Comments on: How To Use Variable Annuities the Right Way http://amateurassetallocator.com/2008/02/27/how-to-use-variable-annuities-the-right-way/ Amateur Asset Allocator Fri, 10 Feb 2012 18:16:33 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: Kyle http://amateurassetallocator.com/2008/02/27/how-to-use-variable-annuities-the-right-way/comment-page-1/#comment-16727 Kyle Thu, 18 Aug 2011 13:01:52 +0000 http://amateurassetallocator.com/2008/02/27/how-to-use-variable-annuities-the-right-way/#comment-16727 The problem is that for almost every situation where a VA might make sense, there's another, cheaper alternative that makes MORE sense. It's not that VA's don't have uses, it's just that they are almost never the BEST use for the money. I stand by my statement in the face of your examples: the VA is not the most appropriate vehicle in those cases, either. The problem is that for almost every situation where a VA might make sense, there’s another, cheaper alternative that makes MORE sense. It’s not that VA’s don’t have uses, it’s just that they are almost never the BEST use for the money. I stand by my statement in the face of your examples: the VA is not the most appropriate vehicle in those cases, either.

]]> By: Evan Cole http://amateurassetallocator.com/2008/02/27/how-to-use-variable-annuities-the-right-way/comment-page-1/#comment-16723 Evan Cole Thu, 18 Aug 2011 01:19:21 +0000 http://amateurassetallocator.com/2008/02/27/how-to-use-variable-annuities-the-right-way/#comment-16723 There is a reason there are so many financial products on the market; one size does not fit all investors. VA's have a place in someone's portfolio, living benefits play a role, mutual funds too, managed money as well, ect. But to categorically state VAs are "poor investments for most people" is not only giving improper advice but should be coached as just your opinion. This is typical stance for pundits though. I think Suze Orman says likewise. Here is an example: Jackson National VA has a living benefit for an 80 year old, which will pay her 7% for the rest of her life even if her account falls to zero. A mutual fund will not do that, no matter if it is Vanguard. JNL hase 90 variable sub-accounts with some fund expenses less than 75bps. All in she is paying 3% for: the subaccount fee, the fund expenses and the living benefit. Perhaps a tad high but there is no money manager going to guarantee a 7% payout for life. You can argue her life expectancy is short; her father lived to 96, her mother to 102. She drives and she is completely independent today at age 81. She loves the peace of mind, which you cast aside as expensive. There is no cost to having peace of mind. They are very different and should not be compared side-by-side. If there are any monies remaining (she is diversified among 16 funds: emerging markets to specialty funds to high yield bonds and AAA corporate bonds) her heirs will receive that remaining account amount. Her children are thrilled as she is no longer worrying about the market gyrations. And, last point: An annuity is nothing more than a pension. One is usually funded with employer money the annuity employee. Annuities have been around for centuries. Charles Dickens wrote about them in "Great Expectations". Every investor is different and the lowest cost is not always the best, especially when the company's financial's are suffering and their ratings are below A. Thank you. There is a reason there are so many financial products on the market; one size does not fit all investors. VA’s have a place in someone’s portfolio, living benefits play a role, mutual funds too, managed money as well, ect. But to categorically state VAs are “poor investments for most people” is not only giving improper advice but should be coached as just your opinion. This is typical stance for pundits though. I think Suze Orman says likewise. Here is an example: Jackson National VA has a living benefit for an 80 year old, which will pay her 7% for the rest of her life even if her account falls to zero. A mutual fund will not do that, no matter if it is Vanguard. JNL hase 90 variable sub-accounts with some fund expenses less than 75bps. All in she is paying 3% for: the subaccount fee, the fund expenses and the living benefit. Perhaps a tad high but there is no money manager going to guarantee a 7% payout for life. You can argue her life expectancy is short; her father lived to 96, her mother to 102. She drives and she is completely independent today at age 81. She loves the peace of mind, which you cast aside as expensive. There is no cost to having peace of mind. They are very different and should not be compared side-by-side. If there are any monies remaining (she is diversified among 16 funds: emerging markets to specialty funds to high yield bonds and AAA corporate bonds) her heirs will receive that remaining account amount. Her children are thrilled as she is no longer worrying about the market gyrations. And, last point: An annuity is nothing more than a pension. One is usually funded with employer money the annuity employee. Annuities have been around for centuries. Charles Dickens wrote about them in “Great Expectations”. Every investor is different and the lowest cost is not always the best, especially when the company’s financial’s are suffering and their ratings are below A. Thank you.

]]> By: Mike Kent http://amateurassetallocator.com/2008/02/27/how-to-use-variable-annuities-the-right-way/comment-page-1/#comment-8325 Mike Kent Tue, 06 Apr 2010 21:40:33 +0000 http://amateurassetallocator.com/2008/02/27/how-to-use-variable-annuities-the-right-way/#comment-8325 I'm semi-retired and getting ready to withdraw from our savings. Makes sense to roll over 401K and IRAs to annuities that pay a minimum of 5% and unlimited upside. Even with fees, being protected from another drop in the market is worth a lot in retirement. Also rolled over from a previous annuity that had a floor of 3% and a ceiling (max) of 8% no matter what the market did, and with the recent rallies have already done better. I’m semi-retired and getting ready to withdraw from our savings. Makes sense to roll over 401K and IRAs to annuities that pay a minimum of 5% and unlimited upside. Even with fees, being protected from another drop in the market is worth a lot in retirement. Also rolled over from a previous annuity that had a floor of 3% and a ceiling (max) of 8% no matter what the market did, and with the recent rallies have already done better.

]]> By: Bob http://amateurassetallocator.com/2008/02/27/how-to-use-variable-annuities-the-right-way/comment-page-1/#comment-5421 Bob Mon, 21 Sep 2009 15:41:20 +0000 http://amateurassetallocator.com/2008/02/27/how-to-use-variable-annuities-the-right-way/#comment-5421 What about converting part of your IRA into a pension by shifting some into a VA? The are products now that give you a guaranteed 7% crediting rate on the highest daily value (vs quarterly or anniversary) your account ever reaches and predicates your future income payments based on that value. So while higher fees do eat into the actual account value a bit, the protection offered by locking in a guaranteed revenue stream at the investment height, helps to ensure that I am essentially monetizing the investmenst at the right time. Should have gotten in before the market went to 14,000, would love to have my annuity payments based on that level! What about converting part of your IRA into a pension by shifting some into a VA? The are products now that give you a guaranteed 7% crediting rate on the highest daily value (vs quarterly or anniversary) your account ever reaches and predicates your future income payments based on that value. So while higher fees do eat into the actual account value a bit, the protection offered by locking in a guaranteed revenue stream at the investment height, helps to ensure that I am essentially monetizing the investmenst at the right time. Should have gotten in before the market went to 14,000, would love to have my annuity payments based on that level!

]]> By: Mark http://amateurassetallocator.com/2008/02/27/how-to-use-variable-annuities-the-right-way/comment-page-1/#comment-4493 Mark Fri, 31 Jul 2009 07:37:24 +0000 http://amateurassetallocator.com/2008/02/27/how-to-use-variable-annuities-the-right-way/#comment-4493 Jeff- Thanks for these posts as quite helpful in understanding a complex product. Can you expand on your statement that "there is no reason anybody over the age of 60 should be buying a variable annuity at all"? I ask as my parents are quite sold on the idea of a variable annuity along with a living benefit rider that will guarantee them a certain minimum return/payout. I am researching this "idea" but having trouble specifying the why not to do it. They primary objective is wealth preservation and not outliving their money after having lost a chunk in the past year by being overexposed to equities. All the best, Mark Jeff-
Thanks for these posts as quite helpful in understanding a complex product. Can you expand on your statement that “there is no reason anybody over the age of 60 should be buying a variable annuity at all”? I ask as my parents are quite sold on the idea of a variable annuity along with a living benefit rider that will guarantee them a certain minimum return/payout. I am researching this “idea” but having trouble specifying the why not to do it. They primary objective is wealth preservation and not outliving their money after having lost a chunk in the past year by being overexposed to equities. All the best, Mark

]]> By: Kyle http://amateurassetallocator.com/2008/02/27/how-to-use-variable-annuities-the-right-way/comment-page-1/#comment-3764 Kyle Tue, 17 Mar 2009 02:53:59 +0000 http://amateurassetallocator.com/2008/02/27/how-to-use-variable-annuities-the-right-way/#comment-3764 Steve, the "floor" may be 3-5% (although I don't believe you could actually find such an annuity) but the upside is certainly not unlimited. The additional costs involved are very rarely, if ever, worth it. To answer your question yes, I've run the numbers. In my opinion, the GMWB is not a good option for the vast majority of investors. You can get higher income with less risk from other sources. Steve, the “floor” may be 3-5% (although I don’t believe you could actually find such an annuity) but the upside is certainly not unlimited. The additional costs involved are very rarely, if ever, worth it. To answer your question yes, I’ve run the numbers. In my opinion, the GMWB is not a good option for the vast majority of investors. You can get higher income with less risk from other sources.

]]> By: Steve http://amateurassetallocator.com/2008/02/27/how-to-use-variable-annuities-the-right-way/comment-page-1/#comment-3763 Steve Tue, 17 Mar 2009 02:34:52 +0000 http://amateurassetallocator.com/2008/02/27/how-to-use-variable-annuities-the-right-way/#comment-3763 How could you possibly write an article about the pros of variable annuities and not mention a living benefit rider, such as a GMIB or GMWB? It seems clear to me you have never actually looked at the product. A variable annuity without a living benefit is completely useless, I will agree. But the income protection provided by a GMWB rider is absolutely invaluable. Have you sat down with a spreadsheet and run the numbers? A properly designed variable annuity with a living benefit rider provides a minimum floor of 3-5%, and unlimited upside potential. How could you possibly write an article about the pros of variable annuities and not mention a living benefit rider, such as a GMIB or GMWB? It seems clear to me you have never actually looked at the product. A variable annuity without a living benefit is completely useless, I will agree. But the income protection provided by a GMWB rider is absolutely invaluable. Have you sat down with a spreadsheet and run the numbers? A properly designed variable annuity with a living benefit rider provides a minimum floor of 3-5%, and unlimited upside potential.

]]> By: Jeff Rose http://amateurassetallocator.com/2008/02/27/how-to-use-variable-annuities-the-right-way/comment-page-1/#comment-2150 Jeff Rose Sun, 02 Nov 2008 05:21:55 +0000 http://amateurassetallocator.com/2008/02/27/how-to-use-variable-annuities-the-right-way/#comment-2150 Many of the annuity products nowadays offer what's called and "income benefit" or "income rider" that will pay a certain amount to the beneficiary and the spouse over each of their lifetimes. Any remainder will be passed to the beneficiaries. While they could possibly get the same result in a diversified mutual fund portfolio, the simple guarantee goes a long way with some individuals. Many of the annuity products nowadays offer what’s called and “income benefit” or “income rider” that will pay a certain amount to the beneficiary and the spouse over each of their lifetimes. Any remainder will be passed to the beneficiaries. While they could possibly get the same result in a diversified mutual fund portfolio, the simple guarantee goes a long way with some individuals.

]]> By: Bob http://amateurassetallocator.com/2008/02/27/how-to-use-variable-annuities-the-right-way/comment-page-1/#comment-1595 Bob Mon, 11 Aug 2008 14:27:04 +0000 http://amateurassetallocator.com/2008/02/27/how-to-use-variable-annuities-the-right-way/#comment-1595 You failed to mention the asset protection many states afford insurance/annuity products. If the investor faces possible creditor actions (physicians or other professionals who fear malpractice suits, real estate developers, etc.) investments made within an annuity may make a lot of sense. Many states, such as Florida and Texas, do not allow creditors to attach assets held within insurance policies or annuity contracts (or retirement accounts for that matter). Granted, it's not a universal reason most people should invest in an annuity, but it can be an important reason for a select few. You failed to mention the asset protection many states afford insurance/annuity products. If the investor faces possible creditor actions (physicians or other professionals who fear malpractice suits, real estate developers, etc.) investments made within an annuity may make a lot of sense. Many states, such as Florida and Texas, do not allow creditors to attach assets held within insurance policies or annuity contracts (or retirement accounts for that matter).

Granted, it’s not a universal reason most people should invest in an annuity, but it can be an important reason for a select few.

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