Risk? There is no more risk of losing money in a 7 year annuity than a 14 year annuity. Everyone went in knowing the surrender penalies, to argue otherwise is non-sensical. Surrender penalties aren't a risk, they are design feature.
Agent Arrested and Convicted for Selling an Annuity.
- Thread starter Crabcake Johnny
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Risk? There is no more risk of losing money in a 7 year annuity than a 14 year annuity. Everyone went in knowing the surrender penalies, to argue otherwise is non-sensical. Surrender penalties aren't a risk, they are design feature.
- 15,041
Yes, they are a design feature, but they also represent a risk. The risk isn't losing your money. Yes, 14 years versus 7 years is 7 more years in which the company could go under. That is a non-issue to me. If that is something that concerns you, you shouldn't buy any annuity from that company.
The real risk is opportunity cost. That is 7 more years where you don't have access to your money. 7 years in which an unexpected bill or investment opportunity may present itself. 7 years in which interest rates could rise and present better annuity options. 7 years in which new product designs may emerge.
If you need help understanding this, look at Treasuries. Despite the recent showdown in Congress, US Treasuries are treated as having no risk of default. It is as good as it gets. Yet the longer the term, the higher the interest rate. And it is for the very same reason. When you agree to give the government your money for a longer period of time, you demand a higher rate to compensate for it.
If 10 years and 30 years were at the same coupon rate, no one would buy a 30 year Treasury. It is the same with annuities. If a company offered a 7 year and a 14 year product with the same caps and all other features, no one would buy the 14 year product. It does not make sense to lock up your money for a longer period of time without getting a higher return for it.
Volagent - you're making no sense. None. First a 14 year is bad then you suggest possibly getting another annuity when the first surrender period ends and HOPE rates are better. In fact so much better that it makes up for the shortcomings of the first lower cap rate policy you sold them. Hope as a strategy is silly.
Yes longer term rates/annuities will get you better caps. Welcome to the discussion.
You hopefully have read this thread so you know we're on the assumption that liquidity is fine.
Regardless, if at that age you think the client will need to have access to it then don't put it in an annuity. If they're fine and you do, it should be for income, growth and legacy. Very simple.
Lowering the bar for your clients account values and expectations isn't maximizing their "bang for the buck"
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Bobson had it right...
Yes longer term rates/annuities will get you better caps. Welcome to the discussion.
You hopefully have read this thread so you know we're on the assumption that liquidity is fine.
Regardless, if at that age you think the client will need to have access to it then don't put it in an annuity. If they're fine and you do, it should be for income, growth and legacy. Very simple.
Lowering the bar for your clients account values and expectations isn't maximizing their "bang for the buck"
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Bobson had it right...
- 15,041
Who said anything about hope? Please do not try to simplify it because you are having trouble understanding this.
But since this is problematic for you, I will try to make it easier to understand.
A longer period without access to your money is a higher risk and requires a higher return to compensate. That is why a 14 year annuity has to have higher caps or rates than a 7 year annuity. If the 14 year annuity fits your needs and you are ok with the longer surrender, go for it. You have the option for a higher return. But don't pretend that the risks are the same, they aren't.
- 15,041
Obviously you don't, so try this.
Call up your wholesaler at your favorite annuity company and ask why the caps are higher on their longer term products than their lower term products?
If everything else is equal, why wouldn't they have the caps the same?
They are tying up your money for a longer period and have to offer high caps to compensate. Of course, by having the money for longer, they can buy longer bonds with higher rates and are better able to offer the higher caps.
You solved the great mystery of annuities. I'll run out and share it with the financial community immediately! Of course "Captain Obvious", going longer has a benefit of a better rate. The point of this discussion at least with the South Carolina guy was that he believes a long-term annuity is unsuitable for anyone in their 70s or 80s and in fact is I was told even for a 65-year-old. He in fact suggested short and long term products provide very similar upside potential. Don't worry yourself on getting the facts about the discussion though. It's just a bunch of words and somebody would have to read it to you anyway. Your "revelation" is almost like your input in this conversation which is, irrelevant. At least scagnt38 followed the discussion and made some sense.
- 15,041
If you were capable of grasping basic concepts, I wouldn't need to be so obvious.
You argue that there is no downside to longer term annuities, particularly for seniors. When it gets pointed out that yes, there are downsides you decide to backpedal.
You argue that there is no downside to longer term annuities, particularly for seniors. When it gets pointed out that yes, there are downsides you decide to backpedal.
"There is no more risk of losing money in a 7 year annuity than a 14 year annuity."
When he wrote this he was correct. If you can explain how (if once again liquidity is fine) the 7 year can "lose" less or the "14" year can lose more on a full account value at death annuity for an 80 year old who isn't needing the money then please enlighten me. I'm honestly curious.
And please, refrain from:
"The carrier could go out of business"
Or
"What if the client needs cash? (That for the millionth time is assumed fine)"
Or
"You might be able to earn more here or there"
Specifically, how is there more risk of LOSING money???
Please, please be specific.
When he wrote this he was correct. If you can explain how (if once again liquidity is fine) the 7 year can "lose" less or the "14" year can lose more on a full account value at death annuity for an 80 year old who isn't needing the money then please enlighten me. I'm honestly curious.
And please, refrain from:
"The carrier could go out of business"
Or
"What if the client needs cash? (That for the millionth time is assumed fine)"
Or
"You might be able to earn more here or there"
Specifically, how is there more risk of LOSING money???
Please, please be specific.
There are downsides to everything. Donwsides to buying a house. Downsides to taking a vacation to the Bahamas. Downsides to WINNING the lottery. Downsides to buying car insurance. Downsides to posting on this board. Downsides to the ACA. Downsides to CDs. Downsides to 7 year surrender charges. Downsides to liquidty. Downsides to 14 year surrender charges. Anybody that doesn't acknowledge that shouldn't be in any business.
But we were talking about risk.
