Posted on 04/26/2009 8:39:07 AM PDT by george76
Immediate annuities promise that your money will be there when you need it. But many investors are questioning how good those guarantees really are.
The reality is that insurance companies offering annuities can, and have, failed. But policyholders can take comfort from a well-established, industry-financed safety net. Although investments aren't always covered in full, history suggests these annuities are about as safe an investment as you can get without the full backing of the U.S. government.
That said, there's no reason to court trouble. The current environment shows why -- even in good times -- investors should seek out the strongest companies in the marketplace.
A recent Encore column discussed the ins and outs of immediate annuities.
Many readers wondered, however, about the safety of insurance companies. And it's no wonder. The near collapse of AIG -- American International Group -- and concerns about other big-name insurers such as Hartford Financial Services and Lincoln National have made headlines.
Is Your Annuity Safe?
"How do you know that the insurance company issuing your immediate annuity will remain solvent?"
Annuities are basically IOUs.
You hand your money to an insurer, and it promises to pay you back a certain amount at a later date.
(Excerpt) Read more at online.wsj.com ...
..there’s all kinds of people out there who want to sell you an annuity....even my bank for example...how do the annuity sellers get paid?
Huge comissions, lots of fees, insurance companies also try to beat the spread...
Historically, annuities are one of the poorer performing investment vehicles, which is why they also usually have the best commision and fee incentives for salespeople.
The big risk is whether the company you invest in, stays in business.
ADVICE: If someone is trying to SELL you an annuity..., run away!
If you are considering buying an annuity, the least expensive are offered by TIAA-CREF, VANGUARD, FIDELITY, T. ROWE PRICE, and the like! The annuities offered by these investment companies (the cheapest mutual fund firms as well) are not being peddled by commission hungry salespeople. You can call each of them and discuss the pros and cons of annuity products without fear of being pressured!
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
Note:
My post was intended to caution annuity shoppers, not to disparage annuities (which have a place in many financial plans)...
Buying an investment from an insurance company is like buying your golf clubs at mcdonalds.
I’m not sure how much annuity sellers get paid, but the selling of an annuity is the most lucrative sales that a broker can made, given that they are paid a huge commission up front. One of my past employers for some reason had 401K funds going into an investment that was wrapped up within an annuity - if funds were needed by any participant, the penalty for withdrawal was 10% going down to 0% in ten years. The logical behind the penalty was that the salesperson’s commission needed to be recovered in the early years.
Rates are low right now, I just don’t see how an annuity would serve anyone well except the sales person.
I recently retired and need to move my pension to another fund. I am only 57 1/2 so does anyone have some advise on investments other than an annuity where I can avoid an IRS penalty of 10%?
Question - does it make sense to consider purchasing an immediate annuity now with the rates so low versus in a year or two when rates are expected to possibly explode?
The ‘annuity’ payment ‘forever’ factor sure has an appeal with a lot of retirement funds in 401K’s versus an annuity from a former employer. We all sort of worry about end times.
I would not touch an annuity personally for many reasons ( not just the higher fees & other expenses ).
Insurance Salesmen often love the very large commissions.
Roth IRA’s can be very useful as a legal tax planning tool; money can be parked into a variety of financial vessels ( cd’s, stock mutual funds... then to most anything else. )
Access to your own money inside an annuity is another issue.
Talking with a trusted CPA or other fee based ( NOT on a commission ) professional might be useful before signing a long term document of any type.
Thanks for a good article. Annuities will be the most viable retirement option for a lot of baby boomers. (And no, I wouldn’t buy one from my local bank.)
I’m considering a variable annuity through Hartford. My financial consultant for this product does not receive commissions. The product includes a death benefit and premium protection. I am 57 1/2 and retired. For tax reasons, I have been told I need to place my lump sum pension in some type of fund that I draw the same amount of money each month until I reach age 59 1/2. What other options are available?
LOL! A lot you know.
Get several different opinions from different sources. A CPA that you have some personal history / that you trust / who does your taxes might be one of several choices.
Many think that term life insurance is the most efficient for just a death benefits to your heirs. Whole life and such seems less efficient to many people.
Roth IRA’s may give one the most access to their own money ( annuities seem to have access issues ) . You likely can roll over most pension money into a Roth IRA ( temporarily or longterm ) until you decide what you want to do in the future.
The above is what I do and not a recommendation of what others should do. Getting knowledgeable thru a variety of financial sites / local library seems a good idea. I persoanlly prefer to be self educated , thus avoiding 12-b-1 fees and such.
Thank you so much for your comments. I really appreciate your input. I need to make a decision within the next week. I do not have a CPA but I will keep asking around until I find one. If I can roll the money into a Roth IRA temporarily until I make a final decision, that would be great. I just hope there is not a penalty since I am only 57 1/2. Do you know if there is a max amount for an IRA?
Thank you so much for your comments. I really appreciate your input. I need to make a decision within the next week. I do not have a CPA but I will keep asking around until I find one. If I can roll the money into a Roth IRA temporarily until I make a final decision, that would be great. I just hope there is not a penalty since I am only 57 1/2. Do you know if there is a max amount for an IRA?
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