annuities - I still don't get it ???

Question

Exactly when do annuities make sense?
Shouldn't you first invest in your employer 401, roth ira first before ever funding an annuity?
It seems that banks/investment firms want to push this product.
Isn't this really for the person that has $$$?
Appreciate any input. tnx.

Gosh guys - tnx.
lots of good info - more questions though....
Generally speaking are annuity just a good fit for a 401 rollover??
The guaranteed benefit - exactly how does that benefit my heirs??
Does the $$ amount they receive remain the same or is it adjusted.
At one point 80+ was mentioned - I assume that meant age not $$ amount.
A 5-7 year span for expected return or withdrawal was also mentioned as a guideline for whether to invest in an annuity.
The same might be said for a mutual fund - except you can withdraw full amount and no penalty.
Isn't there a penalty to withdraw an annuity?
My natural inclination is toward a mutual fund after investing in my 401, and a roth as a second option.
Is there a magic tax savings $$ amount or tax bracket where it definitely is a "no brainer"? Or is age also a factor?
I think I could be getting too "wordy".
Anyway, appreciated all comments - new to this forum but I think it's great everyone had a little bit different take.

Answer 1

annuities... along with Whole Life insurance.... are the biggest investment RIPOFFS when it comes to getting out what you paid in...

Buy term insurance and invest the difference in the market.. and dammit.. stay AWAY from annuities..... they make money..... for the company SELLING THEM....

Answer 2

A basic principle of investing is to invest only in things you understand. If you can't wrap your brain around annuities, don't buy one. They're not essential to financial health. They may serve as a complement to other retirement savings, especially if you feel the need for a fixed stream of income (above and beyond Social Security and any pension you'd get). But don't go to great lengths to figure annuities out. A 401(k) account and an IRA are more important than an annuity, and are easier to understand.

If there is something about annuities that appeals to you, you can study them for a while. No need to rush into one. Ignore sales pressure. Take two or five or ten years to think about them if you like. It's your money, so spend when you feel like spending it. If you eventually decide you'd like an annuity, you can buy one then. The agents will be waiting for you; don't worry about being left behind.

Answer 3

This is my perspective: cash reserve and eliminate debt first, then 401(k) to the match, then Roth, then max 401(k), then contribute to non qualified assets (non retirement stocks, bonds, mutual funds) until you have enough money to cover any long term goals prior to age 59 1/2, then and only then if you still have money to invest, an annuity is a good place to invest. Yes, annuities pay good commissions that is why a lot of "advisors" recommend them. Also, a lot of "advisors" are not licensed to offer you a large variety of investments, so they sell you what they can. It's good you're smart enough to question them. However, they do offer tax deferral and guaranteed income which can be a very valuable asset.

Answer 4

Annuities are just another financial tool. Some of them really stink for the consumer, others can be quite useful and a great fit for the investor.

By definition an annuity is a stream of (usually equal) payments. They are an insurance product since many times the stream of payments is guaranteed for the life of the annuitant. Annuities are a tax deferred savings tool in their accumulation phase, but they are not very efficient for transferring wealth to the next generation(s).

For general advice, first fund your 401k only enough to get the full amount of match available from your employer. Next, fully fund Roth IRA's for you and your spouse(if you have one). If your adjusted gross income is over $150k (married filing jointly) your contribution is phase out by $160k. Over $160k you can not make Roth contributions.

For specific advice, seek out a Certified Financial Planner that you trust to help you decide which of the many options are suitable for your situation and your specific goals.

Answer 5

Annuities DON'T make sense, that's why you are having a problem! Congratulations on having more common sense than most folks!

The "selling point" for annuities is that they will never lose your principal....but the salespeople always seem to forget to mention that's true if you put your money in a shoebox and bury it in the garden, too!

Annuities are an invention that prove beyond a doubt that you can indeed "sell anything"!

Answer 6

Annuities are pushed by insurances companies because the agent's commission is high. You can always beat the return by investing directly in the funds the insurance company buys inside the annuity.

Answer 7

Annuities are a product that make $$$$ for the firms .
They sell them for the same reason the movie theatre sells popcorn and sodas for $3 to $5 , HIGH profit .

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Answer 8

annuities are designed for limetime income, they happen to have a tax deferal feature to them which can be nifty for that nest egg you are sitting on and want to use it to help fund retirement, they can be both qualified or non qualified (though no extra benefit is received if it is qualified)

you definately should fund your 401K first and upon leaving your company/retiring look into rolling it over into an annuity of some kind

if you are 80+ i'd look into more a fixed annuity which has a principal protection guarentee below 80 something more in line with a variable annuity where you can take advantage of the gains of the market through the seperate account (which works the exact same as a mutual fund)
but now a days most VA's have some sort of living benefit that can guarentee your principal while still being invested in these seperate accounts or be able to ignore any downturn in account value after each aniversary date so you ge tthe max value capped for life (or higher if it continues to grow) and receive 5% payments for life. the cost though for these benefits is that say instead of earning 13% by putting it into just the seperate account or a similar mutual fund, you earn like 11% because you are paying for this guarentee

its all based on you...if you might need a portion of this money (as in more then 15% per year) within the next 5-7 years or before the age of 59.5 an annuity wont work for you (if its an ira/qualified money the whole 59.5 thing doesn't matter anyway cause that applies to IRA's too)

but it is these living benefits and the death benefit for your beneficiaries that may be why the banks/firms and their investment reps there push these especially for 401k rollovers, roth ira or traditional ira rollover's and "retirement nest egg" funds because for a slight cost (each individual VA is different) taken out of the earnings the same way the internal expenses of a mutual fund are taken out you can invest in the seperate account/market with what ever guarentee you wish to have into your retirement years.....though sadly there are the ones that push it to make a buck and not because it is best for you, if they are worth a buck they will tell you exactly why it works for you (based on what you say to them) and not just the features of it and how cool it is

if you are gonna use it as your roth or traditional ira it can just allow you to be more aggressive with your 4K a year then you might be comfortable with knowing whatever living benefit you choose is there working for you, it doesn't matter how much $$$ you have you cna build it up yearly/monthy depending on the annuities minimums similar like you would a roth or traditional ira under non annuity situations


to add on to what you are additionally asking
yes 80+ i meant age wise not dollar wise
the 5-7 years is the average annuity surender period what that means is that if you do withdraw funds from the annuity during this period, some are longer though, and its more then the allowed withdrawal amount, which is a stated percentage of your contract value on your anniversery date (usually 10-20%) you will pay a penalty, but this penalty declines to 0 over the years so once year 8 or whenever comes along you cna withdraw as much as you want!!!!! you just pay taxes on the earnings

as for a good fit for a 401k rollover...thats up to you, some people like the protection the living benefits can provide during a downturn in the market, others just don't fit an annuity...its more designed for those who want to make sure their income can last of their savings, not just as a tax deferred vehicle
the guarenteed benefit doesn't really benefit your heirs, the principal protection could in that upon your death if you haven't annuitized it yet, as in start receiving the monthly payments, they could get back at least the amount you put in, if you are talking about the 5% guarenteed withdrawal benefit they see no part of that, unless they do a similar bene ira with their inheritance proceeds
your monthly income in a fixed annuity will not change when you annuitize it, in a VA it can change month to month downwards or upwards potentially
your age only comes into play when you annuitize it cause then the insurance ocmpany will take it into consideration against their mortality tables to determine when you are expected to die and then make th epayments off that time, your beneficiaries will be guarenteed to receive these monies if you don't annuitize but there is no guarentee that they will if you do annuitize, depends on the type of income stream plan you were to choose upon annuitization

annuities, especially VA's are complicated to explain in detail but for some people they are the right vehicle for retirement and finances others its best to go with a mutual fund
i put my mom in one cause of the income guarentee living benefit but its not something i would put my money into right now on a personal level......each person is different and it HAS to be right for you

i would say if you need more then say 15% of that 401K for the next 7 years and you don't enjoy seeing your monthly statement on a mutual fund go down even 1 cent from month to month a VA could work for you, if you need more access during those 7 years and willing to accept the volitility and potential losses from month to month, year to year etc then a mutual fund would work just as well.....the living benefit is the biggest difference

Answer 9

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