[Bobnfl]

Our adviser is suggesting a Guaranteed Annuity for some extra monthly income. Please inform me of the pros and cons. $265k for a $1675 monthly income for life. Break even is at 13yrs. Is it worth it. It is with a AA+ rated company. There are no fees but once invested there is no refund or backing out. You have it for life. We are now 70yo. 3 years from RMD. Help us make a decision
Thanks for any help you can give.

[Stu from NYC]

Lots of threads on this but be very very careful. Guy recommending it will make a rather large commission. Ask for copy of contract most of the time you will only get it after you sign on the dotted line

I would not do this.

[retired guy]

RUN, Ask how much he makes by SELLING this product.
Ask if he is a fiduciary? ( having your best interest )

[Bill14564]

Not a finance guy so I don't know all the things to watch out for. It does seem like some don't like the word annuity.

7.5% annual draw seems good. Rule of thumb is 4% to maintain the balance in the account but that works in a good market which we don't have today.

- Your advisor will make money selling this to you but there's nothing wrong with that
- If you took 4%, about half as much, and if the market works well for you then when you pass then there will still be funds to pass to your heirs.
- If the market does not get better then that 4% becomes less and less every year
- If you take the annuity and pass in less than 13 years then you leave money on the table that your heirs will not receive
- If you take the annuity and live to 84 (not unlikely) then you will have made money regardless of the market (assuming the payout is not tied to the market)
- If the company goes under then you definitely lose

I have a similar decision to make in the near future and would really like to hear *why* an annuity is such a bad idea.

[dewilson58]

Originally Posted by Bobnfl

Break even is at 13yrs. .

When R U going to die??

[dewilson58]

Not sure who told you a 13 year breakeven.


Simple Example:
You could ladder out CD's and get over 5%.
If you are getting 5% on your $265k and you take out $1675 per month......you will have over $75,000 left after 13 years.

[Babubhat]

Never buy this product. It’s the salesman who gets the commission annuity. Buy a Treasury bond to do the same. The value will increase as rates go down and it is is liquid.

Remember the Big Short. Those ratings were worthless in the end.

In my opinion it is criminal this product is allowed to be sold. Nothing they tell you is binding. Nothing. The contracts are horribly one sided. Save yourself a life of aggravation

There are other threads on the site recounting horror stories

I have advanced degrees in finance and READ a contract. It will numb your brain

[Bill14564]

Originally Posted by dewilson58

Not sure who told you a 13 year breakeven.


Simple Example:
You could ladder out CD's and get over 5%.
If you are getting 5% on your $265k and you take out $1675 per month......you will have over $75,000 left after 13 years.

13 years looks to be simple division: 265,000/(12*1,675)=13 years, 2 months

5% interest is available today but it was not last year. Is your crystal ball good enough to be sure it will be available next year?

Even if 5% is sustained it only turns 13 years into about 17 years.

What if the OP celebrates his 90th birthday? With the fixed annuity he will see a check for $1,675; with 5% sustained he will be out of luck.

[dewilson58]

Originally Posted by Bill14564

13 years looks to be simple division: 275,000/(12*1,675)=13 years, 8 months

5% interest is available today but it was not last year. Is your crystal ball good enough to be sure it will be available next year?

Even if 5% is sustained it only turns 13 years into about 17 years.

What if the OP celebrates his 90th birthday? With the fixed annuity he will see a check for $1,675; with 5% sustained he will be out of luck.

$375,000 is simple math too.
The OP has $265k.

Mine was a simple example to show the OP.....a 13 year breakeven is BS.

The OP can use LT US Bonds for the 5%.............I was not giving him/her investment advice.

[retiredguy123]

Is the $265k coming from a tax deferred account? If so, I would definitely not buy the annuity. If the $265k is coming from a taxable account, you will pay income tax on the portion of the monthly income that is considered earnings. You need to ask how that will be calculated. If you don't need the income to live on, I would not buy the annuity. Currently, you can get 5 percent on a CD or even a money market account, which is $1,104 per month, and you can dip into the principal as needed to make up the difference. To me, that seems like a better way to go because you will be able to preserve part of your principal. Some things to consider. Also, ask your advisor for a "complete" copy of the annuity contract (not a brochure or a sample). Typically, they will refuse to provide it, which is why I hate annuities. I would never agree to a contract that I cannot read in advance. Good luck.

[Bill14564]

Originally Posted by dewilson58

$375,000 is simple math too.
The OP has $265k.

Mine was a simple example to show the OP.....a 13 year breakeven is BS.

The OP can use LT US Bonds for the 5%.............I was not giving him/her investment advice.

Typo. I corrected my post. Using $265,000 the math comes to 13 years, 2 months which is close enough to call it a 13 year breakeven point.

Not investment advice but you mentioned CDs which actually are not terribly liquid. Not familiar with LT US Bonds but I assume the LT portion means those are not terribly liquid either.

My point is, if the annuity is fixed and if the company can be trusted to survive 20+ years then you can't guarantee something better using the market. The market *could* turn out better but it might not. CDs or Bonds at 5% would give 17 years (if your calculations are correct).

If the question, "When R U going to die?" is important to the OP then he might not want to bet on the answer, "In the next 17 years."

If I am missing something, someone please point it out.

[dewilson58]

Originally Posted by Bill14564

Typo. I corrected my post. Using $265,000 the math comes to 13 years, 2 months which is close enough to call it a 13 year breakeven point.

Not investment advice but you mentioned CDs which actually are not terribly liquid. Not familiar with LT US Bonds but I assume the LT portion means those are not terribly liquid either.

My point is, if the annuity is fixed and if the company can be trusted to survive 20+ years then you can't guarantee something better using the market. The market *could* turn out better but it might not. CDs or Bonds at 5% would give 17 years (if your calculations are correct).

If the question, "When R U going to die?" is important to the OP then he might not want to bet on the answer, "In the next 17 years."

If I am missing something, someone please point it out.

"Using $265,000 the math comes to 13 years, 2 months which is close enough to call it a 13 year breakeven point." That is BS, who assumes no time-value-of-money.....besides the salesmen?

"CDs which actually are not terribly liquid".....they are extremely liquid if you ladder.

"Not familiar with LT US Bonds but I assume the LT portion means those are not terribly liquid either"...................very liquid..........can sell on the open market any time.

"LT US Bonds"......one might be concerned about rates going down. If rates are going down, all things being equal.....the value of the bond is going up.

If you review the prior posts................I asked the OP when he/she is going to die.

There are many other questions as well.........like, do you want to leave any money at death; what other investments do you have, is your house mortgage free, etc.

[jimbomaybe]

Originally Posted by Bobnfl

Our adviser is suggesting a Guaranteed Annuity for some extra monthly income. Please inform me of the pros and cons. $265k for a $1675 monthly income for life. Break even is at 13yrs. Is it worth it. It is with a AA+ rated company. There are no fees but once invested there is no refund or backing out. You have it for life. We are now 70yo. 3 years from RMD. Help us make a decision
Thanks for any help you can give.

Perhaps you need another professional opinion, one from a fee only certified financial planner who's only compensation is the fee you pay for their advice, they sell you no financial product thereby being unbiased

[Eg_cruz]

Originally Posted by Bobnfl

Our adviser is suggesting a Guaranteed Annuity for some extra monthly income. Please inform me of the pros and cons. $265k for a $1675 monthly income for life. Break even is at 13yrs. Is it worth it. It is with a AA+ rated company. There are no fees but once invested there is no refund or backing out. You have it for life. We are now 70yo. 3 years from RMD. Help us make a decision
Thanks for any help you can give.

Don’t do it

[Stu from NYC]

There is an old saying, annuities are never purchased they are sold.