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yngevn08 | What can an annuity do for me? |
I'm completely ignorant on the subject. I know there are similarities to life insurance policies. And I've heard they're a great investment tool. But why? |
 |
 
Doing the Right Thing
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During the accumulation period (the period before you start withdrawing money from it), if you die, you are guaranteed a minimum death benefit of what you put into it. If you put in $20k into the annuity and the value of your account is below that, you are guaranteed a death benefit of $20k. If the value of your account is above that, such as $32k, and you die, your beneficiary will receive $32k.
In your annuity contract, you have at least 3 different settlement options. First option is called straight life annuity. This is where only you will receive payments for the rest of your life. This is the highest monthly payout option.
Second option is life annuity with period certain. This is where if you die during a certain time frame, monthly pay out will continue to your beneficiary until the end of the period. For example, lets say you have 10 year period certain. If you die on 2nd year, payout will continue to your beneficiary for the remaining 8 years and then it will stop. If you outlive the period, it will continue to pay you for the rest of your life and then stop when you die.
Third option is called Joint and Survivor annuity. This is the least monthly payout option of all three. This is where if you die, payout will continue to your beneficiary for the rest of his/her life.
There are many others options such as one lump sum settlement (that may sound good, but it may push you into a higher tax bracket). Another one is called "investment income" which only pays you the interest, but keeps the principal intact. When you die, this principal will be paid to your beneficiary.
Whatever settlement option you pick, you lose the death benefit when you begin receiving the money because you are no longer in the accumulation period. You are now in the annuity period, which is the period you are receiving monthly income. When you are in the annuity period, you cannot change your settlement option. So you should carefully pick a settlement option.
I wouldn't suggest this investment if you are young. Annuities have high expense ratios. If you are in your late 40's and above and you really don't have much saved, then a variable annuity would be a right product. That way you are guaranteed to receive monthly income for the rest of your life when you begin the payout. |
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Insurance
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annuity will pay you as long as you live.
many people have the misconception about annuity vs investment plan.
annuity is not an investment plan. it is a kind of force saving meaning to force you to save in a "sysytematic way" and "give you back in a systematic way"
do you know that many people fail to save for their retirement?
many people at their early stage listen to too many sources about saving and investment ended up gaining very little $$ for retirement. why?
reason 1 : no discipline or not consistent enough. they can invest today and withdraw the next day.
reason 2 : spending gives you more fun than saving
reason 3: they always think insurance companies is taking away their money and gives you very little return.
Think about it, even with 100% per annum ROI how much can u really invest today?? Worldwide statistic already indicated that many people have little real cash for retirement.
So insurance companies help us by forcing us to save little at a time to accumulate great wealt!
Reason 4 : Many dun understand the power of compound interest!
Look at this example
A cup of latte cost me USD 2 a cup, do you know that if I start drinking it at age 20 until age 60 for 40 years I already spent
USD 50,000 (based on inflation rate 2% and annual ROI of 6%)
How about drinking, smoking and other habits??
- all this will cost a person at least USD 200,000
So not to worry about ROI, Inflation or other confusing terminology.
Start saving and see your money grow!
loihl@einsuran.com
Malaysia Life Insurance |
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insuranceguytx
 |
I would never go golfing with only one golf club. I'd never try to build a house with only a hammer.
Annuities are tools meant to accomplish a specific task. Actually there are many types of annuities that can accomplish many of the same tasks. Some types of annuities have different features.
Chiefly, annuities are a risk transfer tool. As mentioned by another poster, you can transfer the risk of living too long by using an annuity. Once annuitized, the annuity will pay you as long as you are alive.
There really are too many issues to address and too many question before determining if any annuity is best for you.
Go talk to a financial planner.
Good Luck
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avaldreteiv
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Well I don't know where these others are going for their annuities, but I have clients that have been making two or three times what the S&P 500 index has been making in the last 12 months using a variable annuity that has an investment protection rider on it so that when the market takes a dive like it has been the last couple of weeks, they don't have to worry about the priniciple being depleted and all they have to do is watch their ballance go up... and the fees (grand total of fees are 2.25%) are only being charged on the initial premium (deposit) that was paid in. Their ages are ranging from 27 to 63. Oh yeah and they got a bonus up front that more than paid for their fees in the first year, and they didn't have to put $1MM in to get that.
But to answer your question honestly, it all depends on what your investment objection is. Annuities are actually the exact oposite of life insurance. Meaning they are a financial tool that insures that you don't out live your income. Think of Social Security, if you are old enough to remember hearing about Pension Plans, these are all Annuity contracts, and don't hear many people complaining that SS is bad thing if they are recieving payments, and most people these days would give their right arm to have a gauranteed pension pay out. So annuities are not as bad as some people would have you believe.
Wether or not the annuity is great investment tool or just a tool is all dependant on how the contract is worded. There three things to consider when looking at annuities:
1. Rate: this is primarily concerning fixed annuities, while rates are important they do not make an annuity great or bad all by themselves.
2. The Company behind the annuity: I don't care if a company is offering you 100% each year for life, if the company backing the annuity isn't financially strong, then the annuity isn't worth a hill of beans, look into the ratings of the company as well as the history of the company
3. A Money back guarantee: Never put you money into an annuity where you can't get 100% of your money out of the annuity with out penalty. the most you should lose is the interest or gains, but never your principle. |
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deep5223
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While life insurance is designed to protect you from dying too soon, annuities are designed to protect you from living too long. That simply means that if you purchase an annuity, once you begin drawing benefits from it, they will continue for life. No matter how long you live. I would not call it a great investment, because your rate of return is limited compared to what you could make by investing in the market, but there are guarantees that are not in other investments, so it can be a wise move for older investers who don't have time for the market to make a come back from a down turn. |
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mbrcatz
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They're a crappy investment tool. It's kinda like paying the insurance company to invest in mutual funds for you - but they keep everything after 3% that the fund makes, AND they charge you 10% up front (commission), AND they charge maintenance fees.
The only thing an annuity does, is it promises to pay you until you die - whether you die at 65, or 125. It usually pays between 2% and 5% interest.
Like all insurance products, it's a BET. And the odds are ALWAYS stacked in the favor of the insurance company.
First establish what your goal is. THEN find the product that acheives the goal, at the lowest cost to you. I seriously doubt an annuity is going to fit ANY of your goals. |
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Zach C
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blah, blah, blah. an annuity is an investment vehicle that also offers some gaurentee's backed by the insurance company that issues it. it offers tax deferral and the possibility of a stream of income that you cannot outlive. if you buy one do not go with all of the bells and whistles that the agent will try to get you to buy. all it will do is add to the expenses. a NML annuity has low expenses, and a diversified selection of sub accounts to choose from. |
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ernesto_tig
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Thank you for asking this question. I've now heard every sales cliche ever invented by annuity salesmen. Did someone forget "people don't plan to fail, they fail to plan".
An annuity is a insurance contract. You give your money to an insurance company, they promise something in return. Usually some tax deferred investment plan (deferred annuity) or payments of X amount of dollars over Y number of years (immediate annuity).
Personally I feel deferred annuities are a waste of money, immediate annuities are a useful tool for retirement income but please shop around payout amounts vary a great deal. Keep in mind annuity salesmen make 4-10% commision on sales, so they'll work hard to close the deal, and once you're in there's a 5-10 year period where you pay a withdrawal penalty. Please be careful.
My favorite no-BS annuity site: http://www.72t.net/Default.aspx |
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aaron p
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There are some options out there depending on what you are trying to do. There are almost always pros and cons to every investment vehicle and there are numerous types of annuities, each with confusing options.
Just as I would suggest people buy insurance from insurance folks, you should buy investments from investment folks. One-man-bands generally haven't mastered their instrument yet and they often don't know it. There is already some mis-information on this message board.
I would talk to a few different people before making a big move. You may even want to talk with a fee-only adviser who cannot collect commissions to make sure you are getting objective advice. |
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