Annuity

[Anonymous]

An annuity is simply a contract you enter with a company. The company is usually a financial institution. Basically, you give the company $XXXX number of dollars today. In return for your money, they promise to pay you an annual payment (i.e., an "annuity") from a certain date (usually retirement age, like 65 or 70) until you die. For your perspective, this gives you a guaranteed payment from a reputable financial company until you die and from your perspective takes away the trouble of managing your own investments and dealing with ups and downs in the market: you get a simple annual, guaranteed payment. From the company's perspective, they think they can make more on the money you give them than what they promise to pay you.

The problem with annuities and their bad rep is that the come often with fees and complexities that are not clear to people. So they don't end up necessarily getting a better deal than if they kept the money themselves. Also, there is a risk that the company will not perform their promise. So the word recently is to be very wary of annuities and make sure you understand them and do your homework.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Make your own annunity without the huge fees to a broker. It’s not hard.

You can buy low fee annuities-just don't go for all the bells and whistles.
I plan on doing a QLAC with a portion of my retirement assets to adjust for longevity risk and to protect my basic livelihood if my spouse were to need LTC for a long time. Most economists who study personal finance and who aren't trying to sell you something think at least a small amount of annuities make sense. It also helps adjust your risk tolerance so you can invest more heavily in equities which will likely pay off more.

How does one plan for longevity risk? You save/plan while young investing into 401-ks and IRAs and if possible brokerage accts. Most working people when they retire will qualify for SS payments. Which is an annuity payment. So most people already own an annuity. No need to annuitize your retirement accts with an Insurance firm. You can set up withdrawal plans/amounts as needed with your IRA administrator for income needs and RMDs.

SS is not enough to cover my basic living expenses--esp if my spouse were to need LTC. I will have a small QLAC to cover the gap between SS and what I consider my basic needs . I've done the modelling using a variety of tools--given my risk tolerance/assets and expense needs, this is the highest performing approach. I can devote far more assets to equities if I put an annuity in place for age 80+.

Okay I understand your strategy. I'm assuming with the rise in rates, the returns on these QLAC products have risen also. So to purchase this product now while rates are near? peak would make sense. GL

[Anonymous]

Can anyone here speak to the TSP annuity?

[Anonymous]

Anonymous wrote:Can anyone here speak to the TSP annuity?

For Feds, TSP annuity makes even less sense because you already have two annuities - SS and your pension.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Can anyone here speak to the TSP annuity?

For Feds, TSP annuity makes even less sense because you already have two annuities - SS and your pension.

No because FERS just lowers your SS income and is paltry. (Unless you're a Boomer and you were already in the older system which. combined with TSP is insanely generous.)

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:No they are not worth it. Only worth it to the broker who is selling it to you. What it is; you invest a chunk of money, say $1 million. You are guaranteed an amount of money every month or year for life, say $50,000 per year for life.

Why it's bad; broker gets a big commission, and you can do better investing your money in an index fund for example, and get more than $50,000 per year

Assuming you are an investment wizard, how are you going to take care of longevity risk?

What risk? The million throws off way over fifty thousand forever. You have so much more control depending on how economy is doing. You can even leave extra in the account and let that grow. God help us all. Why isn't money taught in school.

JFC. So your contention is that money invested in (unspecified) stocks or mutual funds will return "way over" 5% each and every year, in perpetuity?

OP, I agree that annuities aren't often the best investments - you should research this further (try Bogleheads.com). But don't listen to any advice, ever, from this poster.

[Anonymous]

Anonymous wrote:An annuity is simply a contract you enter with a company. The company is usually a financial institution. Basically, you give the company $XXXX number of dollars today. In return for your money, they promise to pay you an annual payment (i.e., an "annuity") from a certain date (usually retirement age, like 65 or 70) until you die. For your perspective, this gives you a guaranteed payment from a reputable financial company until you die and from your perspective takes away the trouble of managing your own investments and dealing with ups and downs in the market: you get a simple annual, guaranteed payment. From the company's perspective, they think they can make more on the money you give them than what they promise to pay you.

The problem with annuities and their bad rep is that the come often with fees and complexities that are not clear to people. So they don't end up necessarily getting a better deal than if they kept the money themselves. Also, there is a risk that the company will not perform their promise. So the word recently is to be very wary of annuities and make sure you understand them and do your homework.

Simple immediate payment annuities, from companies with very strong ratings (Quinn recommends TIAA or Vangyard) are the ones to consider.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Can anyone here speak to the TSP annuity?

For Feds, TSP annuity makes even less sense because you already have two annuities - SS and your pension.

No because FERS just lowers your SS income and is paltry. (Unless you're a Boomer and you were already in the older system which. combined with TSP is insanely generous.)

I don't know what you are saying. FERS lowered your SS income? What does that even mean?

[Anonymous]

Annuity. Don’t do it. High fees, low returns for “safe” income, and overly complex.

Bonds are better if you’re conservative. Better yet, do an age based index fund, set it and forget it, and dollar coast average. Or a total stock market fund. PP us right, you will earn more than 5% in the long run and it’s safer.

Read “A Random Walk Down Wallstreet” fir more.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:Can anyone here speak to the TSP annuity?

For Feds, TSP annuity makes even less sense because you already have two annuities - SS and your pension.

No because FERS just lowers your SS income and is paltry. (Unless you're a Boomer and you were already in the older system which. combined with TSP is insanely generous.)

I don't know what you are saying. FERS lowered your SS income? What does that even mean?

It doesn't. If you were in old civil service system (CSRS) you did not pay into SS and therefore do not receive it. But you get a generous pension instead.

[Anonymous]

Anonymous wrote:Annuity. Don’t do it. High fees, low returns for “safe” income, and overly complex.

Bonds are better if you’re conservative. Better yet, do an age based index fund, set it and forget it, and dollar coast average. Or a total stock market fund. PP us right, you will earn more than 5% in the long run and it’s safer.

Read “A Random Walk Down Wallstreet” fir more.

The age-based index funds just lost 30% for current retirees due to auto-piloting of bond and stock index purchasing and auto reduction of equities when they were down.
Over time the stock market tends to increase (due to company's reinvested earnings), but it also increases risk over time. That's the core insight of a random walk down wall street. It's not that the stock market is safe, it's just that an index is safer than individual stocks.

[Anonymous]

Age based index funds aren’t perfect or the only option, but they are still better than annuities

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:No they are not worth it. Only worth it to the broker who is selling it to you. What it is; you invest a chunk of money, say $1 million. You are guaranteed an amount of money every month or year for life, say $50,000 per year for life.

Why it's bad; broker gets a big commission, and you can do better investing your money in an index fund for example, and get more than $50,000 per year

Assuming you are an investment wizard, how are you going to take care of longevity risk?

What risk? The million throws off way over fifty thousand forever. You have so much more control depending on how economy is doing. You can even leave extra in the account and let that grow. God help us all. Why isn't money taught in school.

JFC. So your contention is that money invested in (unspecified) stocks or mutual funds will return "way over" 5% each and every year, in perpetuity?

OP, I agree that annuities aren't often the best investments - you should research this further (try Bogleheads.com). But don't listen to any advice, ever, from this poster.

Why are you throwing so much shade on the above post. I think the $50k dividend return is slightly inflated with this current market, achievable $35-40k/yr with a $1M portfolio. But a diversified portfolio would do well over time, total return including dividends of 7-9%. But you will have volaltity with the stock market, where as with an annuity, that is eliminated.

[Anonymous]

Anonymous wrote:Age based index funds aren’t perfect or the only option, but they are still better than annuities

They serve totally different purposes in a portfolio.

[Anonymous]

Better to buy annuities while rates are high?

Fixed annuity would pay you current rates into the future.

My spouse is early 40s, does not have a pension, does not qualify for life insurance due to serious health conditions. I’m wondering if plunking down for an annuity now that pays out at age 60 would be smart, especially for long term care purposes.