Annuities: School me, please

Discussion in 'General' started by sharkattack, Jul 7, 2018.

  1. sharkattack

    sharkattack I love Trap Bar deadlifts!

    We has a meeting with our financial advisor the other day and he mentioned that we should pull the funds that we have in various bonds (a pretty small percentage of our portfolio) and look into annuities.

    I’m not familiar with them at all. I’ve read a few articles, but as someone who’s not well versed in them, I’m not sure which is the straight dope.

    So, like we all do, I’m coming to the beeb in search of your collective knowledge.

    1. Do you have any annuities? If so, which ones?
    2. What made you decide to go with (or avoid) annuities?
    3. What questions should I ask my financial advisor regarding the annuities?
    4. Any links to good articles/sites/research you might have done will be greatly appreciated.

    Thx all!
    Scott
     
  2. ChemGuy

    ChemGuy Harden The F%@# Up!

    Are you retired/retiring soon? Super risk averse or looking for a guaranteed income stream and willing to give up potential profit from investing the sum you would out into an annuity?

    Im not a financial pro...but I've not heard good things about them. Really for people who are retired/retiring and super risk averse or old people who want to leave something for the kids.

    Basically you give some company a large pile of cash. They agree to pay you a set amount (unless a variable annuity,,but why do that over traditional investment??) until you die. That company hopes you die quick or they can make a killing investing the money while paying you a small percentage your money every year.

    Seem like a great deal....for the company you give money to....But hey i get it some people dont like to gamble, at all.
     
  3. YamahaRick

    YamahaRick Yamaha Two Stroke Czar

    Annuities? Just say no. Period. NO!
     
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  4. TZ250lover

    TZ250lover Well-Known Member

    This. The reason the advisor recommended them is they pay big commissions to him.

    You are locked in and have counter party risk. Horrible investments
     
  5. mpusch

    mpusch Well-Known Member

    Number of different kinds of annuities, and they're a financial tool like everything else. They have a reputation for being misused (or overused), so care is needed to make sure you're doing things the right way.

    The scenario that Chemguy mainly references is regarding annuitization, and is by no means the only way to go about things (personally, there's very very few situations that I'd be comfortable with it).

    Expenses are generally high for these, but they can also provide benefits you can't really get with other financial products.

    In general, I also agree that there's relatively few situations that calls for them until you're approaching retirement. Don't label your guy evil just because he brought them up, but you need to be paying attention to make sure it actually makes sense for you. What really bothers me is when new people come to me and you can tell there wasn't any financial planning done by the advisor behind it, and it was usually done for a larger amount than I would consider suitable.

    I'm not going to hash out details here in general, but feel free to shoot me a pm and I'll answer questions all day long.
     
  6. If you are getting close to retirement age, a portion of your investments could be put into an annuity. I have 250k in an an annuity fund, which means supposedly guaranteed payments monthly when I retire. It’s just a piece of the puzzle.

    If you are under 50, its not a good investment, and no matter what it shouldn’t be a primary fund.
     
  7. Ducti89

    Ducti89 Spending Frank’s money.....

    Annuties = big taxes in April if youre the beneficiary of one.
     
  8. All retirement funds get taxed when you take the money out.
     
  9. SuddenBraking

    SuddenBraking Well-Known Member

    This.

    For real and for true.
     
  10. Ducti89

    Ducti89 Spending Frank’s money.....

    IRAs dont.

    I was the beneficiary of an annuity after my great aunt passed away. It got slammed, obviously.

    The remaining fiscal funds from inheritance and and a trust did not.
     
  11. beac83

    beac83 8

    Just to clarify, there are several types of IRA's

    Those you put money into pre-tax (i.e. they lower your taxable income in the year you contribute to the IRA) are currently taxed at withdrawal/distribution.

    Those where you pay income tax on the money before you contribute to the IRA (i.e. Roth IRA) you do not pay tax on the withdrawals/distributions.




    As others have noted, Annuities (they also come in an array of forms) can make sense for some people. They guarantee an income at a point in the future, regardless of the market conditions.

    Annuities are essentially insurance contracts, where you are buying a future income stream.

    At the depths of the last financial crisis, I bought some Annuity contracts with most of what I had left in my IRA at that point. They have higher fees than many other instruments, but the particular contracts I purchased also offered a guarantee of future value as well as a guarantee of a lifetime income. So far, I'm doing well with them. (The contracts will pay out at rates higher than what the same money in a S&P 500 fund would have allowed.) I'm within 24 months of retirement, so these made sense for me. YMMV

    As far as taxes, the one contract I've started taking an income stream from was purchased with pre-tax IRA funds. As such, the income stream is taxable. The company allows for tax withholding (just like from your paycheck) so that I won't be liable for estimated tax payments or owe massively at tax time (with penalties for underpaying during the year).
     
    Last edited: Jul 7, 2018
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  12. sharkattack

    sharkattack I love Trap Bar deadlifts!

    Thx for the replies guys. I should have stated my age and my wife’s age.
    I’m 51 and my wife’s 55. Does that help the discussion?
     
  13. mpusch

    mpusch Well-Known Member

    Yes, but that is the tip of the iceberg.

    Are you working from a financial plan or is he just generically saying he wants to move from bonds to annuities? Because the latter would make no sense.

    There's a ton that goes into whether it makes sense or not, and you won't have it answered on the forum*

    *Well, I should never bet against the beeb.
     
  14. Ducti89

    Ducti89 Spending Frank’s money.....

    Good info Beac!
     
  15. jpence

    jpence Well-Known Member

    What type? Indexed, variable or fixed? Are you taking income from this account? Is it an IRA or taxable accoun?
     

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