Quote:
Originally Posted by SDTopless
A small take on...
Annuities vs. Better Things You Can Do With Your Money 
Annuities - guaranteed money & tax deferral in the future
-you can get a fixed annuity, or a variable one. the fixed annuity is the guaranteed set amt of $$, and the variable one is somewhat fixed, but is sensitive to market conditions (could be up or down from that guaranteed amt)
-tax deferral helps your money grow w/o being attacked by the gov't
IRAs - tax deferral
-you can set up a traditional, or a roth IRA. traditional IRAs help your money grow untouched 'til withdrawal, then it's taxed. or instead on a roth it's taxed first, then it grows, but you're not taxed upon withdrawal.
Analysis:
**investment companies are investing YOUR money to make more money. whether it's from an annuity, or an IRA, they're making more money off your money.
so, given that...
1. annuities don't account for inflation. inflation has been shown to be relatively in between ~3-6% on average. annuities only guarantee you a fixed amt of money. they don't let you touch the rest of it (the bigger bux that THEY made off yours). so 5 yrs down the line, what's happening to your money? inflation goes NUM NUM NUM on your fixed income, and yes it remains fixed.
BUT WHAT ABOUT VARIABLE ANNUITIES? well, that's subject to the market. so you could take that risk on whether you're going to get above, or below that fixed amt.
2. annuities are NOT flexible. it guarantees you $$ for the rest of your life right? well, it's only for YOUR life. after that, who gets to keep ALLLLL that money that they made of yours? well they do obviously, unless you name a benificiary, still then it's only for the rest of THEIR life. not to mention you may also incur some severe reductions. plus, if you want to take out all your moneys, then BAM penalties will apply.
3. IRAs are better because they do the same thing. if you take a historical look on how the stock market has performed, in the long run it has always outperformed every other market and has only has continued to go up. so what does this have to do w/ your IRA? well, by the time you start taking money out of your IRA, your money still grew and ALL of it is yours.
if you're concerned about withdrawing money from your "nest egg" & having to worry about it dwindling to zero, well i'm pretty that you'll be able to set up a withdrawal plan where your $$ keeps maintaining & even growing while you're still taking.
4. beneficiaries, death tax, blah blah... with a trust, or a transfer/gift paln you can make sure your heirs get what's left over. |
The answer to inflation in a fixed annuity is a fixed indexed annuity. This vehicle guarantees a specific rate of return on the principal. Lets say 100% of the money is guaranteed at 3% as the WORST CASE SCENARIO. And you cant have a negative year with this product. Only a 0% year in a down year. PLUS you have upside potential linked to the S&P 500, DJIA, Eurostoxx, etc. So this is a way to have a guaranteed rate of return, downside protection AND upside potential which could offset inflation. Also, these contracts do not have the fees typically found in a variable annuity.
Immediate annuities can also offer COLA (cost of living adjustments) which is 3-9% inflation adjuster each year to account for inflation.
Number 2. Wrong. Annuities are flexible. Most allow for 10% or even 15% to be withdrawn each year without surrender charges. Like I said, there are some contracts that allow you to walk away with principal and interest after as little as 2 years. Many even have nursing home waivers where clients can walk with the value if they become confined to a NH. How is this not flexible?
Regarding income for life. The insurance company does NOT always keep the money. Beneficiaries can be elected and one option is a cash refund which means the balance of what has not yet been paid out will go to the bene's. Therefore, all of their money is returned, just not necessarily to the original owner. But that does not matter because they have passed away. And the balance will go to their spouse, children/family, etc.
Look, I am not saying fixed annuities are for everyone, especially not for younger folks like on this forum - they should just be a part of any pre-retiree's "safe money" portfolio.