Annuities, how do they work? (Full Version)

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Vendaval -> Annuities, how do they work? (6/12/2008 2:29:28 PM)

Greetings all,
 
I am doing research into annuities and have a few questions. From reading so far, it seems that annuties function almost like a private pension plan.
 
Is that the case?
Are annuities a better investment than say, a certificate of deposit?
And does anyone have recommendations on companies that provide these services?
 
Thank you,
 
Vendaval



LuckyAlbatross -> RE: Annuities, how do they work? (6/12/2008 3:21:16 PM)

quote:

ORIGINAL: Vendaval
Greetings all,

I am doing research into annuities and have a few questions. From reading so far, it seems that annuties function almost like a private pension plan.

Is that the case?
Are annuities a better investment than say, a certificate of deposit?
And does anyone have recommendations on companies that provide these services?

Thank you,

Vendaval

That's not a bad way of putting it.

There are tons of types of annuities out there, lots of options based on risk tolerances, life spans, needs for available cash, etc.  Whether it's better for YOU or not depends on your risk level, time, available initial payments and a whole host of things.

Recommendations?  Don't use my boss.  But for a starting point, try investopedia.com



xxblushesxx -> RE: Annuities, how do they work? (6/12/2008 3:51:44 PM)

Life insurance is insurance against death.
Annuities are insurance against life.
Hopefully CaliChick will be here soon to explain it.
It's been a while since I've dealt with insurance.



DesFIP -> RE: Annuities, how do they work? (6/12/2008 3:56:35 PM)

Annuities are not the best way to save money. However, the reason they are heavily used is that people won't put money into their savings plans first. The annuity deducts the money automatically, forcing you to save. Thus people who wouldn't mail off a check monthly to a mutual fund or several will save when setting up the automatic deduction plan that funds the annuity.



CalifChick -> RE: Annuities, how do they work? (6/12/2008 4:18:20 PM)

It's hard to say whether one investment is better than another, because what may be right for me is not necessarily right for you. 

I would say "functioning like a private pension plan" is a good short description of how annuities work.  Here is some info and definitions of terms:  http://www.iii.org/individuals/annuities/basics/whatis/ .

Cali






Vendaval -> RE: Annuities, how do they work? (6/12/2008 4:25:55 PM)

I appreciate the explanations, blushes and Desert FIP.  Thank you for the links, LA and Cali.  [:)]



popeye1250 -> RE: Annuities, how do they work? (6/12/2008 4:30:40 PM)

Ven, you give them a bunch of money up front, they give you a monthly check at some point in the future.



Griswold -> RE: Annuities, how do they work? (6/12/2008 7:45:39 PM)

quote:

ORIGINAL: xxblushesxx

Life insurance is insurance against death.
Annuities are insurance against life.
Hopefully CaliChick will be here soon to explain it.
It's been a while since I've dealt with insurance.


Nicely put.

I'd argue that annuities are insurance on the assumption of life.

(I suspect she meant the same thing...semantics).

I'm not in insurance, or anything related.

Feel free to contact me.



Griswold -> RE: Annuities, how do they work? (6/12/2008 7:50:55 PM)

quote:

ORIGINAL: DesFIP

Annuities are not the best way to save money. However, the reason they are heavily used is that people won't put money into their savings plans first. The annuity deducts the money automatically, forcing you to save. Thus people who wouldn't mail off a check monthly to a mutual fund or several will save when setting up the automatic deduction plan that funds the annuity.


Exactly...hence why an annuity is neither a good or a bad idea.

It depends entirely on both your perspective, as well as your desire / ability to plan for tomorrow.

If you're disciplined as to your future, it's a bad product to purchase.  If you aren't (disciplined)...it's a great move.

If you haul construction equipment around on a daily basis...a Toyota Prius would be a horrible move.

If you haul around big tankers, backhoes, bobcats...all day long...you may want to consider a GM product.



Real_Trouble -> RE: Annuities, how do they work? (6/12/2008 7:56:52 PM)

Vend,

Drop me a PM if you'd like to discuss this kind of thing more in-depth with me; I'd be glad to offer my thoughts and I like to at least pretend I might occasionally know what the hell I'm talking about (though definitely judge for yourself; there's enough charlatans in finance to form another entire US government with them).

I don't want to play twenty questions about financial goals on the boards, and likewise, it's hard to provide intelligent answers without scoping the situation.



Griswold -> RE: Annuities, how do they work? (6/12/2008 8:07:32 PM)

quote:

ORIGINAL: Real_Trouble

Vend,

Drop me a PM if you'd like to discuss this kind of thing more in-depth with me; I'd be glad to offer my thoughts and I like to at least pretend I might occasionally know what the hell I'm talking about (though definitely judge for yourself; there's enough charlatans in finance to form another entire US government with them).

I don't want to play twenty questions about financial goals on the boards, and likewise, it's hard to provide intelligent answers without scoping the situation.



(Perzakly).



Vendaval -> RE: Annuities, how do they work? (6/12/2008 9:32:48 PM)

I appreciate that.  You have mail.



TheGorenSociety -> RE: Annuities, how do they work? (6/12/2008 10:41:45 PM)

Damn and here I have been putting my money in pesos buying gold all this time.



pinksugarsub -> RE: Annuities, how do they work? (6/13/2008 2:02:45 AM)

quote:

ORIGINAL: Vendaval

Greetings all,
 
I am doing research into annuities and have a few questions. From reading so far, it seems that annuties function almost like a private pension plan.
 
Is that the case?
Are annuities a better investment than say, a certificate of deposit?
And does anyone have recommendations on companies that provide these services?
 
Thank you,
 
Vendaval


Vendaval, this is all my own opinon, so take it with a grain of salt.
 
Though annunities are available with many bells and whistles, essentially they are a form of insurance.  It's insurance against the risk of outliving your assets.
 
To make a profit on them, companies that sell them not only set rates and so forth, but also guage the likelihood of an applicant's early death, thus netting them additional profit from the years in which they no longer have to pay out.
 
Companies that sell annunities have succeeded in positioning themselves as quasi-investment products, thereby avoiding oversight by state insurance commissions.  Since they are not traditional investments, the sellers are not heavily regulated by state blue sky laws or the SEC, either.
 
A basic annuity pays a monthly benefit for the life of a purchaser, beginning at retirement age.  Common 'bells and whistles' include 'accounts' within the annunity which the purchaser can 'manage'. The yield on the 'account' then alters the monthly benefit.  Such 'accounts' call for rather sophisticated knowledge of both the stock market and the annunity itself.
 
Abuses i'm aware of include 'hidden' fees.  It isn't uncommon for a purchaser to make a lump sum payment to acquire the annuity, and the seller to confiscate as much as 25% or more of the purchaser's payment on day one of the contract.  It's virtually impossible to see a reasonable rate of return after suffering an initial loss of that size.
 
Another common abuse is the use of various annuity contract terms, poorly disclosed to prospective purchasers, which either prohibit or penalise any attempt to terminate the annunity and move the funds to another investment product of the purchaser's choosing.
 
Annunities are not guaranteed.  If the seller
goes bankrupt, there is very little if any restitution to the purchasers.

IMO, annunities best serve as vehicles for assuring a set income stream in the future.  Attempts to market them as 'investment products' seem to be where risks, losses and abuses most often occur.
 
pinksugarsub



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