OT: Retirement part dos (Annuities) ?

37 comments

• twentyfive

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  9 years ago

  I don't like them as an investment most of the ones that have been pitched to me are too expensive and the insurance aspect seems to eat up too much of the upside. With that being said there might be some people that like the relative safety of an annuity, but I personally feel that you give up too much upside for the for the benefit of minimizing risk.
• Papi_Chulo

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  9 years ago

  ^ nice description - IDK too much about them but what you mentioned is sorta what i had in mind.
• twentyfive

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  9 years ago

  Papi --Annuities might be good for someone with a large portfolio of equities, after they retire guaranteeing them an income once they are annuitized, but I don't think that they are a smart way to build wealth. They might be a good way to preserve the wealth that you are able accumulate. but you should able to do ok in the equities markets by buying ETFs and holding them long term, treating dips in the market as a discounts (buy more when the price is cheaper) then when you get closer to retirement seeking investments with less or lower volatility. If you want good advice read some of Jim Kramers books especially the more recent ones and go into your bank or brokerage and ask if they have anyone that can help you with managing an investment account or at least explain the language of financial transactions.
• Papi_Chulo

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  9 years ago

  Thanks "25" - a highly rated ETF is all I have now - it tracks the S&P and has extremely low fees.
• twentyfive

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  9 years ago

  that's smart keep increasing your holding it is about as diversified as you can get Diversification = Safety
• Mate27

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  9 years ago

  I will echo and second the comments twenty five has made. Well put in perspective of a persons total financial picture. Keep in mind your social security and any pension is considered an annuity, so if you have enough social security and pension to live off, then there's no dire need for another purchase of an annuity.
• jackslash

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  9 years ago

  No to annuities.
• Dolfan

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  9 years ago

  I'm not a financial planner, but I thought the draw for annuities was the lack of tax deferred contribution limits? If you've got lots of cash you don't want to pay taxes on now, its probably worth looking into more. If you aren't hitting limits for other options maybe not so much, since the fees can be rough even when you consider any value the insurance may add to your goals.
• Confucious

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  9 years ago

  Confucious say 401k good, but annuity not so much.
• sharkhunter

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  9 years ago

  I put annuities and long term care plans in the same boat. I thought I read somewhere long term care plans might be considered if you have over 500K in assets but less than that, probably not worth considering. I am not a financial planner though.
• twentyfive

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  9 years ago

  to Dolfan The question was if you followed from the other thread how to acquire enough assets to retire comfortably and your assumption going in is almost always that it that to accumulate, it is better to pay the taxes and continue to grow the asset. If your nest egg is large enough and all you are looking to do is preserve capital than you have a lot more work, to do and assumptions to make, before you decide on what strategy to use. There are many other ways to avoid taxes (legally) than to pay insurance companies.
• Clubber

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  9 years ago

  Papi, A relative of mine that has been in the investment field for many years, and done quite well for himself, told me to stay away. I trust his judgement, so I do.
• snowtime

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  9 years ago

  I have looked at annuities, but think there are too many negatives to make them attractive. In most cases they seem to take about 20 years to pay you back your original investment. I guess if you live way past 85 (assuming annuity starts paying at 65) you might come out ok. My other worry is that the issuing insurance company may go out of business for whatever reason and you are left holding the bag. I see no compelling reason to purchase one. I think most people at 65, like myself, would be far better off spending the same amount on a solid utility. You can be reasonably assured of a decent yield, with little risk of losing your original principal investment.
• gawker

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  9 years ago

  I have a tax sheltered annuity with the theory being that you put the $$ in pre-tax when you're in a high tax bracket and take it out when you're at a lower rate. Mine was in an S&p index fund which had extremely low fees however my tax bracket never changed but I did have those tax dollars earning money for all those years.
• sshrfrsky

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  9 years ago

  I wouldn't be worried about the insurance company going out of business unless it wasn't highly rated. Plus at least some states have protection in case it does happen similar to FDIC. Don't know the particulars and I believe licensed insurance agent can't even tell you about it but that too may be state specific. There are many types of annuities and shouldn't be lumped together. They could be useful for some people.
• twentyfive

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  9 years ago

  to sshrfrsky I agree that the insurance companies going out of business is not a real concern and the people that sell annuities have repeatedly stated, at least to me, that no insurance company has ever defaulted on their annuity obligations and yes they could be useful for some people looking to maintain an income stream. But they are so expensive to run and maintain, that the administrative fees that they collect eat into the profits at an alarming rate rendering most of them ineffective as a means of building a nest egg. to gawker Why would you use a tax shelter to hold a low cost index fund why not max out your Roth and take the gains tax free? Or even just buy the funds and use a trust to shelter some of the income from taxes then pay taxes only on what you take as a distribution ? No disrespect intended just asking an obvious question and hoping to learn a little more from another perspective.
• twentyfive

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  9 years ago

  ^^should have read why would you use an insurance company as a tax shelter ^^ in the to gawker question
• Mate27

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  9 years ago

  25 ^^^ My guess is he is using an index fund inside an employer type plan and had enough sense to use a low cost investment option. 25 is correct in stating you should use the same investment, but choose a low cost ROTH IRA since tax sheltered annuities typical add on an M & A fee that typically runs 1% annually. If the S & P fund historically yields 10%, your money will double in 6 7.2 years(rule of 72), however if the same investment is inside a TSA then you yield only 9%(due to the m & a fee) then your money doubles in 8 years. This means the tax sheltered annuity robs you of 9 and 1/2 months of time every 7 years, and multiply that out over a lifetime you could end up wasting several years on an investment that could earn you thousands more outside a TSA. Good points by 25. Always go the lower cost option and hold onto it. That's a plan, and never react to your emotions.
• Knightline

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  9 years ago

  Iam a CLU which is the most advanced insurance designation. There are many types of annuities and some have few fees. They all offer guarantees and tax deferral. It is way too simpelistic to say to always stay away or to imply that they are always good. To make a recommendation I would need to know a lot more about you including your ncome, age, risk tolerence, etc. I would be happy to help if you message me. Generally they are for conservative investors.
• Daddillac

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  9 years ago

  I am a CFP and I believe annuities are perfect for some people and horrible for others.... agree with Knightline about needing to know much more about your specific situation. There are a lot of misconceptions about them in the media that have been echoed here.
• twentyfive

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  9 years ago

  to Daddillac-- Please tell me what misconceptions have been echoed here I would be interested to understand more than I do, also in your role as a CFP do you sell annuities and other financial instruments, or do you just advise for a fee.
• pensionking

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  9 years ago

  While the C share of a mutual fund might pay the seller 1%, an annuity might pay the seller 7 - 9%. Which would you "push" if you were the broker?? Returns are not guaranteed -- fees are.
• twentyfive

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  9 years ago

  ^^that was the reason for my question to daddilac^^
• pensionking

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  9 years ago

  Why do annuities have surrender charges? To reimburse the insurance company for the commissions paid to the seller in case the customer liquidates the annuity too soon after the sale.
• Papi_Chulo

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  9 years ago

  It seems that annuities may fit some individuals w/ lots of $$$ *as part* of their assets (i.e. for some security). And it also seems as pensionking mentioned that those that are the most gung-ho for annuities are those that sell them; in my limited expereince it seems many financial people that don't sell them don't seem to be too crazy about them.
• twentyfive

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  9 years ago

  Annuities are generally sold by insurance brokers although some high net worth money managers like the trust department of private banks do use them to smooth an income stream. However if you use a financial planner make sure that he is not a disguised insurance broker,the vast majority of them. A legit CFP will make his money on a fee for service basis, a note to remember free advice must be compensated for somehow and to ensure that they are working for you best if you know the details of how you are paying the. Fees are upfront commissions lead to devious behavior.
• Mate27

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  9 years ago

  The least expensive annuity to purchase would be as an investment inside an employer plan if you worked for a large employer that has the scales of economy working in their favor. Then and only then you will find all fees inclusive (m&a plus investment fees) to be around 1.8% annually. Otherwise on the retail side you might get to purchase a bare bones index style annuity with no bells and whistles for around 2.75-3% annually(what I've found from my experience). Your basically giving up 1-2% annually in fees for a guarantee, and on a $500k portfolio that is $5-$10k annually for portfolio insurance in case the market melts down. Now the same home owners insurance policy will cost $2-$3k annually to cover a $500k investment called your residence. Both are insurance programs yet how many times has the market gone down and never came back? Answer=Never, because markets have always recovered given time to let it. Homes that burn down never rebuild by themselves so which is a wiser choice to insure? The home right....and much cheaper to do so. I think the only time that it is perfectly acceptable to purchase an annuity is if you don't have enough social security and pension income to live off in your retirement years to cover your living expenses. If not then just annuitize a portion of your portfolio wealth that u think will supplement your other guaranteed income sources to cover standard of living, and possibly a long term care rider if you have some wealth to cover that u don't want eaten by nursing home costs.
• twentyfive

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  9 years ago

  To Meat-- Great analogy, but a lot of guys just don't get, it insurance companies make a fortune from the sale of annuities and insurance brokers almost always try to portray themselves as financial experts, even they don't know squat, if they believe their own hype.
• Mate27

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  9 years ago

  Providing advice for a fee is the way ethical financial advisors should be paid going forward. Imagine if your real estate agent got a continuous trail of 1% annually for every year you lived in your home. Advisors generally get paid for which investments they have you into. It's a total conflict of interest in favor of the advisor for that type of business model. If I am a CFP professional I could charge you $100-$200 an hour for my service instead of thousands each year in investment fees. This is what 25 is referring to, correct?
• twentyfive

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  9 years ago

  Meat that is the way I see it, I thought that I was pretty clear but rereading it I get that. What I should have stated that commissions are generally for the selling of a home or a car, property of a tangible nature but when you seek professional advice that advice should be free of taint and as such. I agree that the way money managers get paid is critical to your peace of mind as to utility of the advice. My lawyer , my accountant, the bank where I maintain my investments are paid a fee for services rendered, if I were to use one a CFP would be paid the same way or I would not use them. BTW I use a bank trust department for buying and selling equities, because I get trades cheaper there than anyplace else including the big brokerages.
• san_jose_guy

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  9 years ago

  People can always do better by starting their own companies, and by working with people they know. Put your money into your own talents and abilities, rather than into speculative financial markets which you have no control over and you really know nothing about. Just read about Tesla founder Elon Musk. He cleared $22 Meg from his first two companies, and starting with I think nothing. I'm not sure that the guy has ever had a job in his life. If so, he goes right into my pantheon of heroes. I'm sure he has never had much dealing with financial markets. Why should he? He trusts his own abilities. He bought: 1. House in Bel Aire 2. McLaren F1 ( V12 $1Meg super car ) 3. single piston engine airplane ( now he flies his own jet ) I'll be reading more about him. Live for today, and off of the money you make today. You'll be happier, you'll live longer, and you'll make lots more money. SJG Jefferson Airplane [view link]
• twentyfive

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  9 years ago

  ^^^this an example of not only hijacking a thread but making a stupid statement, some people should not start their own company, it is much harder than getting a good education and getting a good well compensated job. For every business that is modestly successful there are hundreds that fail. What fucking real experience do you have telling people this stupid shit?^^^
• san_jose_guy

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  9 years ago

  Companies funded by venture capitalists, like Kleiner Perkins, fail 9 out of 10 times. But for proprietorships or self funded bootstrap operations the failure rate is extremely low. I have experience with everything I have mentioned. At my own experiences are echoed in: [view link] This is a very interesting book. People turn to the financial markets, a glorified form of gambling, when they have lost faith in their own personal abilities and lost faith in the abilities of the team they might assemble. SJG America - A horse with no name [view link]
• twentyfive

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  9 years ago

  You have no experience with reality at all, you really don't have a clue as to what you are talking about for you to opine on a subject that you have no knowledge of whatsoever. To make matters worse you have hijacked a thread that the OP was trying to get real information, as to how he might someday be able to retire comfortably and most folks that added their two cents had useful and informed suggestions, than you came along and opined about pure bullshit. You are fucking dangerous, you really need to shut the fuck up, you don't know what the fuck you are talking about. Grow up you fucking baby jackass.
• twentyfive

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  9 years ago

  For the record Elon Musk got tons of cash from VC groups, even when stock in Tesla was flying high he never turned a profit, only projected a profit and the VCs that he used to raise millions has not received any return for their investment as yet. So basically your big hero Elon Musk, is a con man just like you the difference between you and him, he has enough brains to know the reality of his con, you are operating on a forged pass from the institution you escaped from and have missed your meds you think the con is reality.
• san_jose_guy

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  9 years ago

  I've got to read more about Musk. I just read an article summarizing the new biography about him. I never said that he never took VC money. I said that he may be someone who has shown the character and fortitude to have never had a job in his life, maybe. Got to find out. But I'm sure he has never invested money in anything except himself, at least not until he became worth more than $100Meg. Those who really do well never invest in anything except themselves, until they have so much money that they can't invest it all in themselves any more. [view link] But anyway, starting with basically nothing of his own, in just about 4 years he cleared $22 Meg from his first two companies ( PayPal, and a precursor to Google Maps ). Obviously this guy is not an Spear Carrier, he's a Player Character. And then with this first serious money, and using it like he did, he has made it undeniable. No mutual funds, indexed funds, U.S. Savings Bonds, 401K's, Keogh Plans, or derivatives for him! He hadn't even insured the $1Meg McLaren F1 before he tried to do a stunt with it and bashed it up real good. Someone must have had to completely disassemble it and the rebuild it. I personally have zero interest in any house in Bel Aire. But he was probably still married when he bought that. I'd much rather live in the TJ Hong Kong bar's hotel, or in the unit above a San Francisco AMP where the girls wear high heels and brightly colored lingerie, or even across the street from an San Jose Viet Coffee Shop where the girls wear high heels and brightly colored lingerie. But as far as showy things that roll on rubber tires and things that fly through the air, I have a huge interest! As far as Tesla and Space-X, Musk spends his time flying his private jet between Sparks NV, Palo Alto, and Los Angeles, to run these. He is an extreme visionary for even attempting such things. Not likely such a person would have an interest in financial markets, putting money into something he has no control over. I don't know the financials, and Tesla has taken time and I'm sure money, but Tesla seems to be going gang busters now. The Model S four seaters roll silently all over the roads here. They're building their huge facility, which besides building the cars will also make the batteries, in NV. I'm sure there is VC money in this, but Musk is also well on track to becoming a multi-billionaire and one of the more memorable characters of the current epoch. He is a huge improvement over the dot com boom quick turn bullshit artists. They and real estate speculators had poisoned the local culture. Musk is one of a very few who shows how with more visionary and long term undertakings, Silicon Valley could be restored to it's 1970's greatness. My reason for posting this and replying to the OP is simply to show that you do better when you work with people you know and invest your time, talents, and money together, and in things you have built up some expertise in. We all have talents which we could further develop and utilize. And we all have people we could partner with to do visionary and great things. People only turn to financial speculating when they have accepted a fatalistic and self defeating world view. Sorry @Dougster and some others, but this is the truth. SJG [view link] Fear Factory - Obsolete [view link]
• DoctorPhil

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  9 years ago

  @twentyfive don't waste your breathe on san_jose_guy. he has literally proved himself to be the stupidest person on the face of the earth over and over again and now the post-middle age broke ass psycho moron who (and this is serious here) aspires to buying a van and living in a Denny's parking lot (i shit you not that is what his aspiration is) dares to give financial and retirement advice. yeah, he is definitely the stupidest person in the world bar none