Annuities that Are Most Liquid

[Drifting]

If I recall, you're pretty young (40s?)...you have time to make up losses.

Again, what loses are you talking about? The chart that I found speaks for itself. WHAT LOSES??? In your 40's you would have more exposure to stocks (VOO).

First off, it is unlikely that a 67yo farmer is going to "DIY" so your fee argument is not relevant. A Financial Advisor is likely going to charge upwards of 1% to manage the portfolio that you're proposing.

That's a false choice. I agree that paying 1% to an adviser would be a waste of money. ANYBODY can buy, hold and rebalance. No need to pay some adviser 1% per year to buy, hold and rebalance.

Second, it is about the present, not the future. If he could need the money quickly, the stock/bond market is the last place (outside of a REIT or something totally illiquid) that he would want to have it. In 1994, if this farmer needed the money that year, he would have lost almost 30k with your strategy. I guess that you can call that liquidity, but that is not a fun conversation with the client.

Lost 30K? There are no surrender penalties with ETF's. Sell at any time for any reason for $10.

We're trying to beat the bank with some liquidity. It may have been posted here before but for a lot of people in their late 60s and 70s, they seem to want to follow Warren Buffets two rules of investing:
Rule #1: Never lose money

ETF's beat the bank (easily) and have liquidity. Again age appropriate diversification into bonds will protect 500K easily.

 

[Tahoe Ray]

That's a false choice. I agree that paying 1% to an adviser would be a waste of money. ANYBODY can buy, hold and rebalance. No need to pay some adviser 1% per year to buy, hold and rebalance.

I'm not saying that he can't do it, just that it is unlikely that he will.

Lost 30K? There are no surrender penalties with ETF's. Sell at any time for any reason for $10.

Not surrender penalties, LOSSES. The chart that you posted showed a -5.7% return (loss) in 1994. That is REAL MONEY that if the client needed it, would be gone.

You're being very logical, which is fine, and I don't necessarily disagree with your strategy for the right individual (one with a longer time horizon/tolerance for potential losses). My point is that this client is not likely to take much risk. There is a reason that he is at the bank...

 

[scagnt83]

But what is that guarantee protecting you from??? Show this farmer the "risk" that investors have taken over the last 85 years with a simple bond heavy portfolio and let HIM decide.

So exactly which ETFs are in that chart? Because that is a single example... an example that UNDER-PERFORMED some IAs during that same time period. It also does not include withdrawals, which would really put the IAs I am speaking of ahead of that portfolio.

Also, the website you got that chart from is riddled with total lies about Annuities. There is no annuity in the USA from an A rated company (or B rated) that pays a 20% commission, or a trail commission of 4%!!

The average IA comp is around 5%-6%. The average Fixed Annuity comp is around 2%-3%. The average VA comp is around 5%-6%. And that is all without trail comp. If you choose trail comp it is a good bit lower.


It is also important to point out that those returns are gross advisor fees. Yes you can DIY it... but without sound financial guidance you end up in messes like you did when you tried to DIY your annuity over to Vanguard... (I think you were the 72t guy right?)


A heavy bond portfolio can work out great for a portion of a persons assets. But it is hardly the end all be all. There is still significant market risk, especially since bond fund returns can vary greatly depending on the fund chosen.

Also, if you throw 4% retirement income withdrawals in there it really throws your numbers off and the IA comes out even more ahead.

That portfolio is designed for someone who is near or in retirement.... so not including withdrawals makes the chart completely off for a real life situation. And not using a professional advisor when you are dealing with the tax issues that come along with qualified money (which most people use for retirement income) is not a smart thing. I have been in business long enough to see many disasters from people who tried to DIY their retirement income and just did not know what they did not know.

What I find ironic is that not only did you get into a mess by not using an advisor, but you are now taking advice about your retirement savings from a site that rips on both financial advisors and annuities... but has a large disclaimer at the top stating:

Nothing on this public service website shall constitute personalized tax, legal or investing advice, including but not limited to strategies or advice to buy, hold or sell securities. Always hire and consult with the appropriate professional before making any such decisions. The accuracy and completeness of information presented on this site cannot be guaranteed.

So the site itself contradicts its own advice in the legal disclaimer.... and it is a good thing they have that disclaimer because after 2 minutes on that site I could fill a whole page with statements it made that are just flat out wrong (not just about annuities but about bonds and ETFs too).

Of course you get what you pay for in life...

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That's a false choice. I agree that paying 1% to an adviser would be a waste of money. ANYBODY can buy, hold and rebalance. No need to pay some adviser 1% per year to buy, hold and rebalance.

A good advisor does more than just reallocate funds. So the 1% fee is not always a waste. I do not charge fees and have saved some clients tens of thousands in tax penalties that they would have incurred had they not spoke to me about their current situation or what they were "planning" to do with qualified funds.

Also, anyone who works with the general public on a daily basis with their investments knows that VERY FEW have the knowledge or even want to have the knowledge to appropriately allocate their portfolio. If you worked with the general public like we do you would know how wrong that statement is... its great if you can, and I know plenty of others who can as well... but for 90% of the general public they are clueless and do not have the time or energy (or for some intelligence) to do what you claim ANYONE can do.

 

[Drifting]

Not surrender penalties, LOSSES. The chart that you posted showed a -5.7% return (loss) in 1994. That is REAL MONEY that if the client needed it, would be gone.

Yes. 5.7% in JUST ONE year. An annuity is a LONG-TERM financial product. We are comparing apples to apples. Long term to long term. 5.7% in one year is HARDLY going to "devastate" a portfolio. What happened the year before? UP 13.5%. What happened the year afterwards? UP 26.9%. If you take money out of an annuity after 1 year you're going to lose much more than 5.7%.

 

[Tahoe Ray]

Yes. 5.7% in JUST ONE year. An annuity is a LONG-TERM financial product. We are comparing apples to apples. Long term to long term. 5.7% in one year is HARDLY going to "devastate" a portfolio. What happened the year before? UP 13.5%. What happened the year afterwards? UP 26.9%. If you take money out of an annuity after 1 year you're going to lose much more than 5.7%.

As I said in previous posts...MYGAs are as short as three years. And even that might be too long for this person.

And no you won't lose much more than 5.7% taking it out of the annuity....that is what an ROP rider is for...

Your only experience seems to be with variable products which is not what any of us are talking about.

 

[Drifting]

Yes. 5.7% in JUST ONE year. An annuity is a LONG-TERM financial product. We are comparing apples to apples. Long term to long term. 5.7% in one year is HARDLY going to "devastate" a portfolio. What happened the year before? UP 13.5%. What happened the year afterwards? UP 26.9%. If you take money out of an annuity after 1 year you're going to lose much more than 5.7%.

Scgagnt83, I found this site Historical Returns and checked some of the numbers. They matched my calculations.
Liquidity risk seems to be much greater than the risk of running out of money even while taking out money in retirement each year.
I own an annuity. Worst mistake of my life. I wish that I had gone to a real adviser instead of an insurance salesman who was pretending to be an adviser. I hope this farmer does the same.

Tahoe Ray, my experience is ALSO with normal ETF's. Low cost, 100% liquid and cheap. With diversification there is an option for all ages including retirees. The older they are the more exposure to bonds. Bonds are slow and consistent.

 

[jmhalvo]

Scgagnt83, I found this site Historical Returns and checked some of the numbers. They matched my calculations. Liquidity risk seems to be much greater than the risk of running out of money even while taking out money in retirement each year. I own an annuity. Worst mistake of my life. I wish that I had gone to a real adviser instead of an insurance salesman who was pretending to be an adviser. I hope this farmer does the same. Tahoe Ray, my experience is ALSO with normal ETF's. Low cost, 100% liquid and cheap. With diversification there is an option for all ages including retirees. The older they are the more exposure to bonds. Bonds are slow and consistent.

this is so stupid... I am series 7 CFP etc etc so much exp with this....apples and oranges, totally.

 

[Drifting]

this is so stupid... I am series 7 CFP etc etc so much exp with this....apples and oranges, totally.

A farmer is concerned about liquidity and has 500K in the bank. You think it's "stupid" to educate him on how a LIQUID bond / stock portfolio would have done over the last 80 years so that he can make an informed decision as to where HE thinks he should put his money. We will very much agree to disagree.

 

[Norwayguy]

A farmer is concerned about liquidity and has 500K in the bank. You think it's "stupid" to educate him on how a LIQUID bond / stock portfolio would have done over the last 80 years so that he can make an informed decision as to where HE thinks he should put his money. We will very much agree to disagree.

First your using your risk tolerance in place of this farmers. Neither one of us have met him but I would bet a 67 year old farmer has heard of the market, probably has some experience in the commodity market. I have dealt real world with these people one of the first words out of most of their mouths was I don't want to lose money or does this involve the market? Historical returns are all well and good but there is a reality that many investors personal returns never come close to getting the returns touted because not everyone can stomach buy and hold when its their money losing value and would be more likely to sell instead of buying at market lows.

Reality is neither one of us is ever going to actually speak with this farmer.

 

[jmarkk1]

I appreciate the discussions back and forth but some are off topic. I'm not interested in whether or not someone has been duped into an annuity. (We all know this can happen)
I'm just looking for ways to present possible solutions to this clients' risk: risk of long term care event and the risk of earning next to nothing at bank.
The trade off is liquidity for ignoring these risks.