Annuities vs investment portfolio

With some special handling upon death? Anyway, in some states you can convert your IRA into an annuity and that makes dispursments free of state income tax!

You need to distinguish between an immediate annuity (in which you would trade the 150k for payments now) and other types of annuities (like variable annuities- in which you would trade the 150k for some growth now, then annuitize -like an immediate annuity- later after the

150k grew to 300k or 450k and provided you with an income stream at that time).

There are many good articles on the advantages and disadvantages of immediate annuities. If you are considering an annuity you need to read several articles by unbiased authors to decide if an annuity is an appropriate choice in your situation.

An immidiate annuity is not an investment product. It is an insurance policy just like homeowners insurance. In the case of the immediate annuity the disaster you are insuring against is running out of money before you die. The insurance company guarantees that they will pay the specified amount for as long as you live even if the payments far exceed the amount you put in. The insurance company also guarantees that if you die early they will keep all of your money.

The flaw with most immediate annuities is that they are not inflation indexed so if you live a long time the value of your annuity payments near the end of life will be far less than when you first started receiving payments. If your concern is running out of money if you live a long time then an inflation indexed annuity makes more sense.

The basic is comparing your rate of return with any other investment. Calculating your personal return isn't always easy, but you can do it on a total portfolio value from year to year. Then you should read as Bill suggested, to get new variations.

Not necessarily - there is a type of immediate annuity called an "IR" annuity.

"Single Life Income with Installment Refund Paid to Beneficiaries ("IR") You receive this income for your lifetime, which means, you can never outlive this income. If you should die before receiving an amount equal to the premium, your beneficiaries will continue to receive this income in installments until the total amount paid to you and your beneficiaries equals the premium. Payments stop only upon your death after the total premium has been paid back to you and your beneficiaries."

It all comes down to projecting future needs and where those funds will come from... ie - SS, Pension Funds, Stocks, Bonds, Mutual Funds, IRA, CD's, DVD's :) So - draw down (sell) portfolio assets as needed to get cash. vs receive payments from an annuity - vs any other fixed asset conversion - EXCEPT the roll of the dice for the annuity payment for a given period of time. It looked like some I saw were for a GP - Guaranteed Period - vs lifetime - Sorta like a reverse life insurance policy :) A lot of articles suggest re-balance portfolio as we get older to protect cash. I'm at that point - of sitting on lots of AAPL, HPQ, CSCO, etc (bought when they were little) along with laddered CD's, etc -

Do you feel lucky punk ? Will have to look at our overall Rate of Return, vs how "comfortable" we feel going forward - inflation vs deflation vs downfall of an economy & empire.

In view of the AIG debacle and other recent financial mis-fires has ANY annuity payment been canceled? Not delayed, but outright canceled.

Chip

I have never heard of that happening. However, if I were considering an annutity I would look at getting two from two different highly rated companies. Never say never.

I'm not sure I can add anything to the bases you've covered. I just looked at a chart of home prices valued in gold - gold would have been better.

Most people here seem to favor funds and other investment products over their own portfolios. I looked at what was promoted as an excellent annuity years ago, and based on my various parameters I didn't buy it. The bottom line is that funds were invested, and a return projected, blended with actuarial tables. I preferred my own use of capital. The approximately 6% taxable return wasn't attractive. Today I saw fixed annuities between 2% and 3.69%.

Obviously you aren't unable to read a 10k, nor afraid to, and are able to spot a great company when it comes knocking on your door. So as applies to yourself, this may be useful: your past returns (although you should know them) may not be your expected returns. If you plan on a shift in strategy and a re-estimation of your expected return on your portfolio personally, Value Line's lists for safety and financial strength generally return quality companies to start looking at. These won't go from $1 to $100, they become candidates for likely revenue growth going forwards with commensurate appreciation.

Dividend payouts are pretty high these days, and its no contest compared to interest rates. If one looks at: Revenue growth Earnings growth EPS growth Dividend payout ratio History of dividend increases ... then one can reasonably approximate future dividend yields (and possibly long-term appreciation based on revenue and earnings).

A generic and thematic suggestion implied by the scope of your question is for one to look carefully at one's reasonably anticipated expenses for retirement, and sources of income, then make adjustments so that those match within one's comfort levels of expected investment income. It shouldn't be a question of counting bullets.

A bit of an extrapolation perhaps, but some perspective on values is not a bad thing to promote these days.

Looking at numbers is fine and good. I'm sure even the Vatican can count. But it's not everything, and should serve good purposes.

show guarantees forannuity policies.

-- Ron

If I am not mistaken, the return on an immediate annuity depends on the prevailing interest rates of the recent past. If that is true, then the present time, with interest rates like they have been in the last few years, would be the worst possible time to buy an immediate annuity. Not only is inflation a threat, but the actions of the Fed during a few preceeding years is what really determines the amount of return for life. I wonder if a lot of annuity-buyers are caught in the trap of assuming that what is happening today will continue forever, i.e., if 4% or 5% is a good return today compared to the bank rates, it will always be good.

Some googling suggests that inflation-indexed immediate annuities exist, but are only common and attractive outside the US at this time.

Some fiddling with

calculatorshowed me the break-even age where you start to make more money thanyou have paid in isn't fixed, but gets somewhat younger if you buy theannuity younger (by about half as fast)! This may mean they haveassumed some inflation or at least inflated investment returns withyour money, and pass on the savings in purchase price. But also it may reflect the weird statistical effect that the older you get, the slightly older is your expected day of death! Not due to any improvements, but due to you having shown not to be in the pool of early croakers who brought the average down. Therefore you will get less of a break than expected for buying an immediate annuity later in life (which you might prefer to reduce exposure to inflation).

Anyway, todays immediate annuity buyers may still have to hope for a Japanese style lost couple of decades of tiny interest rates. I saw the most interesting article that clearly advocates the Japan situation was unique with bizarre circumstances, and that China rather than US is set to fall down the same path. Apparently the Chinese economic model has been "Gen. Douglas MacArthur paternalism", the same that created the Japanese export giant on rotten internal foundations. China appears to expect it's bubble could similarly be popped if they don't clean up internal collusions, etc:

It's worth noting that almost every State (if not every one) has an insurance guarantee association. Most are government agencies created by State law that derive their income primarily from fees imposed on those insurance companies that choose to do business in that State. The agency/association will typically guarantee insurance policies and annuities up to a certain amount (life insurance death benefits and annuity benefits are covered up to $300k here in ol' Alabama). The State associations are modeled after the FDIC although I think it is technically illegal to equate them to the FDIC itself.

Here's Alabama's association:

Good point. Someone posted a link to a site that shows the limits for all states in another thread recently. Unfortunately, I did not save it. Doing business with a single insurer should be safe as long as your annuity is within the protected limits for your state. However, if you annuity will be above the protected limits I still think buying two annuities from two highly rated companies is prudent.

A case I know about: Steve was a disabled youth who could not work. His elderly parents purchased an annuity for him that provided a fixed income of $400 per month for life. In those days (somewhere in the

1930's I believe) people thought that was a fantastic monthly income. After the parents died, the son got along fine for quite a few years, but eventually that $400 didn't go as far as before. By the time he turned 40 he could scarcely pay for necessities and was essentially destitute.