pros and cons lets discuss… would do it for yourself. would you do it for your rich old parents. would you do it if ur a poor.
probably not with interest rates at record lows
I probably wouldn’t. Statistically, you’re very likely to lose on the deal. But I guess it comes down to how much you value a peace of mind and disdain volatility.
Can be set as term certain or life contingent
Add guarantee period to avoid loss on early death
Single life or joint life (1st or 2nd to die)
Funds managed with long-term investment objectives by large institution
Interest rates these days are abysmally low
Payments usually fixed
Loss of control over investment decisions
Mortality improvement typically included in annuity pricing
COLA adjustment expensive
2nd to die is very expensive to fund
From what I read you’ll still come out bet positive. But slightly lower returns due to higher fees. You can add certain riders that add an additional expense. And if you go variable they put you in expensive mutual funds. But for the most part. You’ll generally pay at around 3 percent per year or higher. Yikessss
The fixed plain vanilla ones have minimal fees but are crappy right now too just cuz they invest in in bonds. You can do the indexed where you give up upside for downside protection tied to an index but net every bells and whistles causes you money…
Commission is high for the seller of it though. Like between 2 to 7 percent. And if you try to sell early you gotta pay a 7 percent surrender charge.
I agree with Ken Fisher’s stance on them.
To paraphrase him:
Most annuities have nosebleed level fees, don’t do what the customer thinks they do, have tremendous tax items, are hard to get out of and have a thick contract.
I guess you wanted to discuss accumulation annuities; my answer was in terms of payout annuities.
its a prety big industry. like 250b. but i have no diea why anyone would buy this product. just buy a bond or stock outright.
People are risk averse
The outright investment doesn’t come with a guarantee or protect against longevity risk. You are young and may not ascribe much value to that. But the products fill a gap that has been increasing for decades with the shift from DB to DC plans. It costs money to provide these benefits to investors, hence the fees. It’s not for everyone. But for many, it can make sense in the context of a larger financial plan.
Well said!!! You must be a CFP!!!
Perhaps, perhaps. Or, you know, just thoughtful about these things. How you doing, man?
Well, I’ll tell you…
defintiely has no value to me. since im pretty yolo and will die earlier than expected. life insruance prolly makes more sense since i degaf. but quite honestly even if i were a target consumer, this still isnt a good product cuz its expensive. how you gonna charge 4% per year and only earn 6%, maybe if ur jim simmons earnings 30 to 50% per year the nyou get a pass. but that is not the case and to lock u in the y have the audacity to have a surrender charge of 7%. thats when you know you have a ■■■■ product. should not be legal. there is a reason this is heavily marketed. these low rates are going to kill insurance companies.
Nerdy, I’m not sure you understand variable annuities. You invest your premiums into mutual funds, and you get the performance of the funds.
Yes–there are a lot of costs, but there are insurance benefits attached to those costs. There are “high-water-mark” provisions, return of premium benefits, guaranteed income without having to annuitize, etc. Yes–a VA will, by definition, underperform a similar investment without the associated expenses. But that’s what makes a VA different–it has insurance. It has guarantees, which come at a price. If you don’t understand that, then you’re missing the whole point of insurance.
no i understand it completely. what i am saying is this is the same thing as bottle service. sure it has a purpose but its value is dubious at best.
maybe their fees made sense when mutual funds were unscrupulous as well. but times are a changing and fees are now low. there is no reason to promote these types of products in mlm pyramid schemes.
Agree they’re mostly a terrible investment. But there is a segment of the population who are just too risk averse and will pay a premium for certainty. It’s the same reason seg funds are still being sold… they’re basically a mutual fund with an insurance wrapper that gives you nice cozy 75% guarantee upon death. All for the low cost of 300 bps. Complete ripoff, but my in-laws invest in them along with thousands of other people. The elderly are often preyed upon by investment salespeople. There really should be more oversight in the insurance world.
The 75% guarantee on death for seg funds was just the start: these days, the life cos have a whole new spectrum of secondary guarantees, e.g. GMIB, GMWB, ratchets, resets, etc. VA hedging has definitely become more important!
Touche. These products are ever more complicated… I would bet that many of the advisors don’t fully understand them either. Have to justify those fees somehow.
with each rider costing .5% a pop. by the end of it, ur left with a fixed income return while they take home the lion share.