Fixed Index Annuity

[Nickman123]

I have always heard these things are shady and only make guaranteed money for the insurance company. Now I got a new broker trying to sell me one. Says its a 10yr term. Can only remove max 10% of the money per year without a penalty. Supposedly absolutely guaranteed zero loss in principal. Gains are tied to stock market index. He claims average gain last 10yrs has been 8 to 9 percent. To top it off, he claims the seller will give me an initial "signing bonus" that will cover most of the penalty I would incur if I withdrew the money early.
There has to be a catch, right?

 

[jt13]

My grandfather was big into insurance products after losing his ass in the market in the 80's. He saved all his money in fixed annuities and whole life insurance policies. As it turns out, over 40+ years he missed out on millions of dollars in gains in the name of safety but it helped him sleep better at night. All about your individual priorities.

 

[greatwhitebuffalo]

Barring fine print; Yes. It might be a better perspective to anticipate around 6-7 over the long run to be safe. These products first began to emerge about 15 years ago and have gained momentum ever since.

I agree with JT13 that the broad market will most likely outpace by a significant margin over the long term. But, these can be a good product for conservative people with a "hands-off" approach.

 

[SAJ-99]

Supposedly absolutely guaranteed zero loss in principal. Gains are tied to stock market index. He claims average gain last 10yrs has been 8 to 9 percent.

There is no free lunch. You don’t get all the upside and none of the risk of the downside. Gains are “tied” to the market but they are not market returns.the S&P 10 yr return is like 13%. So the difference is the cost of protecting against a decline. JP Morgan has a few funds called Hedge Equity that do the exact same thing for cheaper. You can read the info on those to get a better idea of how they are structured if you really want to get in the weeds.

 

[mxracer317]

I have always heard these things are shady and only make guaranteed money for the insurance company. Now I got a new broker trying to sell me one. Says its a 10yr term. Can only remove max 10% of the money per year without a penalty. Supposedly absolutely guaranteed zero loss in principal. Gains are tied to stock market index. He claims average gain last 10yrs has been 8 to 9 percent. To top it off, he claims the seller will give me an initial "signing bonus" that will cover most of the penalty I would incur if I withdrew the money early.
There has to be a catch, right?

He’s right on a few of those points. We do these at our firm.

What he’s lying to you about is the ROR.

What is the FIA company he’s presenting?

 

[mikieb]

I looked into this 5-6 years ago.... I thought it was a fantastic idea to secure a block of my 401K and throw in some scrap IRA money I had laying around... I wanted to put a bunch of it together to build 100K account balance and to secure it in an Annuity. With the propose of securing some income to supplement my social security after I turn 65. It really looked like a good deal. Until they described that the up side was limited.... and in some year I may not make anything... All the restrictions on if you can get your money back should you die and the like....
Put that together with a 6% commission payed to the seller of the Annuity. The risk that the insurance company could collapse it's self... Add in the risk throughout the whole financial system cause buy an unknown amount of Derivatives waiting to blow up....

I opted to go with some solid dividend paying stocks (30%) and a small group of EFT's like JEPI and HRZN QYLD (70%) which pay dividends monthly and just let it snowball. By the time I get to 65 the dividends I will be collecting will be enough to supplement my Social Security that I will not even have to touch the priceable.

With that being said.... I still like the Annuity concept...

 

[antelopedundee]

About the only annuity that I'd care to get involved in would be from a lottery win, but at my age that isn't the likely choice. However if I did it might be with one of the places that the lottery folks use.

 

[popeyoung12]

Broker comm.. on annuities are 7%. Only fools buy annuities, whole life or lease cars.

 

[antelopedundee]

Broker comm.. on annuities are 7%. Only fools buy annuities, whole life or lease cars.

Whole life may or may not have value to you. If you terminate a term policy you end up with zilch, nada, bupkis! Whole life you can terminate and end up with a paid up policy with a guaranteed face amount A whole life policy will generate cash value which you can borrow against or surrender the policy and take the cash value.

 

[stealthy_bowman]

Annuities are a hard no for me.
Just do a bit of research with Dr. Google and you’ll find a plethora of articles explaining why they are a bad deal…

 

[SAJ-99]

Whole life may or may not have value to you. If you terminate a term policy you end up with zilch, nada, bupkis! Whole life you can terminate and end up with a paid up policy with a guaranteed face amount A whole life policy will generate cash value which you can borrow against or surrender the policy and take the cash value.

True, but term is much cheaper than whole. Again, there is no free lunch. The insurance company doesn’t stay in business long if it doesn’t make money selling these things. Their profit is the amount extra you pay to help you sleep at night.

 

[popeyoung12]

Whole life may or may not have value to you. If you terminate a term policy you end up with zilch, nada, bupkis! Whole life you can terminate and end up with a paid up policy with a guaranteed face amount A whole life policy will generate cash value which you can borrow against or surrender the policy and take the cash value.

I could sell my term. 3rd and last term for me, kids educated, doing well. Dave Ramsey also says hard no to hole life.

 

[npaden]

People tend to argue that if you are 65 term life is going to be super expensive so better to buy whole life when you are younger.

Take that same payment and invest it in an index fund and by the time you are 65 you won’t need life insurance because you will have enough saved that you don’t need it.

I get super cheap term life insurance through the CPA insurance trust program but I actually let it lapse this year as the premiums were going up after I turned 55 and looking at my retirement and savings accounts my family would be fine financially.

I was only paying a little over $50 a month for $750,000 of life insurance but it seemed like a waste of money to buy insurance I didn’t need anymore.

 

[MarvB]

I agree with JT13 that the broad market will most likely outpace by a significant margin over the long term. But, these can be a good product for conservative people with a "hands-off" approach.

That “hands-off” kinda describes moi…our investments are semi-diverse but VERY much on the safe/guaranteed side. I’m too far over the bridge to try to rebuild a nest egg. That being said, I did just put $$ into a 7-yr fixed rate annuity just this last week through Lincoln.

 

[antelopedundee]

True, but term is much cheaper than whole. Again, there is no free lunch. The insurance company doesn’t stay in business long if it doesn’t make money selling these things. Their profit is the amount extra you pay to help you sleep at night.

I get that, they are like any business. They make money on everything that they sell. Since term policies are cheaper they sell more of them. The longer that you live the more that they make.

 

[antelopedundee]

I could sell my term. 3rd and last term for me, kids educated, doing well. Dave Ramsey also says hard no to hole life.

I had a whole life policy in my younger days long before I ever heard of Dave Ramsey. I don't recall how many years I had it, but it's been quite a few years since I terminated it as a paid up policy. At least I have that so my EOL expenses are covered, plus it has a nice cash value built up. After that I took out some level-premium term insurance followed by a decreasing term policy that I dumped some years ago. Right now at my age of 76 I would think even a term policy worth having wouldn't be cheap so therefore I have none.