Where can I find the best information on annuities so I can make an informed purchase and where should I buy?
Posted on October 31st, 2008 in Annuity Insurance
Rich Kathryn asked:
My husband and I just fired our financial advisor. Over the last 8 years this advisor who charged us fees had lost us approximately $1.2 million in the value of our account. We were in a diversified portfolio of about 8 mutual funds plus 2 bond funds (medium & long term) and some adjustments have been made along the way. We were told and were presented evidence back in the mid 90’s that there had never been a rolling 10 year period where stock prices had negative returns. Except now.
My husband and I just fired our financial advisor. Over the last 8 years this advisor who charged us fees had lost us approximately $1.2 million in the value of our account. We were in a diversified portfolio of about 8 mutual funds plus 2 bond funds (medium & long term) and some adjustments have been made along the way. We were told and were presented evidence back in the mid 90’s that there had never been a rolling 10 year period where stock prices had negative returns. Except now.
We have now decided to put our money where everyone else goes for protection, insurance companies! Many insurance companies have been around for over 100 years. Yes, some do fail but compared to everything else out there they are very safe.
We want to put our money into annuities which pay interest each year. We also understand annuities are available that pay interest based on a stock index. Also, in 1 year we want to begin to receive a fixed monthly income for life from an immediate annuity.
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Tags: Annuities, Stock Index
This post has 8 comments
November 3rd, 2008
I have had excellent luck finding information in Eric Tyson’s books. I believe one of them - perhaps it’s his mis-named “Investing for Dummies - has information on annuities.
Best of luck!
November 5th, 2008
Have you thought about suing your advisor? A person would have to work hard to lose money in a managed portfolio over the past four years.
Any life insurance company will be a good source of information on annuities. The built-in fees are high and the real interest rate might be as low as 4%. You could do better with a Citibank savings account at 5%. Some CD’s are over 5% and banks are insured.
Do a Yahoo! search with the phrase “immediate annuities.” You will get charts showing various payouts. Variable annuities invest in stocks and the insurance company takes a percentage of the earnings off the top.
A major drawback with annuities, such as immediate, is no liquidity. You are guaranteed a payment for as long as you both shall live. But you are locked in forever.
November 6th, 2008
To the other persons who answered before me Note 1: She said 8 years not 4 years!
Note 2: Only Variable annuities have High Fees. Most Fixed, Immediate and Index annuities do NOT charge annual fees.
The People who hold your Investment account tend to be Biased against Annuities because they want to Sell you a Mutual Fund, Stock, Bond or Hedge Fund instead! Plus, when they have annuities available, the selection is very limited.
If you contact One Large insurance company, that insurance company will try and sell you only on their annuity which may or may not offer you the best interest rate out there!
The best place to go would be an independent professional or a service that provides access to the majority of annuities available on the market and allows you to compare some of these Annuities online 24/7 before you make contact with them. One of those professionals/services is . Go and see the difference!
The financial press & media are also biased against Annuities because they derive the bulk of their advertising dollars from the investment firms who advertise in their publications or on their financial shows. Fixed Annuities are Insurance Products and Not Investment Products. Insurance companies complete with investment firms for your liquid assets! Therefore, this battle exists.
Fixed Annuities are safe products that do NOT decline in value like investment products do (I am sure many others have experienced declines in 401K’s and other investment accounts since the year 2000 or in your situation 1998).
November 10th, 2008
Annuities are wonderful retirement tools. Be wary of Equity Indexed Annuities which you seemed to mention in your last paragraph. The NASD has even intervened in the sale of these products not to mention many lawsuits. I would shy away from fixed annuities with bonus rates and also anything that seems too good to be true. Fixed interest rates are low at this time because bond yields are not so great with rising interest rates. Therefore I would expect an annual interest rate of 4-6% currently. This interest rate will vary in a fixed product and there is usually a minimum rate which I have seen around 3% frequently. We will need to go through certain economic conditions for bond portfolios to yield high rates again and I don’t see that happening soon so expect your fixed annuites to barely outpace inflation. Another option is to annuitize. In doing so you will give up your lump sum in exchange for a payment which the actuaries will calculate based on how long you are expected to live. If you die sooner the insurance company gets your money. If you live to a ripe old age you could take the insurance company to the cleaners as they may have to pay you for life. The downside is giving up control for an income stream and also the kids might not like this option. As for your poor advisor I guess he didn’t have a knack for choosing funds. There are quite a few plausible explanations for this lackluster performance. A diversified portfolio would seem the way to go and at retirement an 80/20 mix of bonds to stocks or thereabouts might be in order. It sounds as your advisor might have been exposing you to unneccesary risk as your time horizon drew closer to retirement. The standard deviation or volatility of that type of portfolio would be lower than most. However, if you were in a few based “wrap account” that charged an annual mgmt fee of perhaps say 1% the advisor would get paid additional trails or monies as the account grew larger. This might provide an incentive to place your account into more aggressive investements in hopes of growth which could fatten everyone’s wallet including yours! The irresponsible part comes in the increased SD or volatility in which the last bear market exposed you too. With a short time horizon there would not be time to recover that 1.2M. Also he should have given you assessments to determine your risk tolerance or as I refer to it “sleep quotient”. This kind of thing is bad for all of us. You should “interview” various advisors and place more emphasis on one who cares than how impressive they are. I would deal with someone who is licensed to deal in securities and insurance products. The biggest companies are not always the ones who are going to give you the most attention. Don’t be scared of variable annuities either. Some have fees that are too high however others have lower fees and riders which could give you back your sleep quotient by guaranteeing principle while giving you the opportunity to make market gains! Whatever you do make sure the company you deal with puts the client first rather than putting up a show only to let you down later.
November 11th, 2008
Another poster pointed out that some savings are now paying over 5%. That’s true, but in your case, that’s not what you want, because that rate varies from week to week.
Annuities are basically risk adjusted tools that companies offer which says if you pay us this much now, we’ll pay you X per month for the rest of your life.
The problem is that when you die, the annuity stops. The money is gone, the well is dry.
Depending on your situation, you may be better off building a “bond ladder” with government bonds. This means you set it up so that on matures in 10 years, on in 11 years, one in 12 years, etc. Depending on how much you start with, you may be able to live off of just the interest, or you may have to take a little of the principle each year. The benefit is that when you die, the money is still there. The possible downside is that if you take a lot of principle each year, you could possibly out live your money.
Do you have certain goals in mind?
November 13th, 2008
perhaps you can try forex. which is also excellent way for you to invest.
The FOREX or Foreign Exchange market is the largest financial market in the world, with an volume of more than $1.5 trillion daily, dealing in currencies. Unlike other financial markets, the Forex market has no physical location, no central exchange. It operates through an electronic network of banks, corporations and individuals trading one currency for another.
try forex from here:
Good Luck && Wish you make a fortune!
November 14th, 2008
While annuities are a very helpful tool available to you in your financial tool box, they shouldn’t be the only tool. I would venture to guess that those respondants that are so anxious to help you purchase an annuity stand to make between 4 and 7% commission on the initial transaction.
Particularly in the distribution phase, annuities are a fantastic option. There are few if any options out there in the “non-insurance world” that offer you guaranteed income for life.
If you are looking for continued growth on your money, the “non-insurance” world has a few options that offer more flexibility, ease of administration, and lower fees that annuities–in general. That isn’t to say there aren’t good “deferred annuity” investment options out there, but they aren’t the clear slam dunk that all the insurance salesman claim they are.
It sounds like you had an investment advisor that didn’t know what he/she was doing or he/she didn’t match your investments to your risk tolerance. Don’t let bad experiences with your “financial advisor” close the book on investment options that might still be appropriate for your situation. You mention that you had a diversified portfolio with 8 mutual fund (presumably stock) and 2 bond funds–it is still possible that this portfolio was not appropriately diversified because the funds might have had holdings overlap or style drift.
The one thing I would caution you–don’t be too anxious to make another decision. Some of the options you are considering lock up your money for extremely long periods of time and limit your accessibility. Don’t let one bad decision chase you into another.
November 17th, 2008
Equity Index Annuities are one of the most misunderstood investment products. And all are not created equal. Unfortunately, many of the agents selling these products have limited investment knowledge—they don’t even require a securities license to sell, and that’s why we see a lot misrepresentation with these products. It is imperative that you work with a knowledgeable professional. Don’t buy something you don’t understand. If the advisor can’t explain and answer all your questions find some one who can. EIA’s can be a powerful risk free tool if you utilize the right product. This article explains a lot of the basics and what to avoid:
Do some research.
As far as an immediate annuity, they’re relatively straight forward compared to the above. Find an independent agent who can search hundreds of companies to find you the most competitive rates.
Best of luck.
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