RettW:

Nice.  Typical insurance company ripoffs...15% early withdrawal penalty...hidden fees...etc.  I have yet to see any "senior-oriented annuity" significantly superior to no load, low cost, conservative mutual funds.

Not all annuities are the same. An SPIA (Single Payment Immediate Annuity) may be a good option for many who want to have part of their retirement portfolio converted to a consistant income stream.

I have one, like it, and am guaranteed it will last for the rest of my (and my wife's) time.  Additionally, since it's guaranteed for a minimum of 28 years, I'm assured of getting 2x my original investment (more, if one of us lives longer).  Could I do better with "traditional" investments?  Of course; that's why we still have 90% of our retirement funds in a 60/40 portfolio.  However, taking early retirement, with SS not being taken for many years in the future (wife-62, me-70, but that's another conversation) this provides a good deal of "gap insurance" till our other retirement income sources come "on-line" over the next 10 years (including two small pensions for my wife, in addition to SS).

Confusion resides in the word "annuity".  There are many, and some I would run away with (as the original program indicated).  However, here's a good article (IMHO) on the subject:

 http://money.cnn.com/2006/09/07/pf/retirement/retire0610_updegrave.moneymag/index.htm

- Ron

I have 5% of my portfolio in an annuity that pays 5.25% per year tax deferred.  I bought it with the taxable portion of my portfolio of course.  So it is like a CD only with tax deferred interest as long as I don't take the earnings out, which so far I haven't had to.

AHHH.. Annuties.. here's some Bashing  with my Baseball bat about them

"They come out of the woodwork when Markets Decline and Bonds Aren't paying much and love to use the Fear Factor trick..on Un Suspecting Seniors and Widows...that are used to getting a paycheck all their lives and don't like being " Self Employed" anymore  having to invest their own $"...

My Dad and Aunt Bought them and LT Care Ins....It was a Real Looser

They got Nickesl and Dimes, paid Higher taxes on it, while the Ins. Co. & IRA Made a Ton Of $ on it..

"Another  False Sense of Secuirty Trick by Insurance Co.'s ."

 For your Investing Library

"Boggle and the Vanguards even contradict themselves  about it..vs indexing.. the hyprocrites.."

The taxes are unreal.. and they earn at least what you do, on your $!

"And If have an annuity and Need Nursing Home care? It's an Asset you can't hide or give away and They confiscate it as well as all other $ you got to qualify to get Medicade to pay for it. So what good is it then? "

"Don't kid yourself on all about this Age and Living til 90+ Crap!"

Ave age is now only 77 Yrs  

and your last 3 yrs is Just Exsisting in a Nursing Home at best..Thus your far better off Hiring a Live In Companion if at all possible..

Same goes for Long Term Nursing Home Insurance.. Another Scam...

Most Die before they use it and/or end up Loosing $ on it-false sense of secuirty trick.

Ins. Co.'s aren't about to Give away anything and play the #'s and the Odds are with them and against the Buyer..

Invest the same $ into Safe harbor Balanced Funds and you ( and your heirs) will come out way far ahead. and pay alot less taxes to boot.

The views expressed by Limoman are for informational,educational and Entertainment purposes only . Do your own Reserach before investing your own $ or consult with a Financial Advisor that has no Conflicts of interest and/or will gain from investments reccommended by them.

Another nice article in today's Sunday paper from syndicated Scott Burns: variable annuities continue to be too expensive. It is true that all annuities are not the same, but almost all are more expensive than low cost, no load, high M* funds, from which you would just withdraw what you need.  Fidelity has something out that says one of its annuities is lower cost because it does not have the albatross-draping load of a death benefit; thus it says it is not like paying for insurance.  I'll read its brochure, but I doubt seriously if I'll buy it.  So, I would qualify your statement and say "almost all" I would run away from.

I would rather have this (mean minus semi-variance plus 2.0 x yield) optimized portfolio of LSBRX plus balanced funds:

	LSBRX	FAIRX	PRWCX	OAKBX	PRPFX	FPACX
current x	14.50%	0.00%	24.60%	49.00%	11.90%	0.00%
optimum x	65.00%	0.00%	15.00%	10.00%	10.00%	0.00%
current m	7.71		optim m	6.07
current s	2.95		optim  s	2.99
curr yield	2.76		new yield	5.19

if I were to require more income.

Thanks for posting the link.

The piece focussed almost entirely on the early withdrawal penalties, which are certainly severe. The other part, which is a lot harder to get a handle on, is what sort of returns can be expected from this product?

As I understand it, the exposure to the market is gained through the use of options and/or futures contracts. There's no dividend stream, and the maximum return possible in a year is capped. Given all these caveats, plus the expenses of the annuity, I wouldn't be surprised if they underperform bonds.

Regards,

Duane

Scott Burns added another article on annuities in the paper today. He writes that CD annuities and life annuities are fine for some.  It is  those annuities that are linked to equities that he describes as too expensive.  So, you are right about different types of equities and different applications.  I wonder what the CD type annuity interest rate is, and  what might be its term and its annual payouts.

FYI- FWIW...

Using Vanguards  Variable Annuity Summer 08 report: ( Ending June /08' )

Since Inception  ( some 10 yrs or longer, others Less )

Balanced = 9.71%

Capital Growth = 13.93%

Mid Cap = 10.16%

Money market = 3.75%

REIT Index = 12.35%

Total Bond Market Index = 6.06%

Total Stock market index = 9.5%

Fixed Annuity = 4.30%

Anytime I get anyone asking me about Annuities ( Senior Center or From the VA) I refer them to compare whatever they are offerred by whomever to go to The Vanguard Site and use theirs to compare the details too.. & if they are Insistant on owning one?           I recommend they buy their Balanced Annuity ( 5yrs/8.8% & 6.5% /10 yrs ) as a compromise..( Seeing as 99.9% of them are better off for me to just KIS with them and make them feel better with their $..vs their Buying CD's as most don't want to do much more with it..)

> Vanguard - Annuities Overview

 And their  Ins. Agents hate this..LOL

And to this I'd add...

Stop and think for a moment: The insurance companies invest in the same market you and I do and they have no more of an idea of where the market is going than you or I (or anyone else) does. Soooooo.....

.....how can they add any investment  value over 3 low cost Vanguard funds (Equity, International and Bond) from which you annually sell enough from the asset class which has the greatest gains to provide income?  They sure add a lot of expenses and illiquidity, though.

 And don't forget, once you annuitize an amount for a 'guaranteed' life (or period certain) income, that 'guarantee' is only as good as the insurance company making it. Like the bonds from FNM...these are also 'guaranteed'....as long as FNM can make the interest payments. 

BruceM

orygunduck:

Stop and think for a moment: The insurance companies invest in the same market you and I do and they have no more of an idea of where the market is going than you or I (or anyone else) does. Soooooo.....

.....how can they add any investment  value over 3 low cost Vanguard funds (Equity, International and Bond) from which you annually sell enough from the asset class which has the greatest gains to provide income?  They sure add a lot of expenses and illiquidity, though.

 And don't forget, once you annuitize an amount for a 'guaranteed' life (or period certain) income, that 'guarantee' is only as good as the insurance company making it. Like the bonds from FNM...these are also 'guaranteed'....as long as FNM can make the interest payments. 

I don't understand this attitude.  Every statement  you make is true for a young couple contemplating life insurance.  By doing their own investing, the young couple will end up far ahead of buying life insurance (as long as they live fifty more years).  The insurance company adds lots of expenses and iliquidity (you can't get your premiums back when you need the money).  And don't forget, the guarantee is only as good as the insurance company making it.

Both life insurance and annuities involve the pooling of risk.  In the case of life insurance, you win by dying early and lose by living long.  With an annuity, you lose by dying early and win by living long.  You pay a price in both cases for giving your risk to the insurance company.  

Perhaps the answer is to buy life insurance at the same time that you buy an annuity.  (joke mode on) 

Al 

Agreed that variable annuities fill a small niche in most cases.

I use a Vanguard VA to hold the REIT fund, as I've no tax-def'd space for it.  (Most REIT income is taxed as ordinary income, so holding it in a VA makes sense.  The total ER is a very reasonable .595% -- not bad.

A VA should in most cases only be considered when one has exhausted all qualified accounts (IRA, 401(k), etc.), and only to hold tax-inefficient holdings.  

 edited for 1 spelling error