Author Topic: Variable and Fixed Annuity - my safety net  (Read 668 times)

frostwarrior

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Variable and Fixed Annuity - my safety net
« on: August 28, 2019, 06:28:48 PM »
So here's my thing - I've put 100k in a Variable fixed annuity (Perspective II from Jackson) which has a 4-6% Guaranteed withdrawal rate. It can't be withdrawn for 7 years. I'm probably going to throw 50k a year into it.

I know the annuity costs me, and I know that everything I've read tells me.... annuity is bad. However this is a bit psychological for me.

I'm probably FI already, but I am not at the RE (lol). I am 45 with 2.3M net (excluding the annuity) - 942,000 in real estate (300k is my house), 1.1M in market (taxable and non-taxable). I probably won't retire till 52-55 because I have a job I enjoy - I have another 500k-1M in stock which will vest in that time. I make about $325k/year depending on performance (only last 3 years). We live on 72k a year after tax (I am FatFIRE)

Here is the thing. My wife is disabled and 41. Has been since we're 20's - so I've recently started going hmmm she should be fine if I die early but....  The Annuity is my name but she would get a payout at the end she could buy an immediate annuity with. I know at best she'll get 50% of my social security. So I've planned my annuity to give us a minimum of 72k no matter what as long as I fund it 50k a year till I'm 59.

I'm that USA immigrant who came with 2 bags and $500. I've done well. However for some reason the Annuity scratches a psychological itch that if sh!t hits the fan - and I mess up somehow in a variety of ways - that her or I in retirement will at least have that. It's a 'Comfort' investment. It doesn't stop me practicing asset allocation in my other investments but......

Anyone else have this with some of their things or have any other passive income ways to scratch this itch that I should consider?








reeshau

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Re: Variable and Fixed Annuity - my safety net
« Reply #1 on: August 29, 2019, 02:13:21 AM »
There is indeed a lot of variation in "4-6%" guaranteed.  Which is it?  Is your expected $72k the 4% number?  Or did the salesman advisor convince you to think of the 6% number as the minimum?

I'm not saying this is a bad move in your situation....but it is almost always not the best move.  BUt choosing a variable annuity seems to be that you still want to call this money "in the market," but also want security.  And, as with any hybrid solution, it's not really the best at doing either of those things.

If you are looking for the ultimate safety net, I would ask why you did not take a simple fixed annuity (most directly certain in payout, if not the highest--particularly with current interest rates) or a life insurance policy, if your worry is about your untimely death?  Both are still not typical  (thinking of "extra" life insurance, since, as you say, you are already FI) but simpler and cheaper than your variable annuity.

Andy R

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Re: Variable and Fixed Annuity - my safety net
« Reply #2 on: August 29, 2019, 05:11:23 AM »
Also curious why not an SPIA.

And also why no mention of inflation. If you are getting 4%, then only in the first year are you getting the same as 4% in the SWR idea, after that the annuity (unless inflation adjusted) is no longer comprable. This is especially important for someone with a lot more years than someone who buys a SPIA when they are say 70

In general I think SPIA's are not at all bad and serve an important purpose. Other annuities, not so much.

frostwarrior

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Re: Variable and Fixed Annuity - my safety net
« Reply #3 on: August 29, 2019, 06:49:05 AM »
Please understand I am ok if I am 100% finding out there is a better way and being wrong here. I figure I'd ask - I've made my money so far by doing index funds, high savings etc. This is an area where I go back and forth on - as I mention its an itch but "does this make good fiscal sense" is also one

I didn't do a SPIA because I wanted the opportunity to benefit from gains as I won't be using this in anytime immediately and more flexibility. I felt I could cash it out and buy a SPIA if it really performs well (that is an option), or if I sell my rentals (unlikely) buy a SPIA.

I can grow more than the 6% and there are bonus options etc. However my portfolio fees are more than I would accept normally.






Andy R

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Re: Variable and Fixed Annuity - my safety net
« Reply #4 on: August 29, 2019, 08:52:13 AM »
Seems complicated.
Why are there "investment options" ? Does this mean you return is dependent on the investment returns until that point? If this is the case, why not just invest it yourself outside that and then get an SPIA later on when you are ready?

MDM

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Re: Variable and Fixed Annuity - my safety net
« Reply #5 on: August 29, 2019, 10:35:31 AM »
I know the annuity costs me, and I know that everything I've read tells me.... annuity is bad. However this is a bit psychological for me.
Insurance companies play to people's fears, uncertainty, and doubts when selling annuities.  Yes, what you've read about this annuity being bad for you is likely correct.  Period.

See https://www.bogleheads.org/wiki/Category:Annuities for more reading.

Turkey Leg

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Re: Variable and Fixed Annuity - my safety net
« Reply #6 on: August 29, 2019, 10:50:06 AM »
Your best option is to forego annuities. But if you have to have one, make it a SPIA.

There are so many fees with annuities...makes me shudder to even think about getting one. And variable annuities are the worst!

https://www.fisherinvestments.com/en-us/annuities/variable-annuities/understanding

Father Dougal

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Re: Variable and Fixed Annuity - my safety net
« Reply #7 on: August 29, 2019, 11:52:29 AM »
The marketing material is gobbledegook. Never a good sign.

How can an annuity have a variable performance? What does that depend on?

How about your counterparty risk? If the firm goes bust, do you join the line of other creditors or is it protected?

MDM

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Re: Variable and Fixed Annuity - my safety net
« Reply #8 on: August 29, 2019, 01:12:23 PM »
How can an annuity have a variable performance? What does that depend on?
The performance is during the accumulation phase, not after payments from the insurance company to the annuitant begin.

Depends on the specific policy, but the S&P 500 index is a common starting point.  Note "index" not "total return including dividends."  That's just the first reduction in what the annuity will credit you during the accumulation phase.

Then there are things such as "participation rates," "caps," "fees," etc. that reduce the annual return one would get from an actual S&P 500 index fund in good years so much that the "without risk of losing money" in bad years usually isn't even close to sufficient compensation.