Annuities?

[Sigarms]

So, I took part of this savings account money and did something I have never done, I bought a 15 mo CD @ 3.75 %

The way I'm viewing this particular annuity is it's pretty much like a CD and we can do a 3 year at 4.5%

 

[mikester]

I've had an annuity for 30 years. I can select from about 30 funds to invest in and I can reallocate whenever I choose without penalty. I've mostly chosen stock funds - occasionally overseas opportunities. After 7 years there were no fees and taxes are paid (when money is withdrawn). In 30 years the funds invested have gained 74%. The two funds I'm currently in have returned a little over 9% per year on average.
This annuity was recommended by a broker (a descriptive title if there ever was one) and there haven't been any surprises but I'd suggest caution in selecting an annuity if you go that route I'm sure some types of annuities are not wise investments - the insurance industry has a powerful lobby.
Stock historically are the best investment - all sectors have taken a beating recently and who knows when or if the markets will rebound.
There are two outfits I'd recommend looking into for a better idea of investing -
1. Investors Business Daily - gives in depth stock data with ratings of thousands of companies
2. The Motley Fool "" "" plus more coverage of bonds and other forms of investment
Both are pay sites but probably offer a free trial.
Hope this helps...
On edit... When we had our first child we invested in a Universal Whole Life insurance policy - the premise was that we paid $1,000 a year, every year and by retirement age we'd have plenty of money to live on. In reality the life insurance end of it took more and more of the policy's contents each year as we aged - by retirement age the policy would do little more than pay the life insurance premium. Thankfully a friend gave us an newspaper article explaining the fraud of UWL before we sank more money into it.

I'm trying to understand the math here.

If your total investment has gained only 74% in 30 years you are only getting about 2% per year on your initial investment. Inflation tends to be 2-3%. I wouldn't be very happy with those returns.

Personally I don't see much benefit in annuities because they tend to favour the company selling them over you. Have too much money? Buy an annuity.

 

[Sigarms]

Have too much money? Buy an annuity.

I don't have too much money, but at my age, I don't want to lose anything and would just like a better return than what the bank offers for it sitting there doing nothing.

 

[workinonit]

I just bought one. Brand new product. Guaranteed 7% return but has no ceiling. They are not for everyone but fit my portfolio nicely. That portion of my money is with Edward Jones and managed by someone I trust. This product is one they have 100% confidence in.

 

[thclimer]

I like the following quote, just like you would not let your friend drive drunk:

"Friends don't let friends buy an annuity"

The sales pitch on these can sound very attractive, but you are paying a lot for essentially what turns out to be an insurance policy on an investment.

Please talk with a Fee only based financial advisor and have them review the proposal you have for the annuity, they will be able to specifically point out its cost and shortcomings.

The fine print can be very confusing even for the average investor......if this then that, minimum % base upon maximum over XX years, when the moon is full and there is no lunar eclipse, x% distribution on even years and y% distribution on odd years if a certain index provided a positive return and you can only loose a maximum % if another index had a negative return, the percent increase is not calculated on your base investment but rather on the percent of your interest gain in years 2, 4 and 6......

You are probably better off to just buy a few CD's if your are looking for a short term (3-4 years) return.

If your looking for longer term (8-years+), take the advise of Warren Buffet as it is incredibly difficult to beat the S&P 500 index.

 

[MossRoad]

Wish I could hit good post a hundred times on that one.

 

[MossRoad]

The way I'm viewing this particular annuity is it's pretty much like a CD and we can do a 3 year at 4.5%

There are a bunch of CDs out there right now for that rate.

A nice thing about the CDs we are in is that IF for some reason you need the money in a pinch, the penalty for early withdrawal is just a few months interest.

What's the penalty on an annuity?

 

[Sigarms]

There are a bunch of CDs out there right now for that rate.

A nice thing about the CDs we are in is that IF for some reason you need the money in a pinch, the penalty for early withdrawal is just a few months interest.

What's the penalty on an annuity?

The highest I've seen locally at a bank is 4%.

Not worried about needing the money in a pinch. Leaving it and letting it go to the mature date. Nice thing about the annuity is I can pull the first 4% after the first year if I need to (3 years at 4.5%).

 

[turbo36]

There are a bunch of CDs out there right now for that rate.

A nice thing about the CDs we are in is that IF for some reason you need the money in a pinch, the penalty for early withdrawal is just a few months interest.

What's the penalty on an annuity?

Some CD's have EWP as long as 12 months. Be sure to read the fine print.

 

[turbo36]

Someone mentioned municipal bonds earlier, I'd like to expand on my experience.
Generally Muni's are exempt from federal, and in some cases, state and local taxes. If you are in a high tax bracket Munis can have some very positive net results. For example; a 4% tax free muni is equivalent to a 6-7 percent taxable depending on your combined fed and state tax rate.
This summer, my wife and I moved a large portion of our portfolio to 4% or better AA insured municipal bonds. Most of them have a ten-year call, so we are guaranteed an insured investment for at least the next 10 years. I've always had risk to manage in my life with my businesses, and after a while, it gets tiring for some. For my wife and I this made sense as we have no children, so no pressure to increase the portfolio to leave to people that didn't earn it. At the end, we will donate it to some worthy charity of our choice.

Will Rogers quote: “I’m not so much interested in the return ON my money as I am in the return OF my money.”

 

[M59]

I like the following quote, just like you would not let your friend drive drunk:

"Friends don't let friends buy an annuity"

The sales pitch on these can sound very attractive, but you are paying a lot for essentially what turns out to be an insurance policy on an investment.

Please talk with a Fee only based financial advisor and have them review the proposal you have for the annuity, they will be able to specifically point out its cost and shortcomings.

The fine print can be very confusing even for the average investor......if this then that, minimum % base upon maximum over XX years, when the moon is full and there is no lunar eclipse, x% distribution on even years and y% distribution on odd years if a certain index provided a positive return and you can only loose a maximum % if another index had a negative return, the percent increase in not calculated on your base investment but rather on the percent of your interest gain in years 2, 4 and 6......

You are probably better off to just buy a few CD's if your are looking for a short term (3-4 years) return.

If your looking for longer term (8-years+), take the advise of Warren Buffet as it is incredibly difficult to beat the S&P 500 index.

I LOVE a little sarcasm mixed with EXCELLENT advice!!

 

[MossRoad]

The highest I've seen locally at a bank is 4%.

Not worried about needing the money in a pinch. Leaving it and letting it go to the mature date. Nice thing about the annuity is I can pull the first 4% after the first year if I need to (3 years at 4.5%).

If you put $100K into a 4% investment compounded annually for 3 years, you'll get about $12,500 after 3 years.

If you put $100K into a 4.5% investment compounded annually for 3 years, you'll get about $14,100 after 3 years.

That's only a $1600 difference after 3 years.

What are the total fees on the annuity?
How much is the seller going to make off of your purchase of this insurance product?
What happens if you DO need the money?
What happens if you croak?
Why is someone trying to SELL YOU an annuity that's going to make (if you're lucky) about the same as a FREE CD?

Run the numbers and ask yourself those questions.

Look up what a bunch of financial gurus say about annuities as short term investments. I won't post their names, because a bunch of people hate everybody, so there you go.

 

[mikester]

The highest I've seen locally at a bank is 4%.

Not worried about needing the money in a pinch. Leaving it and letting it go to the mature date. Nice thing about the annuity is I can pull the first 4% after the first year if I need to (3 years at 4.5%).

My bank is currently offering 5.2% on a 1 year non-redeemable GIC (guaranteed investment certificate), I'd pass on 3 years at 4.5%

 

[M59]

If you put $100K into a 4% investment compounded annually for 3 years, you'll get about $12,500 after 3 years.

If you put $100K into a 4.5% investment compounded annually for 3 years, you'll get about $14,100 after 3 years.

That's only a $1600 difference after 3 years.

What are the total fees on the annuity?
How much is the seller going to make off of your purchase of this insurance product?
What happens if you DO need the money?
What happens if you croak?
Why is someone trying to SELL YOU an annuity that's going to make (if you're lucky) about the same as a FREE CD?

Run the numbers and ask yourself those questions.

Look up what a bunch of financial gurus say about annuities as short term investments. I won't post their names, because a bunch of people hate everybody, so there you go.

MossRoad,

The numbers you wrote down don't lie. For any annuity, absent the contractual language, I would have to receive at least the long run average ( 10-20 years) of the S&P return BEFORE I even considered reviewing an annuities terms and costs. One must also consider the annuity providers financial condition as they could go bankrupt/ insolvent and your hard earned dollars disappear.

 

[JethroB]

I’ve heard Fed Treasury I-bonds are some hidden jewels but know little about them. Currently yielding 6.89%.

I bonds — TreasuryDirect

www.treasurydirect.gov

 

[Torvy]

@Sigarms As an Economics teacher, I would not advise an annuity for 99% of people. I suppose the is some situation where it makes sense for someone other than the fund manager.

You are considerably better off in mutual funds. Indexed to the S&P, the returns on average over the past 50 years have netted about 7%. 10% returns minus 3% inflation. (rounded numbers). That's essentially the average of the market, not a super risky stock or even an industry. Mutual funds spread the risk across many businesses and industries (depending on the funds chosen). There are funds that have less risk, but will still exceed the pittance you get out of an annuity.

If you are not an expert (really, who is?), Vanguard has created managed funds that target specific retirement years (5 year steps). They shift the risk downward automatically as the retirement date nears. The market still performs better on average, but these balance risk and reward well based on time to retirement.

Another way people effectively earn passive income in retirement is in dividend funds. Remember, stocks are shares of ownership in a company. The mutual fund owns a variety of those and you own a percentage of that fund. When companies make a profit, some reinvest or spend it all, others regularly pay dividends out to owners. (Basically like being a silent partner). Dividend funds invest only in those stocks that have a history of regular dividends. This income is separate from stock prices. Stock prices are based on (often) irrational expectations of a business or the market and are influenced by educated and uneducated investors alike. Dividends are based on the actual profitability of the company.

The Best Dividend Funds

These dividend ETFs and mutual funds earn high ratings from Morningstar in 2024.

www.morningstar.com

Ultimately, my advice is to do some of both. Any major firm like fidelity and vanguard has these options and do pretty well. Hiring a professional can be awesome, but finding one you trust can be difficult.

Disclaimer: my SIL works for Fidelity. He is not my favorite human.

 

[Oaktree]

Why is someone trying to SELL YOU an annuity that's going to make (if you're lucky) about the same as a FREE CD?

Run the numbers and ask yourself those questions.

Probably makes less sense today than it did a couple years ago when CDs were paying <1%. Some half decent rates on CDs now at the online banks, local banks not so much (at least at any of the ones around me).

 

[Sigarms]

@Sigarms As an Economics teacher, I would not advise an annuity for 99% of people. I suppose the is some situation where it makes sense for someone other than the fund manager.

You are considerably better off in mutual funds. Indexed to the S&P, the returns on average over the past 50 years have netted about 7%. 10% returns minus 3% inflation. (rounded numbers). That's essentially the average of the market, not a super risky stock or even an industry. Mutual funds spread the risk across many businesses and industries (depending on the funds chosen). There are funds that have less risk, but will still exceed the pittance you get out of an annuity.

If you are not an expert (really, who is?), Vanguard has created managed funds that target specific retirement years (5 year steps). They shift the risk downward automatically as the retirement date nears. The market still performs better on average, but these balance risk and reward well based on time to retirement.

Another way people effectively earn passive income in retirement is in dividend funds. Remember, stocks are shares of ownership in a company. The mutual fund owns a variety of those and you own a percentage of that fund. When companies make a profit, some reinvest or spend it all, others regularly pay dividends out to owners. (Basically like being a silent partner). Dividend funds invest only in those stocks that have a history of regular dividends. This income is separate from stock prices. Stock prices are based on (often) irrational expectations of a business or the market and are influenced by educated and uneducated investors alike. Dividends are based on the actual profitability of the company.

The Best Dividend Funds

These dividend ETFs and mutual funds earn high ratings from Morningstar in 2024.

www.morningstar.com

Ultimately, my advice is to do some of both. Any major firm like fidelity and vanguard has these options and do pretty well. Hiring a professional can be awesome, but finding one you trust can be difficult.

Disclaimer: my SIL works for Fidelity. He is not my favorite human.

Thanks, makes more sense.

One thing I'll do with my son is convince him to go with a 401K. Vanguard is one of the companies he works for uses, and I gave him a letter from his work place pertaining to a 401K (can a 18 year old contribute to a 401K).

At the end of the day, my dad taught me right, but I'm too much like him. His parents buried and hid their money. Like my father, I'm not much of a investment guy to give my money to someone else to play with. After 20 plus years in the military, him and my mom basically put down a good down payment on a house from what they saved over those years.

That's why I looked to an annuity. No charge or fees (because from what I gather here, they don't have to charge you anything because they are making more than 4.5 to 5.5 percent and keep the difference).

 

[Sigarms]

Sorry Sigarms, no offense intended. Just amusing myself at the irony here.

No worries. I had an epiphany the other night as well.

Andrew Cuomo slammed the DA who is prosecuting Alex Baldwin for murder because he pulled the trigger on his gun in the making of a movie. I thought it ironic that the former governor (who got ousted for a big no no with women) of the state of NY, and was anti gun, was wanting to let a guy go for his (Baldwin) actions on pulling the trigger of a gun because he didn't think he (Baldwin) had real bullets in the gun.

Go figure....

Just goes to show a lot of times people writing the laws know nothing about the subject at hand other than what they read in the newspapers.

Pull the trigger on a gun, anything that happens is on you.

That said, for the most part, this place is one of the better places I frequent on the internet, probably in part due to the rules in place. People are generally more civil here, and I do appreciate that.

 

[Fuddyduddy1952]

Baldwin said he didn't pull the trigger, just pulled the hammer back .
Maybe if people who are gun control advocates knew a little bit about guns? Things like assume a gun is loaded, and never ever point a gun at someone, and what tha' (bleep!) is live ammo doing on a movie set anyway?
Sorry...back to annuities!