DL: Please put on your best Suze Orman Hats to discuss Annuities

Annuities don’t necessarily have all the properties you describe.

The only necessary components to an annuity is that you put a lump sum in and then at some stage you receive structured payments.

Please be very careful when comparing plans to ensure they have the same characteristics. Don’t assume all annuities are the same.

While putting a portion of your money MAY be a smart strategy, concentrating the majority of your wealth into an annuity is an extremely high risk strategy.

The money is not liquid. You cannot know what you needs may be in the future. While it may seem to pay well, what they're banking on is people dying young. Very high fees; very precisely and technically worded "guarantees" and restrictions, and fixed payments forever (irrespective of changes in interest rate environment) are engineered to benefit the provider, not the buyer.

Without literally knowing your entire financial situation in detail, it would be dubious to provide any meaningful advice. However, the general consensus would be that at BEST an annuity should be a portion of your retirement plan, not the whole thing.

The single most revealing leading indicator of having enough wealth during retirement is the asset allocation of one's portfolio over time between bonds (fixed income) and equities.

So how much is the annuity? And after putting in the lump sum, do you have to pay premiums or just wait for it to mature?

Right now interest rates are historically low so I’m assuming annuities still don’t pay much.

Here is good info https://investor.vanguard.com/annuity/what-is-an-annuity

R5. thank you. I am thinking of $75k for the annuity purchase. I am looking for the payments to begin in 7 years

So roughly how much will the monthly payments be?

Suze Orman said never do annuities for retirement.

I miss her show.

What does Orman have against guaranteeing a monthly income for life? It doesn't make sense.

Check with your alma mater (if youre a college grad) for a charitable gift annuity ...

Annuitties are tricky because they have the highest commsion rates in the industry. Beware, when it comes to annuities you may not get the most accurate information from someone attempting to sell them to you. They really want you to purchase an annuity versus another product which may make more financial sense in your situation, but won't be as lucrative for them.

r11 is exactly right -- it's the huge upfront fees you pay.

But what is better than a guaranteed income for life?

These can have high fees front-loaded into the transaction. I’d be wary of long term security before committing a nest egg into an annuity. They’re often sold by charismatic people who are introduced socially to new clients. (“You need to meet my money guy...”) Some of the numbers don’t make sense, and I suspect that there are loopholes that can affect the distribution of these funds over the life of the annuity. I’d be really careful before committing. Some of these are close to Ponzi schemes.

My financial is pushing these strongly to me but I just didn’t have a good feeling about them. And he didn’t know what the fees were. This thread is perfectly timed. Thanks, OP

I am also interested in annuities but will try to research which companies are legit. Prudential and many other long established companies sell them.

Does anyone know if there is an independent rating system??

Please dump your financial adviser, r15, or at least visit some other advisers. Annuities are usually not a suitable financial product for most people of all life stages. High fees, low liquidity, low earnings.

Lots of legit firms and financial advisors recommend annuities. I am responsible for my parents’’ finances and their Fidelity Wealth Advisor was thinking of annuities as one investment option but concluded they are too old. I used to work at one of the country’s largest and most successful mutual fund company and they actively sold annuities. They have a bad rap because, as others have said, up front and ongoing annual fees are very high.

There are different types with different payment structures and survivor benefits. I believe you are contracting with the insurance company issuing the annuity so if the insurance company fails there is real risk to your investment. Thus,, be careful of whose annuity you buy. Not only who is selling you the annuity but the insurance company with whom you are contracting.

Do a ton of research. Ask a lot of questions. Annuities have been around for years and may be a decent investment option for you but be careful.

Vanguard will likely have the cheapest fees for any investment product. I would start my research there.

If you can afford a financial advisor, find one you can trust. Ask friends for recommendations, interview them and be certain you work with someone you feel comfortable with and who is honest.

Suze, for the most part, disliked annuities.

OK. Say the OP buys an annuity for a lump sum of 75k. What kind of fees are we talking about? Don't you just have to sit back and let it mature?

OP, the on ly trust worthy annuity is a SPIA thru Vanguard. Find a financial planner who is paid by the hour or a flat fee (no AUM or commission) and talk t them about it.

Here is link to Vanguard's SPIAs

Every few years, Wall Street come up with another scheme to separate you from your money. They make the scheme purposely complicated so you have to go to an advisor to understand them. There are so many types to choose from, you don't bother looking at the fine print. which invariably includes lots of fees.

Annuities are the latest scheme.

The biggest problem with an annuity is, when you die, all the money is taken by the annuity grantor.

Your heirs get nothing

I understood that annuities are a money maker for Advisors, when my 80 year old father consulted with one and was told to get an annuity.

That is utterly ridiculous.

[quote] My financial is pushing these strongly to me but I just didn’t have a good feeling about them. And he didn’t know what the fees were.

Whenever a financial advisor pushes something hard, it means they make alot of commission on it.

This is why, for example, they push whole life so hard. According to Suze Orman, their commission is your entire payment for the first year.

[quote] Lots of legit firms and financial advisors recommend annuities

Um, of course they do. They make millions off them!

From R8 link: [quote] here are 5 main kinds of annuities: single premium deferred annuities, immediate annuities, variable annuities, index annuities, and tax-sheltered annuities.

The fact that there are so many types shows me automatically that they are made to benefit companies, not the individual.

[quote] Suze Orman said never do annuities for retirement.

That settles it. Suze has guided me well for my financial advice. I'll also take her advice on this.

Annuities arose because people just aren't saving as much as they should.

The conventional wisdom is to save enough so you only have to take out 4% yearly to live during retirement. That will ensure you will have funding well into your 80's. So for every $40,000 you need, you ] had to have saved $1 million.

People don't understand the stock market and get caught up in the nonsense of investing in things that cost huge fees an such, and have a very hard time saving anywhere close to $1 million.

So enter annuities--you haven't saved enough? We'll guarantee you a specific amount each year (after we take away alot in fees, of course)

[quote] What does Orman have against guaranteeing a monthly income for life? It doesn't make sense.

Sounds simple, doesn't it. Ever wonder how the financial company makes it money? It takes it in lots of fees and then takes all the money when you die.

[quote] Annuitties are tricky because they have the highest commsion rates in the industry.

...which is, of course, why the advisors keep bringing them up...

[quote] But what is better than a guaranteed income for life?

It's a gamble. If you die tomorrow, the company keeps all your money. If you live a long long time, you'll make more than your initial payment.

That said, the companies are taking money all along the way. They have already determined how much it will pay you monthly so you would have to live a long, long, long time before they pay you more than your initial payment.

What's the advantage of annuities over a well diversified basket of dividend paying stocks and bonds? That's what the insurance company will do with the money you give them when you buy an annuity so why not skip the middle man and do it yourself?

I understand there's risk involved in stocks and bonds, but there's also risk involved in annuities, after all that annuity is no safer than the insurance company that issues it. Go back and look at how the insurance company stocks did in 2008--there were many major player who were circling the drain (AIG, Hartford, Genworth) and if they had gone down the annuities they issued would have been worthless too.

R33, exactly right.

Also giving your money over to one company is exactly what shouldn't do. It's the very opposite of diversification..

That said, annuities are bought out of desperation that you won't have the money you need for retirement.

[quote]What does Orman have against guaranteeing a monthly income for life? It doesn't make sense.

Because you can do better by investing elsewhere? Because you are risking your future on the financial health of a single company? Because you're paying high fees for that annuity, fees you won't pay if you're doing it yourself? Because if you die young, your heirs won't benefit?

There are any number of reasons to not purchase an annuity.

It's heartening to see that so many here have the confidence in the rest of us to manage our retirement portfolios on our own for the rest of our lives and have sounded the alarms about annuities.

I'd love to hear more strategies for generating income during retirement from our investments besides evil annuities.

Low-cost stock market index funds, generally, R36. These days, you can get index funds for just about every sector.

annitities are not a good investment choice. The up front sales fees are astronomical and in this day and age they dont pay much interest. Your average financial advisor will try and sell you one tho as its about the most lucrative financial instrument for them personally in their toolbox

[quote] It's heartening to see that so many here have the confidence in the rest of us to manage our retirement portfolios on our own for the rest of our lives and have sounded the alarms about annuities.

Why would anyone trust profit-making financial companies to manage your portfolios and think they are not taking financial advantage of you?

Put your money into low-cost index funds and leave them there.

They have a place, but it's limited. Here's an example of a good annuity decision--a guy I know retired from a Fortune 500 Company. He had the choice of getting his pension (remember those?) either paid by the company or in cash as a lump sum. He wasn't happy with the direction the company was headed so he took the cash. I need to mention that his wife was not in good health with both physical limitations and very early signs of mental problems. He bought an annuity to provide for her after his death knowing she would not be able to make financial decisions at that point.

It worked out perfectly. He sacrificed some immediate retirement income for long term peace of mind, the company did tank, and his wife was able to live out her life with some financial security after he died.

[quote]But what is better than a guaranteed income for life?

Marry someone with a good pension and a joint and survivor annuity.