I've saved money all my life and now that I've retired I'm thinking of going for an immediate VA. Any suggestion?
Total Comments: 14
Posted: Mon Feb 01, 2010 09:39 pm Post Subject:
That's a pretty broad question without knowing any specific details...annuities are not a one-size-fits-all product.
Posted: Mon Feb 01, 2010 10:30 pm Post Subject:
I think the core of your questions is should you place your money in a SPIA (single premium immediate annuity) forget the variable part of a second and lets focus on the concept of annuitization. Essentially, the insurance company is going to the mortality table and making a guess on how many years you have left. Then they offer up an interest rate they are willing to pay you during this period. This interest rate is effected by current market interest rates.
It could make sense, but I'd be hesitant to suggest it makes sense for all of your money. There's a process called laddering, which--decribed in 10 seconds or less--is essentially a process of placing money into a different annuity each year or each subsequent amount of time you choose. The idea behind it is you're getting different interest rates and different payouts due to the fact that your aging.
If you had a permanent life policy in force I'd say annuitize the portion of your savings that is backed by your death benefit since that will recover any losses if you die sooner than you hoped/thought/etc. There are a few additional considerations here so of course you should sit down with an advisor and have a conversation about this.
With respect to annuitizing a variable annuity, it's rarely done. A handful of variable annuities now offer riders that allow you to generate an income stream from the annuity without annuitizing the annuity, and will continue to offer the yealy income even if the market crashes and your account values drops to zero.
Usually this is a question asked by someone who is worried about stability of income, and/or outliving assets saved. Elaborate for us what your thinking is, and we can try and help you make this decision.
Posted: Mon Feb 01, 2010 10:35 pm Post Subject:
I think SPIA rates right now are basically paying nothing, might as well keep it in your pocket if you want to go that route...
Posted: Mon Feb 01, 2010 10:37 pm Post Subject:
Annuitizing a variable annuity is very different than purchasing a single premium variable immediate annuity.
Posted: Mon Feb 01, 2010 10:39 pm Post Subject:
Carefull here...
Even thought interest rates are down, the yield curves for both U.S. treasury and Libor have spreads that are breaking records. The assumption of course is much higher interest rates in the future, though they still remain rather low when compared to several years ago.
Several companies offering SPIAs have changed their interest rates for this reason. Ultimately, it's not a strategy I'm in love with, especially from a put it all in strategy. But it can bridge a gap quite well.
Posted: Tue Feb 02, 2010 07:25 am Post Subject:
Do you mean that I should annuitize a portion of my savings that's proportional to my death benefit? What would be the other things that I'd need to consider in this regard?
Posted: Tue Feb 02, 2010 02:36 pm Post Subject:
There's tons, it's hard to throw out all the possibilities, it's more appropriate to have a fact pattern and fill in the blanks.
It takes people like us years to learn all the strategies that are available to you, trying to learn them all by reading a forum and then figuring out which one is best is a fool's errand.
Posted: Wed Feb 03, 2010 07:21 am Post Subject:
Yes, with variable annuities the payments may vary due to your investment performance. Some of the investors are more interested in immediate VAs than the immediate fixed annuities.
This happens since the immediate FAs would offer a fixed worth of cash each month. Returns from your immediate VAs may be more profitable and they'd also beat the inflation cost. This benefit is not there with the FAs.
Posted: Thu Feb 04, 2010 07:51 am Post Subject:
Usually the immediate VA investors are people who're nearing their retirement age and have a lot of money. It's time that they'd look for some consistent source of income. At the same time they may also look for some extra returns through stock market investments.
Posted: Fri Feb 05, 2010 05:52 am Post Subject:
The most significant benefits associated with immediate VAs are income guaranty, stock market returns and the death benefit. More you'd choose guaranteed benefits, more you'd need to pay for them. The cost of immediate VAs may differ from one company to another and as per advisers it's a good option for you only when you're nearing the retirement age.
Posted: Mon Feb 01, 2010 09:39 pm Post Subject:
That's a pretty broad question without knowing any specific details...annuities are not a one-size-fits-all product.
Posted: Mon Feb 01, 2010 10:30 pm Post Subject:
I think the core of your questions is should you place your money in a SPIA (single premium immediate annuity) forget the variable part of a second and lets focus on the concept of annuitization. Essentially, the insurance company is going to the mortality table and making a guess on how many years you have left. Then they offer up an interest rate they are willing to pay you during this period. This interest rate is effected by current market interest rates.
It could make sense, but I'd be hesitant to suggest it makes sense for all of your money. There's a process called laddering, which--decribed in 10 seconds or less--is essentially a process of placing money into a different annuity each year or each subsequent amount of time you choose. The idea behind it is you're getting different interest rates and different payouts due to the fact that your aging.
If you had a permanent life policy in force I'd say annuitize the portion of your savings that is backed by your death benefit since that will recover any losses if you die sooner than you hoped/thought/etc. There are a few additional considerations here so of course you should sit down with an advisor and have a conversation about this.
With respect to annuitizing a variable annuity, it's rarely done. A handful of variable annuities now offer riders that allow you to generate an income stream from the annuity without annuitizing the annuity, and will continue to offer the yealy income even if the market crashes and your account values drops to zero.
Usually this is a question asked by someone who is worried about stability of income, and/or outliving assets saved. Elaborate for us what your thinking is, and we can try and help you make this decision.
Posted: Mon Feb 01, 2010 10:35 pm Post Subject:
I think SPIA rates right now are basically paying nothing, might as well keep it in your pocket if you want to go that route...
Posted: Mon Feb 01, 2010 10:37 pm Post Subject:
Annuitizing a variable annuity is very different than purchasing a single premium variable immediate annuity.
Posted: Mon Feb 01, 2010 10:39 pm Post Subject:
Carefull here...
Even thought interest rates are down, the yield curves for both U.S. treasury and Libor have spreads that are breaking records. The assumption of course is much higher interest rates in the future, though they still remain rather low when compared to several years ago.
Several companies offering SPIAs have changed their interest rates for this reason. Ultimately, it's not a strategy I'm in love with, especially from a put it all in strategy. But it can bridge a gap quite well.
Posted: Tue Feb 02, 2010 07:25 am Post Subject:
Do you mean that I should annuitize a portion of my savings that's proportional to my death benefit? What would be the other things that I'd need to consider in this regard?
Posted: Tue Feb 02, 2010 02:36 pm Post Subject:
There's tons, it's hard to throw out all the possibilities, it's more appropriate to have a fact pattern and fill in the blanks.
It takes people like us years to learn all the strategies that are available to you, trying to learn them all by reading a forum and then figuring out which one is best is a fool's errand.
Posted: Wed Feb 03, 2010 07:21 am Post Subject:
Yes, with variable annuities the payments may vary due to your investment performance. Some of the investors are more interested in immediate VAs than the immediate fixed annuities.
This happens since the immediate FAs would offer a fixed worth of cash each month. Returns from your immediate VAs may be more profitable and they'd also beat the inflation cost. This benefit is not there with the FAs.
Posted: Thu Feb 04, 2010 07:51 am Post Subject:
Usually the immediate VA investors are people who're nearing their retirement age and have a lot of money. It's time that they'd look for some consistent source of income. At the same time they may also look for some extra returns through stock market investments.
Posted: Fri Feb 05, 2010 05:52 am Post Subject:
The most significant benefits associated with immediate VAs are income guaranty, stock market returns and the death benefit. More you'd choose guaranteed benefits, more you'd need to pay for them. The cost of immediate VAs may differ from one company to another and as per advisers it's a good option for you only when you're nearing the retirement age.
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