Guaranteed Personal Pensions
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OTAlexFA
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We all know the word "annuity" can have a negative connotation attached so does the subject sound better? What are DCUM's thoughts on annuities which are, in effect, guaranteed personal pensions?
Pros: Guarantees an annual percentage, pays income for life, locks in gains at all-time market highs, cash values, estate planning advantages. Cons: "Insurance product", surrender charges within first few years, illiquid, expensive up front Annuities are not suitable for many as a specific type of client typically fits the bill. I'm just curious what people's first impressions of them are. Look forward to the responses! |
Anonymous
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Annuities have a bad name because of the shameless marketing practices used my many. Conceptually, an immediate annuity can make sense for many with large lump sums at retirement. It is fairly straightforward to calculate and understand the cost of these products. And, calling it a "personal pension" may be a decent way to sell it. You can't use the word "guaranteed" because there is no government backing like FDIC and the insurance company can go under.
But, most of what gets pitched are deferred annuities that are terribly overloaded with fees, both disclosed and hidden. It is next to impossible for an average person to figure out how much is siphoned off by the hefty sales commission to the insurance agent and how much is lost to the hidden fees eating at the long-term compounding. there is almost a direct correlation between lack of financial savvy and the likelihood to buy a deferred annuity. |
Anonymous
| The main con for me is trusting that the insurance company will stay in business for the entirety of my retirement. It is hard to count on any company surviving for 20-40+years into the future. |
Anonymous
| in most states there will be a guarantee ass'n that backs up $250,000 of annuity value |
Anonymous
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Isn't the big con that you can't leave the money to your descendants if you buy an annuity with it? It is also less flexible if you want to increase expenditure one year, lower it the next.
But apart from that, the risk sharing element of an annuity makes a lot of sense. |
Anonymous
Who guarantees that? Most states are having trouble with their own pension plans. Can't predict for 20-40 years that the state will honor that guarantee either. |
OTAlexFA
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| State Guaranty Associations, established to evaluate and ensure solvency in insurance companies. |
Anonymous
Who guarantees that? Most states are not in good financial shape as it is and have their own pension issues. |
Anonymous
state guarantee associations are made up of the insurance companies selling in that state-- the money comes from assessments on the insurance companies not from the state taxpayers |