Opinions on annuities?

[disneysteve]

Another thing to look into is a charitable gift annuity. With that, you make a lump sum donation to a charitable organization. You get a tax deduction for doing so. You then get a monthly check with an interest rate well above regular market rates (the older you are when you make the donation, the higher the rate, which is then fixed for the remainder of your life). Rather than the money going to line some insurance company's pockets, it goes to support the charity. This is how a lot of organizations' endowment funds get funded.

[momula]

Yep this is something I've wondered about for quite sometime.

[jIM_Ohio]

My banking advisor recently told me about annuities as an alternative to my 401k plan. She said annuities are good because they are more secure in the event of big losses (like we had recently) since they are insured unlike 401ks. Can anyone verify this information and generally give your opinion on annuities as a place to put your retirement money?

You received some half truths

401ks are subject to market risk. The reward for losing 40% in one year is the possibility of a 100% increase in another year. This is volatility, it is normal, and its the risk you take when investing in equities.

I did lose 40% in 2008 and I expect to gain around 50-100% this year. Really.

An annuity works like this ("probably"). When you put in a contribution, you lose X% to fees (so a $100 deposit might put $99 or $98 into account). For that fee, you are allowing company to say "you will never lose money" and give you the higher of market returns, capped at y% (such as 9%) or z% (fixed at 2% maybe).

So if market goes up 7%, you get 7%
if market goes up 11%, you get 9% (because that was cap the annuity set for maximum gains)
if market goes up 3% you get 3%
if market goes down 1%, you get 2% (because this was the minimum return the annuity was set at).

Every annuity is different, you need someone to explain the fine print to you.

You need to know:
capped increase
minimum guaranteed return
fees

[grand_canyon]

These products are usually real stinkers. They're sold to people of all ages as a "you'll retire with guaranteed income and if the value drops and you pass your heirs will get the full value".

The problem is the cost of insurance on giving your heirs full value is extremely high. Typically, the cost is 0.9% so on say a 100k annuity you're paying 900 bucks a year and the most you can ever gain is 100K. Usually, you can buy a much larger term life policy for the 900 bucks a year.

The pay for life is a joke as the payout it so low the life insurance company will never lose. I calculated one out before and you'd have to be 113 before you'd come out ahead. BTW, if you annuitize and die, the life insurance company keeps your principal. If you set it up to pay out for certain amount time after your death, you heirs still won't get the full amount of principal which BTW decrease the monthly payout to you. I guarantee if anyone is going to lose on these will be the policy holder and not the insurance company

[Saving_spree]

Fixed Annuities are safe because they are guaranteed by insurance companies, a great place to keep retirement money because they pay tax-deferred competitive returns, and all of your money is working 100% of the time...

Sometimes People coming to speak this may have fixed agenda, go through carefully...

[bigredmachine05]

I think another problem with these annuities is the money you take out is taxable? Is that right? Is that tru with the fixed annuities?