Annuities

The Wall Street Journal just reported that annuity sales have hit the highest levels since 2008. Last year, $255 billion of annuities were sold in the U.S., up 16% from 2020. In the first quarter of 2022, U.S. annuity sales totaled nearly $64 billion, a 4% increase over the year-earlier period.

https://www.wsj.com/articles/annuities-what-investors-know-1…

Annuities are aimed at risk-averse investors who want to supplement their retirement income, preserve their principal and/or provide income if they outlive their assets. (Since some annuities provide lifetime income with no age cap.)

Annuities can be filled with all kinds of gotchas and fine print. The article (which is behind a paywall) has lots of examples. Marketplaces such as DPLFP.com, Cannex.com and Immediateannuities.com have tools to compare annuity products. Also
https://www.annuity.org/annuities/

https://www.investor.gov/introduction-investing/investing-ba…

I wouldn’t consider buying an annuity. This is the worst time, since interest rates are at a historic low point. It wouldn’t make sense to lock in a low interest rate for a long period of time. Also, I don’t expect to outlive my assets since I don’t expect to live a long life. I might feel differently if my parents had lived to 100 instead of 70. If you expect to live a long time, the best annuity is to delay taking Social Security until age 70, not a commercial annuity. Also, Social Security is inflation-adjusted at no extra cost to you, which is not true of commercial annuities.
https://www.ssa.gov/benefits/retirement/planner/1943-delay.h…

I once took a look at annuities. At that time, Vanguard had the lowest-cost plain-vanilla annuity with the lowest fees. I don’t know if that’s still true.

I wouldn’t bother posting on METAR except that sales of annuities are rising and someone here might find this information helpful.

Wendy

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You said you wouldn’t consider buying an annuity. Is that now under these interest rate and stock market conditions, or do you mean you would never consider buying an annuity?

You said you wouldn’t consider buying an annuity. Is that now under these interest rate and stock market conditions, or do you mean you would never consider buying an annuity?

Annuities are aimed at risk-averse investors who want to supplement their retirement income, preserve their principal and/or provide income if they outlive their assets. (Since some annuities provide lifetime income with no age cap.)

It’s not really a financial decision, it’s more of a comfort decision. Or what you’re willing to do out of habit.

I’m always surprised at the number of well-to-do people that still keep collision and comprehensive coverage on their automobile even though they could replace the car out of petty cash. Why let the insurance company roger you for a 20%+ premium over cost of coverage for a risk you could easily retain yourself?

intercst

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The worst about annuities is they are expensive and usually pay sizable fees to the salesman who sells the contract.

The best is that the issuing insurance company guarantees the payments. And your assets are professionally managed.

Many DIY investors are probably shaken by the recent market declines. A salesman who offers them an annuity that pays enough to live on may very well make a sale.

You can’t blame people for kicking the tires even if they decide to do something else.

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The worst about annuities is they are expensive and usually pay sizable fees to the salesman who sells the contract.

The best is that the issuing insurance company guarantees the payments. And your assets are professionally managed.

It depends on what kind of annuity you buy.

I’ve mentioned before on these boards that as Dad aged his prior fiscal restraint went away and we had to rescue him from multiple purchases. One we could not rescue him from was the variable annuities he bought prior to the crash in 2007. All of the sudden, his cash cow required him to put in an additional $100K or walk away. He walked. Lost hundreds of thousands of dollars, but who knows how much he would have had to put in to protect the annuity as the market plunged further.

The 35 year old salesman from Allstate and his young wife would wine and dine Dad and my then stroke debilitated Mom. Dad would refer to him as “my friend.” We tried to get Dad to see he was being reckless with his investments and trust, tried to get him to question what the motives were of this young couple taking them out for dinner quarterly, but his new “friend” stroked his ego about how good a job he was doing taking care of his family with these investments. Dad was already starting to be problematic mentally, and this Allstate salesman took full advantage of it. Be careful and make sure to understand that not all annuities are guaranteed or safe. It’s an industry of preditors.

IP

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The Wall Street Journal just reported that annuity sales have hit the highest levels since 2008.

And what happened in 2008? Probably a lot of boomers were laid off and opted to do a tax free roll over of their 401k to an annuity and retire. Probably the same dynamic in place thanks to the plague.

Like reading the owner’s manual for a car, a lot of people don’t want to bother running their investment portfolio. An annuity is an appealing, zero effort on their part, option.

When my aunt died, she set up a trust for her sister, with me as trustee. I tried to set up a brokerage account, but the lawyer who walked the estate through probate refused to provide the documentation the brokerage wanted.

My choices were limited to putting the money into bank CDs, and sending my aunt a distribution check from time to time, which would be increasingly difficult for her to deal with as she gets older, or buying an annuity, and having the annuity company direct deposit distributions to her account monthly.

Hopped in the car and headed over to the Fidelity office in Ann Arbor. It’s worked out well. My aunt has recovered every penny I paid for the annuity, and is now a leach on New York Life’s income statement.

Steve

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My choices were limited to putting the money into bank CDs, and sending my aunt a distribution check from time to time, which would be increasingly difficult for her to deal with as she gets older, or buying an annuity, and having the annuity company direct deposit distributions to her account monthly.

With Vanguard or Fidelity, you can set up an automatic monthly payment to your checking account from a mutual fund. There’s a lot less cost in that than buying even the least expensive annuity.

intercst

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With Vanguard or Fidelity, you can set up an automatic monthly payment to your checking account from a mutual fund. There’s a lot less cost in that than buying even the least expensive annuity.

As I said, the shyster who pushed my aunt’s estate through probate refused to obtain the paperwork I needed to open a brokerage account for the trust, so mutual funds were not an option.

Besides, I knew something New York Life’s actuarial tables did not, longevity in my family. My aunt will be 93 next month. She broke their actuarial table last year. Her sister, who funded the trust, died at only 87, but she didn’t have to die then. She died of a treatable condition that her doc didn’t test for until it was too late and fatal damage had been done. When I see my doc, I make sure he is testing for that condition, because I’m too ornery to let myself be cheated out of retirement. My grandfather was 96 when he died, after a lifetime of living on fried meat and potatoes, and never exercising for the sake of exercise. I have ambitions of breaking 100.

Steve

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Annuities are regulated at the state level usually by the state insurance department.

The assets are not guaranteed but usually are backed by a state insurance association.

The industry claims that no one has ever failed to receive a promised benefit. Usually that is accomplished by another insurance company buying out a failing company.

You can check out the company in the AM Best ratings. Dont be surprised if your company is not listed as many product are rebranded products from other insurance companies. Ie the sales man who sold it is a distributor who puts the salesmans company name on his products.

Thank you for recommending this post to our Best of feature.

My grandfather was 96 when he died, after a lifetime of living on fried meat and potatoes, and never exercising for the sake of exercise.

My hero!

I hope to do as well in just that way*!*