Why do you hate annuities

[dave123]

Ok, I've read a couple of threads that really don't like annuities. I've also gotten advice from friends to avoid annuities. My first thought is that if smarter people than I don't like annuities; well, maybe I should listen.

But I'm a little thick, so I'm going to ask again. Here are my reasons for considering what others say is a bad deal:

I went to eth Charles Schwab income annuity estimator and came up with these numbers:

20 year certain. $160,000 initial investment. According to the estimator, I would receive 1,109 a month for 20 years (a lump sum death benefit may be available) That is their words, I'm assuming it comes with additional fees. That comes to 266,160, which sounds pretty good to me. It seems as if they are betting that I will die in less time, or that their investments will exceed the payout. Ok, cool. I don't care if they get the money if I die . I'm 60 and in good health, so I think the odds are not terrible that I will last 20 years.
Ok, to my weak mind, the only negative here is if the insurance company goes belly up. Schwab has this disclaimer “Insurance Products are not deposits. Are not FDIC insured. Are not insured by any federal govt. agency. Are not guaranteed by the bank or any affiliate of the bank. May lose value.”
Should I care if they lose value as long as I get my 20 years? I have other money/income, so I’m not worried about outliving this money.
I’m not happy with MY perception of where the country is going and the future of the economy, so although historically, the market has out paced this product, I have no PERSONAL belief it will continue. My CD’s getting around 5%, but I don’t think that will hold forever either.

Thanx, and I promise I'm trying to learn, not start a war.

 

[tsptalk]

I look at it like I look at a blackjack table. If the table pays 3-2 for blackjacks and has other liberal rules like on doubling down, I'll probably play. But if blackjack pays 6-5 I know the house edge gets too big and I go elsewhere.

I'm no expert in retirement strategies but I suppose those who don't like annuities just want to move onto another blackjack table where the odds are better.

Good luck, and let us know how it goes for you!

 

[Bullitt]

Annuities get a bad rap mostly because of the fees involved as they're an insurance product. One of the biggest risks in retirement in longevity risk. Having guaranteed income is an excellent way to reduce the risk of running out of money once you surpass average life expectancy.

A second good reason to consider one is it takes the guesswork out of how much you can withdraw to make your money last since it's a constant you can depend on. Withdraw too much too early and problems will happen after 30 years in retirement. Don't withdraw enough and die with a fortune, think of all the opportunities that were left on the table.

Besides the always hidden fees, inflation is another problem with annuities. You often need to buy an extra rider to adjust for inflation which will add to your upfront cost. The insurance company knows that over the course of 20 years the payout won't be as expensive with each passing year if it isn't adjusted for inflation.

 

[dave123]

Thank you for the replies. I'm quite supprized that there are only 2 responses, and neither are negative. I just read this thread:

The Great Annuity Rip-Off (tsptalk.com)

Man, this guy got torn apart for saying annuities are great. I think much of it was because of his tone and that it was obvious that he had an agenda; still it sure seemed like everyone but him thought annuities were terrible.

The biggest thing I hear is fees. Well if the fees are already factored into my payment, then I would consider it a non issue.

I'm getting close to pulling the trigger on one, but would still love some input.

My biggest fear was the insurance company going under, but I found this:

State Guaranty Associations: Protection for Annuity Owners

So it seems that I don't need to worry so much about this scenario. (I live in Florida, which is on the list.)

@Bullitt Good to hear from you again. You and TSPtalk have both given me great advice in the past, thanx I'm looking into the inflation rider possibilites as well.

 

[Bullitt]

I wouldn't worry about the company going under. The state guaranty is reassuring though. TSP uses Met Life as their annuity provider if you go that route.

The fees can be minimized with some shopping around but there's always a cost of doing business. In this case, that cost is what you pay to have the peace of mind knowing you're going to have enough regardless of what the market does.

 

[James48843]

Annuities are a little better now than they were four or five years ago. The returns are better, anyway. That was one drawback a few years ago when interest rates were low. Now annuities are more competitive in payout.

Probably not a bad move as part of an overall plan for retirement income streams.


Sent from my iPhone using TSP Talk Forums

 

[Skorcher]

I noticed that the TSP current interest rate for annuities is 4.95% - the highest in years. I went to TSP.gov to input the info for a $200K annuity, joint life with spouse and increasing payments. The web site does not give me an estimate for the initial payment. I have to select SUBMIT on the review page to find out the payment amount. However it appears that I'm locked in once I select SUBMIT. The site gives this warning:

By selecting Submit on the Review Your Request page at the end of your withdrawal request, you are waiving your right to the applicable 30-day notice periods. If you choose not to waive this right, you will need to choose Cancel on the Review Your Request page. This will cancel your request. However, if you wish to receive a payment at any subsequent time, you will be asked again whether you wish to waive your right to the applicable 30-day notice periods. Please note that your decision to waive your right to the applicable 30-day notice periods does not obligate the Plan to make the payment within 30 days.

What is other people's experience with requesting a TSP annuity?

 

[grammymidge]

I have a question about the TSP Annuities. Does anyone know who calculates the monthly benefit after an annuity is purchased, the TSP or MetLife? I'm getting conflicting information between The TSP annuity info sheets at the TSP website and verbal response from MetLife support. TSP states that MetLife calculates the benefit and MetLife states that TSP calculates the benefits and directs MetLife what to pay. Which is true, MetLife calculates or TSP calculates? Understand I am not asking anything else, i.e., the math that is used to do the calculations. I just want to know who does the calculation. Thank you in advance for any input that is provided.

 

[grammymidge]

Skorcher, there is an TSP Annuity Calculator you can find at TSP Annuity Calculator | The Thrift Savings Plan (TSP). Do not see what the amount would be from the withdrawal area of your account use the calculator at that website.