Author Topic: Tax Deferred Annuiites  (Read 795 times)

pecunia

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Tax Deferred Annuiites
« on: September 08, 2018, 11:10:14 AM »
Once again I am pondering the brains of the giants who frequent this post.

Normally I've heard - Annuities Bad.  Don't Touch Bad.

Sales pitch that has been made for tax deferred annuities - Expenses might be a little higher than index funds, but remember you are not paying any cash until you cash out.  This makes up for the higher fees.  When you are done working and before you kick the bucket, your income will be lower and the taxes won't hurt so much.  In the meantime, you can enjoy income from the S&P 500.

Comments?

MDM

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Re: Tax Deferred Annuiites
« Reply #1 on: September 08, 2018, 11:58:04 AM »
This makes up for the higher fees.
No, it doesn't.

Unless you can decipher the actual interest crediting formula contained within the ~100 page contract, reduce that to an Excel formula, calculate it with the least favorable parameter values allowed by the contract, and decide that it still appears to be a good deal to you.

See this post: A New Start with Everest Wealth Management - Q&A with the management for more.

reeshau

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Re: Tax Deferred Annuiites
« Reply #2 on: September 08, 2018, 02:47:45 PM »
As my wise wife says, they don't add all those words in the contract for your benefit--it's to benefit themselves.

There is no way they can get more of the performance of the investment (through their high fees) and it's better for you.  It is not a perpetual money machine.  It's still the S&P pie, and they just cut themselves a big slice.


PizzaSteve

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Re: Tax Deferred Annuiites
« Reply #3 on: September 08, 2018, 03:00:55 PM »
The most important fact to not confuse is revenue stream with rate of return.

The salesperson will quote rates of payment and their possible increase as if they are a rate of return.  This is not correct math as it is appkes vs oranges compared to the power of compounding your returns.   Your principal is not growing via compounding, so the payments increase is not growing wealth in the same way it would if you directly owned a bond or stock fund.

It is like receiving the interest on a CD, but never being able to tap principal or never rolling the interest into principal, so the next CD earns more, even if at the same rate.  Plus add hidden fees for renewing the CD, cashing the CD, and forcing you to pay for something you dont use (life insurance), and reducing the CD principal by that amount.  Add lots of hand waiving why this is good,....because taxes are bad....

There is no free lunch...
« Last Edit: September 18, 2018, 06:50:46 PM by PizzaSteve »

Goldielocks

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Re: Tax Deferred Annuiites
« Reply #4 on: September 08, 2018, 03:02:51 PM »
The only people that want to defer tax to later through a complicated investment are those in a very high tax bracket today, that have maxed out all government registered plans available.

I must say, these people do not need annuity income today, so the payments should not start for quite a while, too... right?

So, assuming that is the case, then I would look at investments that offer flow through expense deductions to reduce your tax today and provide $$ later.  (For those maxed out on everything with lots of income tax on wage income each year)

OR, you know, that is exactly what capital gains do -- defer taxes until years later when sell.

What do you see the advantage of tax deferred annuities to be?
I actually like a basic, immediate, proscribed annuity, for people looking to create their own pension -like security in retirement, for whom their money running out if they live past 80 is a very real thing, and want protection in return for a little less return and no estate to pass on to the kids.

Nate79

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Re: Tax Deferred Annuiites
« Reply #5 on: September 08, 2018, 10:56:55 PM »
Index funds are extremely tax efficient and with capital gain tax rates so low these type of annuity products are just a bunch of expensive junk products.

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Mighty-Dollar

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Re: Tax Deferred Annuiites
« Reply #6 on: September 13, 2018, 10:27:40 PM »
Normally I've heard - Annuities Bad.  Don't Touch Bad.
Comments?
Deferred annuities are like deciding that taking a vacation now is more important that having food and shelter later, and deciding that heirs should get nothing if you reach your actuarial life expectancy.
https://www.youtube.com/watch?v=4Bsa1mLm1Io
« Last Edit: September 13, 2018, 10:29:32 PM by Mighty-Dollar »