Annuity or guaranteed income for life: Which would you rather buy?

[Lawsonhj1]

I am having flash backs to the 80's as I had a one year retail stint selling mattress in my younger days with two different "firms". The ad would hit Wednesday's and Saturday's and I would always ask if " Are you looking for a firm mattress with a soft feel or a soft mattress that feels firm?" Either way I was leading them to the "Heritage" life time warranty model.

Maybe the survey needs to be an ad because bait is bait.

 

[scagnt83]

I am having flash backs to the 80's as I had a one year retail stint selling mattress in my younger days with two different "firms". The ad would hit Wednesday's and Saturday's and I would always ask if " Are you looking for a firm mattress with a soft feel or a soft mattress that feels firm?" Either way I was leading them to the "Heritage" life time warranty model.

Maybe the survey needs to be an ad because bait is bait.

You missed the point. People want what an annuity does... but they claim they dont want an annuity. Meaning they dont understand what annuities actually do.

Asking "do you want guaranteed income for life" is not baiting them. Its explaining in common terms how an annuity can benefit them.

You dont sell the product, you sell what the product does and how it benefits the client.

 

[Lawsonhj1]

I'm kind a of slow.

 

[LostDollar]

Both products pay terrible commissions vs. other products so I doubt money was the motivator.

Money (getting mine) was the entire motivator.

At the third visit I finally discovered his "real" fees for money under management were 1.5%.

He did stuff like this so he could talk about how his (average) fees were 1%. (ds4 and vic would have found me at my annoying best before I finally got the "real" fees and the "average" fees worked out.)

 

[LostDollar]

You should really stop googling definitions to learn about insurance/annuity planning.

I was just verifying that the definition of the word annuity meant periodic payments and also discovered that it is based on a Latin root and has been in use in English for over 300 years.

I was not googling and presenting the adjectives applied to the word annuity or the mathematics and financial procedures relating to how an annuity might be computed.

 

[Tahoe Ray]

I was just verifying that the definition of the word annuity meant periodic payments and also discovered that it is based on a Latin root and has been in use in English for over 300 years.

Words can have different meanings and intentions over time.

Look up the word "liberal" (as it relates to economics and politics) and see how that has changed its meaning over time.

Your definition may be technically correct, and even deferred annuities allow for "annuitization" so that you can receive lifetime income, but the uses of an annuity are too varied to be so simplistic.

I wasn't trying to be offensive but realize that this forum is heavily read by both consumers and agents so posting such a narrow definition of what is a broad product set doesn't do anyone much good.

 

[LostDollar]

So I buy an old house. I go dig in the garden. I find $12,000 in cash in buried mason jars. Oceanview and Oxford appear to be out, but assuming I can find an MYGA that will let me put in $12K, what is the difference between buying an MYGA or going over to Equiniti and buying $12K worth of natural gas utility stocks, leaving the money in a dividend reinvestment program?

It looks to me like those are both investment schemes.

 

[scagnt83]

So I buy an old house. I go dig in the garden. I find $12,000 in cash in buried mason jars. Oceanview and Oxford appear to be out, but assuming I can find an MYGA that will let me put in $12K, what is the difference between buying an MYGA or going over to Equiniti and buying $12K worth of natural gas utility stocks, leaving the money in a dividend reinvestment program?

It looks to me like those are both investment schemes.

The two investment options carry substantially different levels of risk to your investment.

A MYGA guarantees a specific rate of return over a specific number of years. Guaranteed. It is a zero risk investment.

With stocks, even with dividends, you have no guaranteed return. You could lose 50% of your principal investment. Dividends are also not guaranteed. They have the right (as many did in the 08/09 crash) to suspend dividends or slash dividend payments.


So you are comparing a completely guaranteed investment. To a completely non-guaranteed investment that can go up, down, sideways, or suspend dividends at will. Its like comparing night vs. day on a risk scale.

(edit: I am referring to Common Stock, not Preferred Shares of a Company. Most discussions surrounding dividend investing assume Common Stock, since Preferred Stock is not liquid like Common Stock and structured similar to a bond in many ways.)

 

[LostDollar]

The two investment options carry substantially different levels of risk to your investment.

A MYGA guarantees a specific rate of return over a specific number of years. Guaranteed. It is a zero risk investment.

With stocks, even with dividends, you have no guaranteed return. You could lose 50% of your principal investment. Dividends are also not guaranteed. They have the right (as many did in the 08/09 crash) to suspend dividends or slash dividend payments.


So you are comparing a completely guaranteed investment. To a completely non-guaranteed investment that can go up, down, sideways, or suspend dividends at will. Its like comparing night vs. day on a risk scale.

(edit: I am referring to Common Stock, not Preferred Shares of a Company. Most discussions surrounding dividend investing assume Common Stock, since Preferred Stock is not liquid like Common Stock and structured similar to a bond in many ways.)

Thanks for the comments. Useful perspective.

(I'll take the spirit of the post and not argue about specific stocks. )

Another question that comes to mind as I am trying to understand all this stuff, what is the difference between an MYGA and a deferred annuity?

They seem to me like the same thing, except the MYGA separates the investment activity and the "retirement payout back to me" activity into two separate portions of the annuity purchase.
(which could lead to another question, Do people do their MYGA "investing" with one insurance company, and their MYGA "annuitization" with another insurance company?)

 

[Tahoe Ray]

They seem to me like the same thing, except the MYGA separates the investment activity and the "retirement payout back to me" activity into two separate portions of the annuity purchase.
(which could lead to another question, Do people do their MYGA "investing" with one insurance company, and their MYGA "annuitization" with another insurance company?)

All MYGAs are deferred annuities but not all deferred annuities are MYGAs.

A deferred annuity can come in many forms (fixed, indexed, fixed MYGA, deferred income annuity, etc.) the main differences being what type of crediting is offered and how much of that crediting is guaranteed.

A MYGA will guarantee the rate (like a CD) until you are out of the surrender period. If you decide that you need income, you can always "annuitize" a MYGA and receive a lifetime income.

Often, when people need income, they'll shop for the best option so if they were deferring and now need income, it's not uncommon to exchange their MYGA from one carrier for an income-producing instrument from another carrier.

And to add to the confusion, you don't always need to "annuitize" in order to receive lifetime income. Some fixed and indexed annuities offer riders that mimic annuitization (in some ways) and will provide lifetime income without sacrificing your principal.

Most planners/agents will work backward rather than explain all of this. They'll analyze what you need, what you're trying to do, assess pros and cons, and then give you a recommendation (and maybe a secondary option).

That way, the consumer doesn't have to learn an entire industry in 2-3 meetings. They get a custom-built strategy designed just for them.