Quote:
Originally Posted by gpk111
Annuities can be a useful part of a portfolio. Statistically, they will not beat the raw market over the long term, since you pay for marketing and risk mitigation.
They are good for three things:
1. They beat CDs hands down. "MYGA" type product.
2. A pension type payment stream. You buy the security of not outliving your money. Withdrawing 4% annually from an equity account will not guarantee that, no matter what Ken Fischer (with whom I have accounts) says. "SPIA" or "FIA" with income provision
3. It can mitigate or eliminate downside market risk. The price you pay is reduced upside opportunity. "FIA"
Interesting to see the range of opinions. Some informed. Some not so much.
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Your item number 3 is often misunderstood and not explained properly by the annuity salesperson. The downside market risk is only eliminated if the market is lower over the entire cumulative time period that you own the annuity. Many people think that, if the market goes down 25 percent in one year, they don't lose money that year. But, it is not calculated on a yearly basis. So, if you own the annuity for 20 years, the only way you benefit from the market downside guarantee is if the market is down over the entire 20 year period, which rarely happens. Also, paying management fees, surrender charges, etc. are not considered losing money.