Stocks vs. immediate annuity

snip; agreed with all. Yours is the point to be made. What the return on these products is has to be qualified to be meaningful AFAIC.

!! Thank you for this financial planning comic relief.

For a fixed immediate annuity, you would send the insurance company $100K, and they would send you $X a month for the rest of your life, where X depends on age and other factors.

Maybe you are thinking of CD-type deferred annuities. There are also variable deferred annuities.

I am thinking of variation in the "return" that a fixed amount of money will provide, depending on the historical date at which you buy the annuity. For example, suppose in the period around 198084 or so, when interest rates were very high, you could get $1500 per month for a fixed outlay of cash. Then, interest rates began to decline in the years 1985-86, so that in 1988, say, you could get only $1200 monthly for the same amount of cash.

And now, today, when interest rates are way, way, down, perhaps you can get only around $600 per month for the same amount of money, and so on. If it still works like that, then whether or not an annuity meets a given person's needs depends a lot on the time period when it is purchased. So, if I am close to retirement age or a little past retirement age, and I have reason to believe that interest rates will go up higher in the next few years, it might be in my best interests to wait a few years before buying an immediate annuity.

"Don" wrote

Then you only have to worry that the insurer remains solvent. Annuities are a last resot in my opinion. After you max out your retirement plans, 401k 403b whatever, if you still have cash then a no-load no surrender charge annuity might be ok for some people.

I suspect you are right; annuities are a bad choice under most circumstances. I am suggesting that they may be bad for still another reason that no one has mentioned, as far as I am aware. Because current interest rates are so low, today would be the worst possible time to buy an immediate annuity, because your "return" would stay relatively low for the rest of your life. If interest rates in general go up in the next several years, then eventually annuity "returns" will go up too, but anyone buying one today will be stuck with today's yield for life. I do suspect dividend stocks would be a better bet at the present time.

Don't confuse immediate annuities, the subject of this discussion, with variable annuities, which provide tax sheltered returns for people still in the accumulation phase. You seem to be talking about the latter.

Because of high costs, variable annuities are almost always a worse investment than taxable accounts.

-- Doug

A good reason not to put all of one's assets into an immediate annuity.

Each State insures annuities up to a certain limit, ranging from $100,000 to $500,000.

Immediate annuities are amortized over a certain number of months depending on the annuitant's age. That results in increased cash flow for a few years.

It pays to wait before buying an immediate annuity, and if you're not healthy, don't buy one. I would suggest to wait until age 70. And, don't purchase any more than what you need for cash flow (or living expenses).

I don't know if immediate annuities are appropriate for an IRA or Roth IRA since one doesn't get the tax benefits of the initial amortization.

-- Ron

Likewise, don't confuse deferred annuities with variable annuities.

Deferred = payout later (currently in accumulation phase) Immediate = payout now

There are fixed immediate, fixed deferred, variable immediate, and variable deferred annuities. Two different dimensions to the product.

A brief primer, specifically addressing these dimensions is at:

If by "variable" you mean "deferred", I respectfully disagree. A fixed deferred annuity generally offers greater returns than other guaranteed investments (though the guarantee, being from a private insurer rather than the FDIC or similar agency, is less valuable), and provides deferral of taxes on the periodic income. We can certainly debate the suitability of fixed income investments in the accumulation phase, but if a fixed income investment is what someone wants, then fixed deferred annuities can offer better after-tax returns than a fixed income investment in a taxable account.

Mark Freeland snipped-for-privacy@nyc.rr.com

In a general and broad sense I would agree with the above, but only with an acknowledgement that, in the end, the path to better returns is through accepting greater risk. So before getting specific with someone, I would insist on a thorough discussion of the risk and liquidity inherent in the comparison.

Once that's done, I confess that I find some utility in fixed deferred annuities and fixed immediate annuities. As for variable deferred annuities, you can keep those.

-HW "Skip" Weldon Columbia, SC