinky wrote: Sat Jun 10, 2023 8:07 pm
Tdubs wrote: Sat Jun 10, 2023 7:52 pm
Any studies that show FIAs provide inferior payouts compared to SPIAs?
That would be like a study comparing apples and oranges.

Indexed annuities and SPIAs are entirely different critters. Indexed annuities are for accumulation purposes, while SPIAs provide lifetime payments (that is, decumulation).
You can purchase riders. The OP asked about FIAs for guaranteed income in retirement not accumulation.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by Stinky »

Tdubs wrote: Sat Jun 10, 2023 8:19 pm
Stinky wrote: Sat Jun 10, 2023 8:07 pm
Tdubs wrote: Sat Jun 10, 2023 7:52 pm
Any studies that show FIAs provide inferior payouts compared to SPIAs?
That would be like a study comparing apples and oranges.

Indexed annuities and SPIAs are entirely different critters. Indexed annuities are for accumulation purposes, while SPIAs provide lifetime payments (that is, decumulation).
You can purchase riders. The OP asked about FIAs for guaranteed income in retirement not accumulation.
OP didn’t specifically mention purchasing an income rider.

Assuming that purchasing an indexed annuity with an income rider was his intent, he would need to describe precisely the roll up and annuitization parameters of the rider he’s considering.

As a general statement, I’d expect that a SPIA would outperform an indexed annuity with an income rider, because the SPIA commissions are lower the indexed annuity commissions. There’s only 100 cents in every dollar, and money spent on commissions can’t provide policyholder benefits.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by Rex66 »

The main problem is they are deceiving at best

As opposed to other deferred annuities these products have 96-98% invested in the insurance company’s general account (instead of 100%). The 2-3% is in options. The product will thus accumulate a little better or a little worse. All other illustrations are just deception bc that’s the mechanics. In regards to the income phase/rider there isn’t any magic either. You could annuitize from the actual account value so in essence buy a spia or you can pay for an income rider based on a non walk away value but since there isn’t any magic they have priced this in with rider cost and withdrawal limits.

People mistakenly think they are going to get more for less.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by afan »

The bogleheads problems with the indexed annuities are their complexity, opacity and cost. If you want an annuity product, you can get one without these limitations.

On the other hand, my problem with even SPIAs is that they pay a nominal fixed income whose real value decreases each year with inflation. It may be technically true that it can be lifetime income but it is a lifetime of declining value.

If one could buy inflation indexed annuities and they were not too expensive, then they could be a good retirement solution. Rumor has it that insurance companies found that too few people bought them, because of low payouts. Now they do not sell them at all.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by Tdubs »

Stinky wrote: Sat Jun 10, 2023 8:31 pm
Tdubs wrote: Sat Jun 10, 2023 8:19 pm
Stinky wrote: Sat Jun 10, 2023 8:07 pm
Tdubs wrote: Sat Jun 10, 2023 7:52 pm
Any studies that show FIAs provide inferior payouts compared to SPIAs?
That would be like a study comparing apples and oranges.

Indexed annuities and SPIAs are entirely different critters. Indexed annuities are for accumulation purposes, while SPIAs provide lifetime payments (that is, decumulation).
You can purchase riders. The OP asked about FIAs for guaranteed income in retirement not accumulation.
OP didn’t specifically mention purchasing an income rider.

Assuming that purchasing an indexed annuity with an income rider was his intent, he would need to describe precisely the roll up and annuitization parameters of the rider he’s considering.

As a general statement, I’d expect that a SPIA would outperform an indexed annuity with an income rider, because the SPIA commissions are lower the indexed annuity commissions. There’s only 100 cents in every dollar, and money spent on commissions can’t provide policyholder benefits.
I agree, but I'd have expected the dismissal of FIAs would be easily demonstrable in studies (whether for accumulation or guaranteed income). Most of these threads about FIAs are surprisingly thin on evidence.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by Rex66 »

That’s bc no two are the same, they change constantly, and many factors are not guaranteed. Every single company has reduced caps and participation rates. Literally zero stay true to original caps and participation rates. Pretty hard to have a valid study
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by Tdubs »

Rex66 wrote: Sat Jun 10, 2023 8:51 pm That’s bc no two are the same, they change constantly, and many factors are not guaranteed. Every single company has reduced caps and participation rates. Literally zero stay true to original caps and participation rates. Pretty hard to have a valid study
Why not a retrospective study? They can deceive about what they will do, they can't about what they have done.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by Rex66 »

Good luck getting them to give up that data

Since they haven’t done it but instead keep making new versions of the product……..
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by backpacker61 »

Tdubs wrote: Sat Jun 10, 2023 8:44 pm I agree, but I'd have expected the dismissal of FIAs would be easily demonstrable in studies (whether for accumulation or guaranteed income). Most of these threads about FIAs are surprisingly thin on evidence.
It would be difficult because the insurer has license to change both the caps and the participation rates after the annuitant has made the purchase.

https://www.annuity.org/annuities/types ... tion-rate/

https://www.annuity.org/annuities/types/indexed/caps/
Interest rate caps denote the maximum amount of interest an annuity can earn — regardless of the change in the index. Insurance companies have the right to adjust these caps every year.

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Last edited by backpacker61 on Sat Jun 10, 2023 9:16 pm, edited 2 times in total.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by Tdubs »

Rex66 wrote: Sat Jun 10, 2023 9:04 pm Good luck getting them to give up that data

Since they haven’t done it but instead keep making new versions of the product……..
The annuitants themselves are a source of that data.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by Rex66 »

How you going to collect that?


You would never reach statistical significance
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by backpacker61 »

Tdubs wrote: Sat Jun 10, 2023 9:14 pm
Rex66 wrote: Sat Jun 10, 2023 9:04 pm Good luck getting them to give up that data

Since they haven’t done it but instead keep making new versions of the product……..
The annuitants themselves are a source of that data.
https://www.reuters.com/legal/us-appeal ... 023-03-28/
https://insurancenewsnet.com/innarticle ... n-promises
https://www.investmentnews.com/security ... ers-170497
There have been several lawsuits filed against FIA insurers, all alleging that real-life returns fell well short of what was illustrated at the time of sale.

Internet search is your friend.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by Tdubs »

backpacker61 wrote: Sat Jun 10, 2023 9:28 pm
Tdubs wrote: Sat Jun 10, 2023 9:14 pm
Rex66 wrote: Sat Jun 10, 2023 9:04 pm Good luck getting them to give up that data

Since they haven’t done it but instead keep making new versions of the product……..
The annuitants themselves are a source of that data.
https://www.reuters.com/legal/us-appeal ... 023-03-28/
https://insurancenewsnet.com/innarticle ... n-promises
https://www.investmentnews.com/security ... ers-170497
There have been several lawsuits filed against FIA insurers, all alleging that real-life returns fell well short of what was illustrated at the time of sale.

Internet search is your friend.
This is a start, though I'd expect defenders would argue these are the bad index annuities and that there are respectable ones for sale. I'm looking for a study that says "a typical FIA with a rider sold in 2010 under performed a SPIA by XX%."
Last edited by Tdubs on Sat Jun 10, 2023 9:42 pm, edited 1 time in total.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by Rex66 »

You do realize none of that contains any statistics?

I’ve already outlined that why they “don’t work”
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by LongRoad »

Wouldn’t the insurance companies themselves, who should have all the needed real world data for comparison, be touting their studies showing the superiority of annuitizing FIAs vs. SPIAs if the data agreed?
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by Tdubs »

LongRoad wrote: Sat Jun 10, 2023 9:58 pm Wouldn’t the insurance companies themselves, who should have all the needed real world data for comparison, be touting their studies showing the superiority of annuitizing FIAs vs. SPIAs if the data agreed?
Wouldn't the companies selling SPIAs tout their studies of SPIA superiority if they had them?

Insurance companies must have some ceasefire in place.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by LongRoad »

Tdubs wrote: Sat Jun 10, 2023 10:05 pm
LongRoad wrote: Sat Jun 10, 2023 9:58 pm Wouldn’t the insurance companies themselves, who should have all the needed real world data for comparison, be touting their studies showing the superiority of annuitizing FIAs vs. SPIAs if the data agreed?
Wouldn't the companies selling SPIAs tout their studies of SPIA superiority if they had them?

Insurance companies must have some ceasefire in place.
A company that only sells SPIAs won’t have the data.

A company that sells both won’t throw the high margin FIAs under the bus by publishing a comparison.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by exodusNH »

HENRYGRUGER wrote: Sat Jun 10, 2023 7:01 pm I am curious as to whether or not there is a Thread on BHs where people have discussed using FIA or SPIAs to fund a guaranteed income in retirement, at least for "flooring Income" purposes.

I have seen a number of threads with comments basically dismissing annuities as being unworthy of even rational discussion and those are not discussions I want to enter.

I have been looking closely at building an annuity strategy to accompany my SS benefits when I retire in January of 2024.

Has anyone else built annuity strategies?
FIAs are garbage products where the insurance company routinely changes the rules after you've bought the product. Then they introduce version n+1 with attractive rates, but the purchases of version n are stuck because of surrender fees.

And because it's a "new" product, there's no comparison with the old one.

If you search, you'll find warnings from the SEC and FINRA against the products because they're opaque and complicated.

SPIAs and MYGAs are fine.

Edit: typos
Last edited by exodusNH on Sun Jun 11, 2023 12:09 am, edited 1 time in total.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by Mel Lindauer »

Here's a link to a column I did for Forbes a number of years ago that warns of some of the dangers of falling for sales pitches made by commissioned salespersons pushing Equity Indexed Annuities.

The Truth About Equity-Indexed Annuities
https://www.forbes.com/2010/08/10/truth ... 55c3331257
Best Regards - Mel | | Semper Fi
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by 000 »

HENRYGRUGER wrote: Sat Jun 10, 2023 7:01 pm I have been looking closely at building an annuity strategy to accompany my SS benefits when I retire in January of 2024.
What goal are you trying to achieve with FIAs that SPIAs cannot do?
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by Stinky »

000 wrote: Sun Jun 11, 2023 2:12 am
HENRYGRUGER wrote: Sat Jun 10, 2023 7:01 pm I have been looking closely at building an annuity strategy to accompany my SS benefits when I retire in January of 2024.
What goal are you trying to achieve with FIAs that SPIAs cannot do?
While OP has not weighed in since he started this thread, it's possible that he wanted to compare the monthly income available from a SPIA to the monthly income produced by an income rider attached to an indexed annuity.

As an "accumulation vehicle", Bogleheads generally don't like indexed annuities. Poster afan summarized it well upthread:
afan wrote: Sat Jun 10, 2023 8:43 pm The bogleheads problems with the indexed annuities are their complexity, opacity and cost.
But the other potential use for indexed annuities is as a "delivery vehicle" for a withdrawal rider. As I understand it, one would purchase an indexed annuity with a rider that guarantees to allow a certain rate of withdrawal, based on the growth of a "benefit base" that is defined in the rider and is not available for cash surrender.

I follow the podcasts produced by Stan the Annuity Man, who runs a large consumer annuity agency. He seems to primarily sell MYGAs for accumulation purposes, and both SPIAs and indexed annuities with withdrawal riders for income purposes. He notes that when an indexed annuity is used for income purposes through an withdrawal rider, all of the smoke and mirrors (non-guaranteed caps and participation rates, fees for the withdrawal rider itself, etc.) do not affect the amount of monthly income available through the withdrawal benefit. All that matters is how the withdrawal benefit rider works.

Some in this thread have wondered whether there are historical studies comparing the monthly income available from a SPIA with the monthly income from a withdrawal rider. I'm not familiar with any such studies.

I believe that the only way to compare the monthly income from these two sources is to get actual, real time quotes on both products.

Here's a real life example. I went to immediateannuities.com for a quote on a 70 year old male in Alabama with $200,000 of IRA money who wants a monthly income starting in 5 years (at his age 75) and continuing for the rest of his life. The best quote was from Integrity Life, for $2,077 per month. Per the immediateannuities.com website, there is no death benefit, whether the annuitant dies prior to or after the annuity benefit start date. (Other products are available that have a death benefit.) The product quoted would be referred to as a "deferred income annuity" (DIA).

For comparison purposes, I went to Stan the Annuity Man's website to get a quote on an indexed annuity with an income rider, with the same parameters as the DIA quoted above ($200k IRA premium, male age 70 in Alabama with monthly withdrawal benefits starting at age 75). Of the 25 quotes listed, one company (American General) would pay more than the Integrity Life quote, with a payment of $2,250 per month.

Beyond the higher monthly payment starting at age 75, I believe that the American General indexed annuity with a withdrawal rider would be more attractive than the Integrity Life DIA, primarily because of the death benefit. I believe that the death benefit on the American General product would be the account value, whether the annuitant dies before or after the withdrawal benefit rider is activated. In the case quoted here, the indexed annuity account value should rise between ages 70 and 75, and then decline as withdrawal benefits are paid out. Withdrawal benefit payments continue as long as the annuitant is alive, even if the account value is reduced to zero.

In other words, the indexed annuity with withdrawal rider has a death benefit, while a DIA does not.

I'd encourage anyone considering such a purchase to get quotes from a wide range of companies, using a large agency like immediateannuities.com or stantheannuityman.com. In the real life example cited, the range of monthly income quotes ranged from a high of $2,250 to a low of $1,294, and only one was better than the best DIA quote.

I would not attempt to generalize based on the single case presented here. I can't say that indexed annuities with withdrawal riders always produce a higher income than SPIAs or DIAs. In particular, I can't say that a person who wants to start income in 2024 (as OP says that he does) will be better off with an indexed annuity than with a SPIA or a DIA.

But in the case cited above, the indexed annuity with withdrawal rider wins over the DIA.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by Tdubs »

Stinky wrote: Sun Jun 11, 2023 3:56 am
000 wrote: Sun Jun 11, 2023 2:12 am
HENRYGRUGER wrote: Sat Jun 10, 2023 7:01 pm I have been looking closely at building an annuity strategy to accompany my SS benefits when I retire in January of 2024.
What goal are you trying to achieve with FIAs that SPIAs cannot do?
While OP has not weighed in since he started this thread, it's possible that he wanted to compare the monthly income available from a SPIA to the monthly income produced by an income rider attached to an indexed annuity.

As an "accumulation vehicle", Bogleheads generally don't like indexed annuities. Poster afan summarized it well upthread:
afan wrote: Sat Jun 10, 2023 8:43 pm The bogleheads problems with the indexed annuities are their complexity, opacity and cost.
But the other potential use for indexed annuities is as a "delivery vehicle" for a withdrawal rider. As I understand it, one would purchase an indexed annuity with a rider that guarantees to allow a certain rate of withdrawal, based on the growth of a "benefit base" that is defined in the rider and is not available for cash surrender.

I follow the podcasts produced by Stan the Annuity Man, who runs a large consumer annuity agency. He seems to primarily sell MYGAs for accumulation purposes, and both SPIAs and indexed annuities with withdrawal riders for income purposes. He notes that when an indexed annuity is used for income purposes through an withdrawal rider, all of the smoke and mirrors (non-guaranteed caps and participation rates, fees for the withdrawal rider itself, etc.) do not affect the amount of monthly income available through the withdrawal benefit. All that matters is how the withdrawal benefit rider works.

Some in this thread have wondered whether there are historical studies comparing the monthly income available from a SPIA with the monthly income from a withdrawal rider. I'm not familiar with any such studies.

I believe that the only way to compare the monthly income from these two sources is to get actual, real time quotes on both products.

Here's a real life example. I went to immediateannuities.com for a quote on a 70 year old male in Alabama with $200,000 of IRA money who wants a monthly income starting in 5 years (at his age 75) and continuing for the rest of his life. The best quote was from Integrity Life, for $2,077 per month. Per the immediateannuities.com website, there is no death benefit, whether the annuitant dies prior to or after the annuity benefit start date. (Other products are available that have a death benefit.) The product quoted would be referred to as a "deferred income annuity" (DIA).

For comparison purposes, I went to Stan the Annuity Man's website to get a quote on an indexed annuity with an income rider, with the same parameters as the DIA quoted above ($200k IRA premium, male age 70 in Alabama with monthly withdrawal benefits starting at age 75). Of the 25 quotes listed, one company (American General) would pay more than the Integrity Life quote, with a payment of $2,250 per month.

Beyond the higher monthly payment starting at age 75, I believe that the American General indexed annuity with a withdrawal rider would be more attractive than the Integrity Life DIA, primarily because of the death benefit. I believe that the death benefit on the American General product would be the account value, whether the annuitant dies before or after the withdrawal benefit rider is activated. In the case quoted here, the indexed annuity account value should rise between ages 70 and 75, and then decline as withdrawal benefits are paid out. Withdrawal benefit payments continue as long as the annuitant is alive, even if the account value is reduced to zero.

In other words, the indexed annuity with withdrawal rider has a death benefit, while a DIA does not.

I'd encourage anyone considering such a purchase to get quotes from a wide range of companies, using a large agency like immediateannuities.com or stantheannuityman.com. In the real life example cited, the range of monthly income quotes ranged from a high of $2,250 to a low of $1,294, and only one was better than the best DIA quote.

I would not attempt to generalize based on the single case presented here. I can't say that indexed annuities with withdrawal riders always produce a higher income than SPIAs or DIAs. In particular, I can't say that a person who wants to start income in 2024 (as OP says that he does) will be better off with an indexed annuity than with a SPIA or a DIA.

But in the case cited above, the indexed annuity with withdrawal rider wins over the DIA.
Stinky, thanks for doing this. Having a death benefit would make the American General indexed annuity vastly superior to the Integrity Life DIA, quite a surprise. I tried to duplicate what you did on Stan the Annuity Man's site, but I'm stymied. If you try to use its FIA calculator, it seems like you have to schedule an appointment with Stan before using it. Is that what you did? Or, is there another place on his website that I'm missing?
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by Stinky »

Tdubs wrote: Sun Jun 11, 2023 5:41 am
Stinky, thanks for doing this. Having a death benefit would make the American General indexed annuity vastly superior to the Integrity Life DIA, quite a surprise. I tried to duplicate what you did on Stan the Annuity Man's site, but I'm stymied. If you try to use its FIA calculator, it seems like you have to schedule an appointment with Stan before using it. Is that what you did? Or, is there another place on his website that I'm missing?
From the stantheannuityman.com website -
—- click on the “calculators” drop-down on the home page
—- click on “income riders”
—- put in a name, email, address, date of birth, etc using whatever parameters you want. When you come to “choose your calculation”, select “I know the dollar amount I want to put in”, and enter your single premium
—- hit “get quote”

The calculator takes about 10-15 seconds to return an answer, because I think it’s going through a lot of calculations. (Or maybe it’s just slow).

But you get your answer on the screen. In my case, a list of 25 companies with monthly income quotes.

Oddly, I find that American General has the best quote by a huge margin - over 10% higher monthly income than the second place company. I’m accustomed to looking at term life quotes where just a few dollars separate the top companies, so this wide margin is a surprise.

Maybe American General mispriced this particular cell. Maybe they make it very difficult to actually invoke the withdrawal benefit. Maybe the website is just incorrect. Or maybe I just happened to pick the one cell that is a total outlier.

In any case, if I was looking to start income in 5 years at a rate that I lock in today, American General would be an easy pick for me.
Last edited by Stinky on Sun Jun 11, 2023 6:27 am, edited 2 times in total.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by Jack FFR1846 »

My mom has several of these. I periodically meet with her financial advisor and he often does comment that the fees are astronomical. But here's the reason they are reasonable for my mom. When my dad was alive, he owned our family insurance agency and several of the companies represented sold these annuities. The commissions are astronomical and the annual kick backs large. So upon initial sale, my dad collected the 10% commission and annual kick backs were quite large. My mom is 86 and has just started annuitizing one of these annuities (she has many of them) and while the payouts are welcome, the income taxes are low because her cost was so high. Without our family essentially taking the humungous commissions and kick backs, would my mom have these products? No, probably iBonds from back when you could buy them with a credit card at $30k per person.

So if you've got your insurance broker license and have gone through the hoops to represent the insurance company providing a fixed indexed annuity, you're providing a new Lexus LC500 to your agent.

So in compliance with your requirement of a positive review, if you can receive the commissions and kick backs, they're not at all bad. Will they ever beat the S&P 500? Well, of course not. But they'll beat a Chase savings account interest rate.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by Tdubs »

Stinky wrote: Sun Jun 11, 2023 6:13 am
Tdubs wrote: Sun Jun 11, 2023 5:41 am
Stinky, thanks for doing this. Having a death benefit would make the American General indexed annuity vastly superior to the Integrity Life DIA, quite a surprise. I tried to duplicate what you did on Stan the Annuity Man's site, but I'm stymied. If you try to use its FIA calculator, it seems like you have to schedule an appointment with Stan before using it. Is that what you did? Or, is there another place on his website that I'm missing?
From the stantheannuityman.com website -
—- click on the “calculators” drop-down on the home page
—- click on “income riders”
—- put in a name, email, address, date of birth, etc using whatever parameters you want. When you come to “choose your calculation”, select “I know the dollar amount I want to put in”, and enter your single premium
—- hit “get quote”

The calculator takes about 10-15 seconds to return an answer, because I think it’s going through a lot of calculations. (Or maybe it’s just slow).

But you get your answer on the screen. In my case, a list of 25 companies with monthly income quotes.

Oddly, I find that American General has the best quote by a huge margin - over 10% higher monthly income than the second place company. I’m accustomed to looking at term life quotes where just a few dollars separate the top companies, so this wide margin is a surprise.

Maybe American General mispriced this particular cell. Maybe they make it very difficult to actually invoke the withdrawal benefit. Maybe the website is just incorrect. Or maybe I just happened to pick the one cell that is a total outlier.

In any case, if I was looking to start income in 5 years, American General would be an easy pick for me.
Ok, yeah, I used the rider calculator, but it leaves you hanging. As the site notes, you need to attach the rider to a specific FIA or other annuity product and that most riders charge a fee, which is not listed.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by Stinky »

Tdubs wrote: Sun Jun 11, 2023 6:31 am
Ok, yeah, I used the rider calculator, but it leaves you hanging. As the site notes, you need to attach the rider to a specific FIA or other annuity product and that most riders charge a fee, which is not listed.
I believe that the rider fee is irrelevant to the monthly income provided. That’s because the monthly income is based on a “benefit base” amount, which I don’t believe is impacted by rider fees.

In any case, I expect that the monthly income of $2,250 produced by a $200,000 single premium is likely correct. I would hope that Stan’s website is doing the calculation correctly.

Of course, the rider fee does come out of the account value, which further depresses the surrender value of the contract.

That’s why I would only suggest an indexed annuity to someone (a) who attaches a withdrawal rider to it, (b) is 100% confident that they will exercise the withdrawal rider, and (c) did the due diligence to be sure that the indexed annuity beats a DIA or SPIA monthly income.
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Single Premium Immediate Annuities...SPIAs

Post by hudson »

HENRYGRUGER wrote: Sat Jun 10, 2023 7:01 pm I am curious as to whether or not there is a Thread on BHs where people have discussed using FIA or SPIAs to fund a guaranteed income in retirement, at least for "flooring Income" purposes.

I have seen a number of threads with comments basically dismissing annuities as being unworthy of even rational discussion and those are not discussions I want to enter.

I have been looking closely at building an annuity strategy to accompany my SS benefits when I retire in January of 2024.

Has anyone else built annuity strategies?
I like checking the deals at ImmediateAnnuity.com. The payouts appear sweet.
SPIAs don't work for me because I lose control over say $250K forever. That gives me heartburn.
If I was retiring early and I didn't have enough, I might go for a SPIA anyway.

SPIA discussions that I bookmarked:
https://www.bogleheads.org/wiki/Immediate_fixed_annuity
viewtopic.php?p=6643153#p6643153
viewtopic.php?p=6969608#p6969608
https://www.blueprintincome.com/income- ... eath=false
viewtopic.php?p=5397262#p5397262
viewtopic.php?p=5396393#p5396393
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by Rex66 »

Years ago with VAs there was this “loop hole” that some took advantage of. In essence the death benefit gave you the greater of the actual account value or your money back. Well some people who were very unhealthy invested in crazy risk investments within the VA. When they died relatively shortly after compared to the average purchaser, they did well and the insurance company didn’t get to collect years of crazy high fees. It went on for a little while before the industry changed their contracts bc it was a small % of clients.


So in this conversation, if you purchased a fia/income rider and immediately turned it on (in cases where they allow that), then I can see how it’s possible the industry is currently paying more than a spia. It’s not the way they want to sell it but they can’t control that assuming the contract allows it.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by Tdubs »

Stinky wrote: Sun Jun 11, 2023 6:39 am
Tdubs wrote: Sun Jun 11, 2023 6:31 am
Ok, yeah, I used the rider calculator, but it leaves you hanging. As the site notes, you need to attach the rider to a specific FIA or other annuity product and that most riders charge a fee, which is not listed.
I believe that the rider fee is irrelevant to the monthly income provided. That’s because the monthly income is based on a “benefit base” amount, which I don’t believe is impacted by rider fees.

In any case, I expect that the monthly income of $2,250 produced by a $200,000 single premium is likely correct. I would hope that Stan’s website is doing the calculation correctly.

Of course, the rider fee does come out of the account value, which further depresses the surrender value of the contract.

That’s why I would only suggest an indexed annuity to someone (a) who attaches a withdrawal rider to it, (b) is 100% confident that they will exercise the withdrawal rider, and (c) did the due diligence to be sure that the indexed annuity beats a DIA or SPIA monthly income.
Thanks, I appreciate your help. It is strange that there are decent companies on Stan's site (Ameritas, American General, and others) providing riders that beat the best on immediateannuities.com. Seems like there is some detail missing, but I've only made superficial use of these sites.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by petulant »

Some more points:

1. Rex makes an important point about index-linked insurance products like FIAs and EIULs. They can be marketed as tied to the stock market, but in fact their economics are primarily driven by the insurer's bond portfolio filtered through the derivatives market. Recall, an index-linked product traditionally uses a point-to-point comparison to the price level of the S&P 500. If the S&P 500 has a lower price than it did at the start date (the first point), then there is a floor. If the S&P 500 has a price between the start price and the cap, then that is the % return. If the S&P 500 has a price above the cap, then the return credited is the cap (like 8%). These dynamics are gained from buying and selling call options in the derivatives market. Although Rex says that the insurance company starts with 96-98% in bonds and the rest in options to create the payout, that ratio of ~96% in bonds means that the insurance company will effectively end up back with 100% in a year after receiving bond interest. (1.042*.96=~1.) So, the insurance company is effectively pre-spending bond interest to buy options. That means its options budget is roughly set by the interest earned by its bond portfolio, adjusted based on the marketing and actuarial goals of the company. If the insurance company drops the cap rate or the participation rate, it is effectively cutting the options costs it faces. This could be driven by bait-and-switch tactics, or it could be driven by interest rates lower than expected. Either way, the following conclusion follows: assuming the derivatives market is reasonably fairly priced, the economics of these products over many years are actually driven by bond interest rates, not the stock market itself.

2. If index-linked insurance products like FIAs and EIULs are effectively masks for bond interest, just filtered by the volatility of the options market, how much can they really "beat" a bond portfolio, or a traditional insurance product backed directly by bonds? In effect, it is very hard, and any actual outperformance will probably be 1) small and 2) reflect the risk of filtering through the derivatives market. Go back to a traditional structure of a 0% floor, 10% cap, and 100% participation rate (based on price index).* Over many years, what are the returns going to be for this structure? Well, the stock market has not commonly returned between 0% and 10% in a single calendar year. The stock market has been more volatile than that. In about 1/3 of years, the stock market has lost money; in over 1/2 of years, the stock market has gained over 10%; and only about 10-15% of the time has the stock market returned between 0% and 10% (the average was around 4.5% for those years). If we do a simple weighted average of these outcomes (which is appropriate for how the point-to-point math works), we would get .33*0+.5*.1+.167*.045=.057. That's 5.7% in expected returns. So, if the insurance company takes all of its expected bond interest for a portfolio in a year and pre-spends that on options that give it the 0% floor, 10% cap, and 100% participation rate, the expectation should be something like 5.7% before fees and expenses. If the cap or participation rate had to come down, then the expected return would come down as well; an 8% cap, for example, might come to 5.2%. Compare that to a bond ETF like LQD, which holds investment grade corporate bonds. LQD has an SEC yield of about 5.2%. Also, MYGAs have rates in the high 4s or in the 5s. Many deferred income annuities have implied rates of return around 4.75%-5%. Note, if the weighted average from stock market data is much higher than the prevailing interest rates, it implies that the option budget will be pressured until the cap rate or participation rate falls: if corporate bonds are returning 3.5% but the current cap/par/etc. would show an expectation of 5.7%, then options would get pressured until the cap has to fall to 6-8% and/or participation rates drop. Hence, the actual guts of FIAs and EIULs are not expected to return much, if any, higher than corporate bonds or traditional insurance products backed by the insurer's bond portfolio.

3. The withdrawal benefit of FIAs and some other variable annuities is another way that the marketing can tie the product to the stock market, but the actual outcome is effectively more like a traditional product like a SPIA. Essentially, a FIA tells the retiree that they make more money as the stock market does well. But with the fees, the a withdrawal benefit annuity will always trail an actual portfolio of securities. Nevertheless, the guaranteed benefit base will continue to grow during accumulation, and it is likely that this base will set the parameters for the guaranteed income (and any death benefit). This is the aspect of the portfolio that provides a greater benefit from early death or the payments that continue into an annuitant's old age. Essentially, the guaranteed withdrawal benefit acts like a SPIA with a payout period or return of premium benefit: if the annuitant dies very early, the death benefit or account value kicks in; if the annuitant lives a long time, the SPIA has a guaranteed lifetime payment. The investment or FIA side of the account is effectively just there to fund the death benefit if the annuitant dies early or to provide the rewards if the stock market somehow has an unlikely but significant run up. In most scenarios, the withdrawal benefit is funded by the account value first and then by the insurance company's guarantee, so between the fees and withdrawals, the account value will be depleted within a decade from starting withdrawals--about the time period of a return of premium or period certain rider on a SPIA. Thus, withdrawal benefit annuities are like a SPIA with a return of premium or guaranteed period rider combined with a call option on the stock market. Instead, I would suggest that it is almost always better to just buy a SPIA with a portion of the saver's wealth (like 1/3 or 1/2) and leave the rest in an acceptable portfolio. This will give most of the benefits of longevity protection while leaving a large exposure to potential gains and leaving sufficient liquidity available.

* Some people like to argue that a focus on the price index is deceptive. While marketing materials might be deceptive based on how they discuss price and total return, it is not deceptive for the performance measurements to be based on price index levels. The derivatives market almost always operates on price levels, and the resulting options prices are adjusted to take into account expected dividend payments. Hence, the call options might be a little cheaper because a market maker holding the underlying would receive the dividends, and so on.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by AlwaysLearningMore »

afan wrote: Sat Jun 10, 2023 8:43 pm The bogleheads problems with the indexed annuities are their complexity, opacity and cost. If you want an annuity product, you can get one without these limitations.

On the other hand, my problem with even SPIAs is that they pay a nominal fixed income whose real value decreases each year with inflation. It may be technically true that it can be lifetime income but it is a lifetime of declining value.

If one could buy inflation indexed annuities and they were not too expensive, then they could be a good retirement solution. Rumor has it that insurance companies found that too few people bought them, because of low payouts. Now they do not sell them at all.
An investor needs to be aware of the 20-30% haircut they would receive on the initial payments from an inflation or growing annuity (for example, 2% annual increase, 3% annual increase, etc.). Those initial payments would presumably be made during the retiree's
early, more vital years.

If an investor wants a reliable CPI indexed income stream, it seems a large quantity of series I savings bonds (plenty to last through both spouses' lifetimes, in excess of any realistic life expectancy short of making a Ponce Deleon level discovery) seems a good fit. A TIPS ladder would be similar, but bonds are not guaranteed in value if not redeemed at maturity.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by Artful Dodger »

LongRoad wrote: Sat Jun 10, 2023 10:21 pm
Tdubs wrote: Sat Jun 10, 2023 10:05 pm
LongRoad wrote: Sat Jun 10, 2023 9:58 pm Wouldn’t the insurance companies themselves, who should have all the needed real world data for comparison, be touting their studies showing the superiority of annuitizing FIAs vs. SPIAs if the data agreed?
Wouldn't the companies selling SPIAs tout their studies of SPIA superiority if they had them?

Insurance companies must have some ceasefire in place.
A company that only sells SPIAs won’t have the data.

A company that sells both won’t throw the high margin FIAs under the bus by publishing a comparison.
Bingo :beer
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by Tdubs »

Artful Dodger wrote: Sun Jun 11, 2023 9:27 am
LongRoad wrote: Sat Jun 10, 2023 10:21 pm
Tdubs wrote: Sat Jun 10, 2023 10:05 pm
LongRoad wrote: Sat Jun 10, 2023 9:58 pm Wouldn’t the insurance companies themselves, who should have all the needed real world data for comparison, be touting their studies showing the superiority of annuitizing FIAs vs. SPIAs if the data agreed?
Wouldn't the companies selling SPIAs tout their studies of SPIA superiority if they had them?

Insurance companies must have some ceasefire in place.
A company that only sells SPIAs won’t have the data.

A company that sells both won’t throw the high margin FIAs under the bus by publishing a comparison.
Bingo :beer
They have the expertise to do this in their sleep.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by 000 »

petulant wrote: Sun Jun 11, 2023 7:47 am Some more points:
That was an excellent post. :sharebeer
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by nisiprius »

The big question that needs to be asked by anyone whose thinking of buying one of those things--and I'm not so I'm not going to try to do the research--is this. The appropriate comparison to make is not between a fixed indexed annuity and an a SPIA. It is between

a) a fixed indexed annuity, and
b) a portfolio consisting of suitably-chosen percentages of a SPIA and an S&P 500 mutual fund.

Because what a fixed indexed annuity does is to give you a percentage of stock market returns. The rhetoric downplays this, e.g. "You get some 'participation' in stock market returns! The size of that portion is whittled away by layers and layers of gotchas, including: confiscating the dividends, having a less-than-100% "participation ratio," having an annual cap, calculating the change in the index in complicated aways, and so on.

I have no doubt that sometimes a FIA will return more than a SPIA. But the question is whether there is a better, simpler, and cheaper way to attain the goal of partial participation in the stock market.
Last edited by nisiprius on Mon Jun 12, 2023 6:47 am, edited 3 times in total.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by 000 »

People can also buy their own call options on SPY if that kind of return profile is desired.

Additional options (lol) are market-linked CDs and structured notes, but obviously none of these involve any form of mortality credits.

Then there's tontines.....
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by Stinky »

HENRYGRUGER wrote: Sat Jun 10, 2023 7:01 pm I am curious as to whether or not there is a Thread on BHs where people have discussed using FIA or SPIAs to fund a guaranteed income in retirement, at least for "flooring Income" purposes.

I have seen a number of threads with comments basically dismissing annuities as being unworthy of even rational discussion and those are not discussions I want to enter.

I have been looking closely at building an annuity strategy to accompany my SS benefits when I retire in January of 2024.

Has anyone else built annuity strategies?
Have the comments in this thread been useful to you?

After reading what folks have said, are you inclined to consider using FIAs, SPIAs, or another annuity product to help fund your retirement income?
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by HENRYGRUGER »

Mel Lindauer wrote: Sat Jun 10, 2023 11:51 pm Here's a link to a column I did for Forbes a number of years ago that warns of some of the dangers of falling for sales pitches made by commissioned salespersons pushing Equity Indexed Annuities.

The Truth About Equity-Indexed Annuities
https://www.forbes.com/2010/08/10/truth ... 55c3331257
Thanks Mel!

After reading the article I wanted to add that when your article was published the status of FIA/EIAs was upon for debate by the SEC. FIA/EIA were eventually ruled to be insurance products, which they actually are, and always have been, and they remain so today.

Your other points were well taken but you didn't address the income rider, other than by reference to additional fees. In fact, if an income rider is purchased with the FIA/EIA, the stream of income is guaranteed. That fact is really the primary reason for my considering it, along with the flexibility that it has, that is not available with SPIAs.
Last edited by HENRYGRUGER on Wed Jun 14, 2023 12:09 am, edited 1 time in total.
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Re: Fixed Indexed Annuities - Non Haters Thread

Post by HENRYGRUGER »

Stinky wrote: Mon Jun 12, 2023 6:18 am
HENRYGRUGER wrote: Sat Jun 10, 2023 7:01 pm I am curious as to whether or not there is a Thread on BHs where people have discussed using FIA or SPIAs to fund a guaranteed income in retirement, at least for "flooring Income" purposes.

I have seen a number of threads with comments basically dismissing annuities as being unworthy of even rational discussion and those are not discussions I want to enter.

I have been looking closely at building an annuity strategy to accompany my SS benefits when I retire in January of 2024.

Has anyone else built annuity strategies?
Have the comments in this thread been useful to you?

After reading what folks have said, are you inclined to consider using FIAs, SPIAs, or another annuity product to help fund your retirement income?
Stinky:

Yes...very helpful, but as I anticipated, there are many comments that are basically just negative opinions based on what others have said or read, etc.

The comments regarding SPIAs, MYGAs and FIAs (Originally EIA) being different are all true. Personally, I have never been a fan of FIAs because although I understood them personally, I was aware that the majority of those selling them did not. Add to that the fact that there were 100s of FIAs and all of them could be different, so understanding one or two or even a dozen of them, left countless numbers that a person would not have been familiar with. And if the agent representing the product didn't really understand the product, what chance did the senior citizen, who is the primary consumer of Annuities have to actually understand what he/she had just purchased.

I appreciated the comment on Taylor's SPIA. I was aware of that from one of the first posts I ever read on this forum.

SPIAs and MYGAs have one thing in common...at least. BOTH are guaranteed products. No Fees, No Surprises. SPIAs (Joint Life) pay a promised amount for the life or either the annuitant or spouse. MYGAs pay a specified Interest Rate for the term of the MYGA. In essence, MYGAs are the CDs of the Insurance world. The MYGA I am considering is paying 5.45% for 10 years, on $250,000. Each year you can withdraw 10% of the value ($25,000) or interest only. (Starting at $13,625). (Non Cumulative)

FIAs on the other hand, are not guaranteed, at least not in their basic form. As was pointed out by a number of responders to my OP, the companies can change participation rates, caps, etc. at will, after the first year. However, the FIA I am looking at will have an income rider attached. This changes everything, in that while the company can alter the caps, participation rates, etc, while the income rider is not "turned on," it becomes a guaranteed income stream once it has been. The "roll up rate" for the FIA I am looking at pays 8.5%, annually. Each year the income rider remains "turned off," the guaranteed income increases by $3,000. Since I will be funding this annuity with ROTH Dollars, I will receive 100% of the income stream income tax free. Therefore, the only taxable income my wife and I will have will be our SS Income, and that will result in our basically being in the Zero Percent Income Tax Bracket, with $100k income annually. (I waited to file until age 70, and we received $69,169 in 2023.)

I haven't made up my mind yet on the FIA. All my years of disliking the product and the horror stories caused by unscrupulous agents associated with the product have given me pause, but I am considering it.

I appreciate the input from all of you and I also appreciate the civil nature of the discussion, for the most part. Having spent 28 years in Banking & Finance, 12 years in Insurance & Financial Service, and the past 15 years in academia, I know there is no such thing as a perfect product. I also know there is no such thing as a financial product that is intrinsically bad. Financial Products are tools, and in the hands of a master craftsman, tools can work miracles. In the hands of an incompetent craftsman however, the results can be catastrophic.

I am waiting to discuss this whole strategy with my CPA and will not move forward until I have a better understanding of all the Tax Issues. I am pretty versed in them, but I am not a CPA.

Thanks again to all those who contributed to this thread.
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Re: Single Premium Immediate Annuities...SPIAs

Post by HENRYGRUGER »

hudson wrote: Sun Jun 11, 2023 6:53 am
HENRYGRUGER wrote: Sat Jun 10, 2023 7:01 pm I am curious as to whether or not there is a Thread on BHs where people have discussed using FIA or SPIAs to fund a guaranteed income in retirement, at least for "flooring Income" purposes.

I have seen a number of threads with comments basically dismissing annuities as being unworthy of even rational discussion and those are not discussions I want to enter.

I have been looking closely at building an annuity strategy to accompany my SS benefits when I retire in January of 2024.

Has anyone else built annuity strategies?
I like checking the deals at ImmediateAnnuity.com. The payouts appear sweet.
SPIAs don't work for me because I lose control over say $250K forever. That gives me heartburn.
If I was retiring early and I didn't have enough, I might go for a SPIA anyway.

SPIA discussions that I bookmarked:
https://www.bogleheads.org/wiki/Immediate_fixed_annuity
viewtopic.php?p=6643153#p6643153
viewtopic.php?p=6969608#p6969608
https://www.blueprintincome.com/income- ... eath=false
viewtopic.php?p=5397262#p5397262
viewtopic.php?p=5396393#p5396393
Thanks Hudson! I am very familiar with both ImmediateAnnuities.com and StanTheAnuityMan.com. Excellent resources, both.

I understand your feelings about losing control over the funds in a SPIA. That is partially the reason I am looking at MYGAs and FIAs. As we use to say, "You are not giving up the asset, you are changing its form but it remains in your portfolio."
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HENRYGRUGER
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Joined: Mon Oct 12, 2020 11:32 pm

Re: Fixed Indexed Annuities - Non Haters Thread

Post by HENRYGRUGER »

Stinky wrote: Sun Jun 11, 2023 3:56 am
000 wrote: Sun Jun 11, 2023 2:12 am
HENRYGRUGER wrote: Sat Jun 10, 2023 7:01 pm I have been looking closely at building an annuity strategy to accompany my SS benefits when I retire in January of 2024.
What goal are you trying to achieve with FIAs that SPIAs cannot do?
While OP has not weighed in since he started this thread, it's possible that he wanted to compare the monthly income available from a SPIA to the monthly income produced by an income rider attached to an indexed annuity.

As an "accumulation vehicle", Bogleheads generally don't like indexed annuities. Poster afan summarized it well upthread:
afan wrote: Sat Jun 10, 2023 8:43 pm The bogleheads problems with the indexed annuities are their complexity, opacity and cost.
But the other potential use for indexed annuities is as a "delivery vehicle" for a withdrawal rider. As I understand it, one would purchase an indexed annuity with a rider that guarantees to allow a certain rate of withdrawal, based on the growth of a "benefit base" that is defined in the rider and is not available for cash surrender.

I follow the podcasts produced by Stan the Annuity Man, who runs a large consumer annuity agency. He seems to primarily sell MYGAs for accumulation purposes, and both SPIAs and indexed annuities with withdrawal riders for income purposes. He notes that when an indexed annuity is used for income purposes through an withdrawal rider, all of the smoke and mirrors (non-guaranteed caps and participation rates, fees for the withdrawal rider itself, etc.) do not affect the amount of monthly income available through the withdrawal benefit. All that matters is how the withdrawal benefit rider works.

Some in this thread have wondered whether there are historical studies comparing the monthly income available from a SPIA with the monthly income from a withdrawal rider. I'm not familiar with any such studies.

I believe that the only way to compare the monthly income from these two sources is to get actual, real time quotes on both products.

Here's a real life example. I went to immediateannuities.com for a quote on a 70 year old male in Alabama with $200,000 of IRA money who wants a monthly income starting in 5 years (at his age 75) and continuing for the rest of his life. The best quote was from Integrity Life, for $2,077 per month. Per the immediateannuities.com website, there is no death benefit, whether the annuitant dies prior to or after the annuity benefit start date. (Other products are available that have a death benefit.) The product quoted would be referred to as a "deferred income annuity" (DIA).

For comparison purposes, I went to Stan the Annuity Man's website to get a quote on an indexed annuity with an income rider, with the same parameters as the DIA quoted above ($200k IRA premium, male age 70 in Alabama with monthly withdrawal benefits starting at age 75). Of the 25 quotes listed, one company (American General) would pay more than the Integrity Life quote, with a payment of $2,250 per month.

Beyond the higher monthly payment starting at age 75, I believe that the American General indexed annuity with a withdrawal rider would be more attractive than the Integrity Life DIA, primarily because of the death benefit. I believe that the death benefit on the American General product would be the account value, whether the annuitant dies before or after the withdrawal benefit rider is activated. In the case quoted here, the indexed annuity account value should rise between ages 70 and 75, and then decline as withdrawal benefits are paid out. Withdrawal benefit payments continue as long as the annuitant is alive, even if the account value is reduced to zero.

In other words, the indexed annuity with withdrawal rider has a death benefit, while a DIA does not.

I'd encourage anyone considering such a purchase to get quotes from a wide range of companies, using a large agency like immediateannuities.com or stantheannuityman.com. In the real life example cited, the range of monthly income quotes ranged from a high of $2,250 to a low of $1,294, and only one was better than the best DIA quote.

I would not attempt to generalize based on the single case presented here. I can't say that indexed annuities with withdrawal riders always produce a higher income than SPIAs or DIAs. In particular, I can't say that a person who wants to start income in 2024 (as OP says that he does) will be better off with an indexed annuity than with a SPIA or a DIA.

But in the case cited above, the indexed annuity with withdrawal rider wins over the DIA.
Stinky:

Great Response. Thanks again! I am very familiar with Stantheannuityman's site.

Your observation that FIA with Income Riders have higher payouts is correct, based on a considerable number of comparisons I have made. The Death Benefit is another feature that is favorable when considering FIA vs. SPIAs or DIAs.
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