I just used that to keep the math simple! There is no way in hell I would be doing this for clients with $100K. Strike that. I don't think most clients would understand it enough to even present it to them. I wasn't trying to knock FIAs as a valid solution when suitable. My apologies if I gave that impression.
I'd much rather have a situation where I know exactly what my surrender charge is on day 1 versus any other option where I have to hope and pray. I can buy real estate, bonds, stocks, classic cars, comic books, small businesses, etc and never know exactly what the cost is going to be to sell them. On the FIA I know what the surrender charge is on a sliding, disapearing scale when I sign the paperwork.
But just a I'm a simple man with simple ideas.
Many smart people (probably smarter or at least more experienced than all of us) have gone broke and caused clients to go broke dealing with corporate bonds. More risk = higher interest rates. Of course you can make more money using them, but it's for people with a higher risk tolerance than annuity buyers. Youcan lose EVERYTHING, whereas with an annuity, you can't.
Is there really anything wrong with a 45 year old buying a deferred annuity with an income rider and 7% rollup for 20 years on the income side? Sounds like a personalized pension to me.
Is there really anything wrong with a 45 year old buying a deferred annuity with an income rider and 7% rollup for 20 years on the income side? Sounds like a personalized pension to me.
- 10,806
Considering the majority of 401k holders average around 4%-5% I would say there is nothing wrong with it at all.
On top of that most of the big brokerage houses are coming out with research showing expectations of a 5%-6% market over the next 10 years....
Guaranteed accumulation above what the average investor receives, and a guaranteed lifetime income at or above the payout % most brokers/advisors recommend...
Na... thats not a good deal for a pre-retiree at all...
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What part of TREASURY did you miss?
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Cite one of those statistics.
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Read the first page. Here's the quote to make it quicker for you:
"That makes it even worse!
You know you can get 5-6% in investment grade corp bonds right now with maturity ranges from 8-25 years and your not locked into a sub-par contract.
I guess you got to generate income somehow. "
That's what started the discussion.
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Found this on page 5 and I'm guessing you thought this is what I was responding to. Even though I wasn't, I will respond to what you're saying. It actually IS not as safe. In my state we have a guarantee fund that protects $300,000 of annuity money. Even though you can argue that the treasuries are "defaultless", you CAN'T say that about the 15% you're putting in equities. There's also a VERY small chance that you would end up with the GUARANTEED lifetime income that the annuity would generate vs. what you're proposing.
I can't see how you can honestly see that the risk/reward is better in the scenario you're presenting to us. It's arguably more risky with most likely less retirement income.
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Call some annuity providers and ask about the longest term annuities they have. Find one you can add a income rider too.
For example The North American 12 Plus product.
You can add a 6% lifetime income rider to that account.
6% compounded every year imho is a very good option
with all the additional benefits of a annuity.
Rule of 72-means your money would double every
12 years @ 6%.
Granted this has to be taken as a income but when
cd rates are less than 1% and the market may return
negatively...
I don't think its a bad option for a PORTION
of your retirement savings plan.
At 45 you should probably have 1/2 of your assets or more
in the market since you have time to make up losses.
I would look for mutual funds that do well in good and bad times such as ones that invest heavily in tobacco, entertainment, alcohol companies etc.. These types
of companies do very well in down economies. I would
look for no more than 10% invested in any one industry
and no more than 5% in any one company.
You could also diversify a portion of your portfolio into
gold, silver etc as a hedge against inflation. I think
gold is overvalued but will continue to be strong for
a while. I am not making any recommendations just giving
you some knowledge.
I would say if you are Dollar Cost Averaging then then
market is a great place to be right now.
For example...
If you buy $100 worth of a mutual fund every month and
month one that fund is trading @ $10 per share you get 10 shares. Let's say the next month it takes a HUGE dive and
goes down to $2 per share and you put in $100. You now get
50 shares. The next month it comes back to $5 per share you
put $100 in and get 20 shares.
Let's pretend it is time to sell.
You have 80 shares worth $5 each or $400 you put out $300
so you made money even though the shares have went down since you bought them. This is a extreme example but dollar
cost averaging is exactly what you do when you have a 401k
that you contribute to every month.
You could get a roth IRA and max it out then roll your 401k
over. Part into a fixed indexed annuity and part into a traditional Ira with some really good funds in it.
Find funds that are rated high by morningstar 4 or 5
star funds WITH GOOD MANAGERS. This is key. A fund
will do great for a while then they fire the manager or
he moves on and hire some bozo to run it and he ruins
the fund.
I was securities lisc. for many years.
I am not making any investment recommendations here again.
I am just sharing some information.
For example The North American 12 Plus product.
You can add a 6% lifetime income rider to that account.
6% compounded every year imho is a very good option
with all the additional benefits of a annuity.
Rule of 72-means your money would double every
12 years @ 6%.
Granted this has to be taken as a income but when
cd rates are less than 1% and the market may return
negatively...
I don't think its a bad option for a PORTION
of your retirement savings plan.
At 45 you should probably have 1/2 of your assets or more
in the market since you have time to make up losses.
I would look for mutual funds that do well in good and bad times such as ones that invest heavily in tobacco, entertainment, alcohol companies etc.. These types
of companies do very well in down economies. I would
look for no more than 10% invested in any one industry
and no more than 5% in any one company.
You could also diversify a portion of your portfolio into
gold, silver etc as a hedge against inflation. I think
gold is overvalued but will continue to be strong for
a while. I am not making any recommendations just giving
you some knowledge.
I would say if you are Dollar Cost Averaging then then
market is a great place to be right now.
For example...
If you buy $100 worth of a mutual fund every month and
month one that fund is trading @ $10 per share you get 10 shares. Let's say the next month it takes a HUGE dive and
goes down to $2 per share and you put in $100. You now get
50 shares. The next month it comes back to $5 per share you
put $100 in and get 20 shares.
Let's pretend it is time to sell.
You have 80 shares worth $5 each or $400 you put out $300
so you made money even though the shares have went down since you bought them. This is a extreme example but dollar
cost averaging is exactly what you do when you have a 401k
that you contribute to every month.
You could get a roth IRA and max it out then roll your 401k
over. Part into a fixed indexed annuity and part into a traditional Ira with some really good funds in it.
Find funds that are rated high by morningstar 4 or 5
star funds WITH GOOD MANAGERS. This is key. A fund
will do great for a while then they fire the manager or
he moves on and hire some bozo to run it and he ruins
the fund.
I was securities lisc. for many years.
I am not making any investment recommendations here again.
I am just sharing some information.
Sorry about that, I thought you were directing the corporate comment at me.
As for "defaultless" portion in equities (which should actually be in call options, not equities, to replicate a FIA), it doesn't matter what that portion does.
A FIA offers you interest when the market is up, and nothing when the market is down. So would my strategy. If the market goes nowhere, you get exactly back what you would in the FIA. If the market goes up, you get "interest."
Income riders are a bit more complex to hedge than just a straight FIA (whether you're talking about a variable or an indexed annuity).
Like I said, I wasn't arguing against FIAs, just peeling back the curtain on the strategy they are using, which you "could" do yourself and end up better off.
One aspect of income riders is the idea of pooled risk, which an individual cannot replicate.
- 10,806
I dont think I need to cite anything about recommended withdrawal rate... our industry has had the 4%-5% standard for a while.
Last year the DOL/EBSA (who regulates ERISA plans) stated that by their research (they receive the yearly vitals for every 401k in the nation through 5500 filings), the average annual return for 401Ks from 98'-07' was around 5.4%.
http://www.benefitspro.com/2011/07/27/congress-to-borzi-repropose-fiduciary-rule?page=2
There is lots more research to back up that claim.
Quantitative Analysis of Investor Returns is a well known study that is updated every year or two, you should check it out.
As far as projected returns over the next decade, there is plenty out there. Here is one from Vanguard.
https://institutional.vanguard.com/iam/pdf/ICRLYVE.pdf?cbdForceDomain=true
I am not saying everyone will get those returns, or that they shouldnt be in the market. But people certainly need to reevaluate how their portfolio is positioned, especially in light of this economy.
10 years ago someone with a 2% CD would have more $ than someone who invested in the S&P 500... a 3% capped IA would be around the same as the CD...
IAs are not the end all cure all, but they certainly have very distinct advantages that most main street investors can relate to. More importantly, they often do what retirement investors need done.
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To an extent, but withdrawal rates are fairly standardized throughout the industry.
Sure, there are some lower and some higher; but you can figure 4%ish when in your 60s.
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