[retiredguy123]

Originally Posted by FredJacobs

I have spent almost 30 years teaching insurance agents.

Yes, the selling agent gets a pretty good commission. Depending on whether the product is a Variable Annuity - where the inside cash value grows on the performance of a stock/bond portfolio - or a Fixed Annuity - the inside cash value grows on an interest rate that may fluctuate. The commission rate (before I retired 20 years ago) was about 5% on Variable Annuities and about 10% on Fixed Annuities at the time of sale. Additional deposits paid 1 to 2%.

During this growth period you can withdraw cash from the account with some penalty based on declining sales charges - READ THE CONTRACT. When you withdraw cash, any growth over the amount you invested comes out first and is taxable income. It also reduces your death benefit should you pass while the annuity is in force.

At some point, you can annuitize the cash value. This is like getting an income from a pension. There many variations of annuitizing. For example, like a pension, you can get a distribution based on your life expectancy, a combination of you and your wife with various options on how much the survivor gets when you pass. These should all be explained by the selling agent before you buy. While the distributions are guaranteed by the insurance company, that guarantee is based on the health of the insurance company and its ability to continue paying.

It appears that you are considering an Immediate Annuity. Annuitization is not always the best choice for seniors. The main problem once you annuitize is that you lose access to the cash value of the contract. Should a problem come up such as needing cash for high medical bills, you cannot access any of that $265k - that money is locked. If you do not have other retirement funds and/or savings, annuitization is NOT recommended in your case. Most insurance companies will want the sales agent to submit a detailed report on the client's assets - especially those over 65.

By the way, I am not/will not recommend any company or product for your consideration. I'm just explaining how they work. I surrendered my licenses a long time ago.

A

Thanks. You said that you should "READ THE CONTRACT". I have tried to help friends understand an annuity but, when I have asked the salesperson for a copy of the contract, they refuse to provide it and sometimes they will get angry and hang up on me. Their sales technique seems to be collect the money first and then the company will send the contract. Then, the client has 30 days to cancel the contract and request a refund. Is that correct?

[Mazjaz]

If you don’t want to annuitize your money for good go with a 5 or 7 year fixed annuity at 6.15% and get your entire investment back or reinvest at the end of the term.

[mrf0151]

[QUOTE=dewilson58;2270060]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.

So you are saying CD's will hold at 5% or better over 13 years? Really?

[gighilton]

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.

Take 265K and put in CD at 6%, which is available now, and make 1325 per month... and you don't lose control of your money! This annuity is a bet on your life expectancy!

[crash]

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.

Your advisor is representing himself the fees and commissions are high on annuity's. Invest in T bills and you get over $1100 a month and when you die the $265,000 is still there for your kids. With an annuity when you both die the company keeps the money still left. If you want the full $1675 a month just withdrawal $500 from the principle each month and you won’t be at zero for over 30 years.


An advisor that truly has your best interest at heart will never recommend an annuity.

[Babubhat]

No layman could possibly understand these contracts. I spent many years litigating and there is NOTHING favorable to you in the language. Find a better product. If you must, go to Vanguard. Shareholders own the company. Lowest cost products .

Had a Harvard lawyer review and they laughed how absurd the contract language was after reading a few pages. Caveat Emptor. Or you can trust a salesman

Originally Posted by FredJacobs

I have spent almost 30 years teaching insurance agents.

Yes, the selling agent gets a pretty good commission. Depending on whether the product is a Variable Annuity - where the inside cash value grows on the performance of a stock/bond portfolio - or a Fixed Annuity - the inside cash value grows on an interest rate that may fluctuate. The commission rate (before I retired 20 years ago) was about 5% on Variable Annuities and about 10% on Fixed Annuities at the time of sale. Additional deposits paid 1 to 2%.

During this growth period you can withdraw cash from the account with some penalty based on declining sales charges - READ THE CONTRACT. When you withdraw cash, any growth over the amount you invested comes out first and is taxable income. It also reduces your death benefit should you pass while the annuity is in force.

At some point, you can annuitize the cash value. This is like getting an income from a pension. There many variations of annuitizing. For example, like a pension, you can get a distribution based on your life expectancy, a combination of you and your wife with various options on how much the survivor gets when you pass. These should all be explained by the selling agent before you buy. While the distributions are guaranteed by the insurance company, that guarantee is based on the health of the insurance company and its ability to continue paying.

It appears that you are considering an Immediate Annuity. Annuitization is not always the best choice for seniors. The main problem once you annuitize is that you lose access to the cash value of the contract. Should a problem come up such as needing cash for high medical bills, you cannot access any of that $265k - that money is locked. If you do not have other retirement funds and/or savings, annuitization is NOT recommended in your case. Most insurance companies will want the sales agent to submit a detailed report on the client's assets - especially those over 65.

By the way, I am not/will not recommend any company or product for your consideration. I'm just explaining how they work. I surrendered my licenses a long time ago.

A

[Aces4]

[QUOTE=mrf0151;2270219]

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.

So you are saying CD's will hold at 5% or better over 13 years? Really?

The CD's should hold and may go even higher. Remember that mortgage rates are returning to normal levels and the days of "free money mortgages" are, hopefully, behind us. FDIC products are much more appealing than annuities which may go under.

[talonip]

Once you hand over the money it is no longer yours. It belongs to the salesman if you ever need a large amount of money due to misfortune you cannot take it out without huge penalty. I have one and it was a big mistake. Any profit on your money in the investment they put it in does not get put back in your account. It’s a bad deal.

[MrFlorida]

When an investment person mentions an annuity, I run for the door !

[RRGuyNJ]

Originally Posted by Bill14564

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.

All good points but in the end, does anyone have a crystal ball?
Sure thing is most annuities have large fees attached.
CD's to me are a bit old fasioned but hey, 5% is 5% at today's rates.
For me, I stick with a balanced stock fund with a reputable mutual fund company and enjoy the good market days and growl about the bad market days. I have to admit, I've been doing a fair amount of growling the past couple of years.

[miadford@gmail.com]

We’ve spoken to Skip West at West Financial and the annuity he talked to us about (we have not committed yet), is the rate you receive is a little over 7%, he told us he receives a 7% commission from the annuity company. If you commit, then you cannot take ANY money out for a determined amount of time (he said it is graduated the the first 12 or 13 years). The annuity company receives usually in the range of 2-3% from the investment they make on your money based on the market. Their side can go up or down but will not change what you receive (unless you’ve withdrawn some and early withdrawal is a huge fee). The other nice thing was that the principal amount never goes down! So that money will be 100% left to your family when you pass. My concern is if my husband would pass before me (he is a good bit older that I), is that if it is within the timeframe where none of it can be withdrawn without penalty, what do I do for additional income that would be gone from his now receiving SS. But I did feel like Skip was very honest with us. He told us pros and cons.

[petsetc]

If you want to know too much about annuities, listen to Stan The Annuity Man® | Brutally Honest Facts About Annuities podcasts.

Podcast - Have Fun With Annuities(R) | The Annuity Man


My additional investment advice - take time to read Paul Merriman’s 3 FREE ebooks.
1. First-Time Investor
2. 101 Investment Decisions
3. Get Smart or Get Screwed (read this first!)

Found at paulmerriman.com

Also on his site are recommended portfolios for using Vanguard, Fidelity, T.Rowe Price or Schwab for DYI'ers. Much good info, ignore the puffery and sales pitches.

Last recommendation is FIRECalc: A different kind of retirement calculator , a Monte Carlo simulation of your future.

FWIW

[cphague]

1 - Do you not trust your advisor? If this individual is confusing you or giving you a high pressure sales pitch that you do not like, find another person or tell your advisor you are not happy.
2 - Why are you asking total strangers for financial advice? Would you go up to random people walking around and ask them what you should do with your money? Talk of The Villages participation does not guarantee knowledge and, as can be seen in the variety of opinions, can be very confusing.

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.

[Daddymac]

You can buy, With $100,000 a 6% 11 month CD right now…

[Bill14564]

Originally Posted by RRGuyNJ

All good points but in the end, does anyone have a crystal ball?
Sure thing is most annuities have large fees attached.
CD's to me are a bit old fasioned but hey, 5% is 5% at today's rates.
For me, I stick with a balanced stock fund with a reputable mutual fund company and enjoy the good market days and growl about the bad market days. I have to admit, I've been doing a fair amount of growling the past couple of years.

No crystal ball, that's why guaranteed for life is attractive.

If the annuity comes with a fixed payout for life then I don't care about fees. If the company's investments work out and they make money then good for them but if they don't then their income drops while mine stays the same. All I care is that I am getting a good fixed payout for the purchase price.

5% is good but 5% is new. While I don't have a crystal ball I do have a good short-term memory and we haven't seen 5% for quite a while. Perhaps rates will go higher or maybe they will drop again in the next 20 years. Back to that crystal ball.

If that amount is put into a CD Ladder at 5% then it should last 20-22 years at the $1,625/month draw rate as long as the 5% holds for the entire time. At the end of the 22 years I would have $0. If the amount is put into the annuity and I live to 100 then the amount would last 30 years. At the end of the 30 years I would have $0.

Big consideration: If there is a growth period between the time the annuity is purchased and when it begins to pay then that would make a difference. That 30 years of annuity payout might then be from age 80 to 110. The money in the CD would pay out immediately or it would grow and extend the time it was available. I don't want to bet on when I will die but I'm pretty comfortable with the idea that I won't live to 110.

I'm not in a hurry to purchase an annuity but I am thinking about it. Sure, my money might grow if I kept it in the market and I would have something to leave to my heirs but there is always the chance that it would not. Having some left over for heirs is nice but having a guaranteed source of income is nice too.