Can I buy this type of annuity at 26 years old? - need advice!

[caligirl860]

I really like the idea of investing in something and then getting a certain return back even after your intial capital runs out. From my earlier posts most of you said I was describing an 'annuity" - however I dont know if any insurance companies or brokerage houses would allow me to buy or invest in an annuity - since I am only 26 yrs old. Most advertisements only say you can buy the type of annuity that offers a gaurenteed stream of income for life if your 45 or older. - I just wanted to know if I can buy an annuity that offers immediate payouts and yet still be gaurenteed more payouts for life ??? - I think this would be a good investment. I just want to know if I can buy/invest in this type of annuity at 26 years old ?? - please advise! Also if so - Do you know of any names of insurance companies that would sell to me at 26 yrs old?

[disneysteve]

I'm not exactly sure of the answer to your question regarding your age but I can tell you without a doubt that what you are proposing is a horrible idea. Annuities are outrageous rip offs. They make a ton of money for the salespeople and lousy returns for the customers due to sky high commissions and fees. An immediate annuity might possibly be worth looking into for a retiree who needs steady income and is willing to forgo higher returns but even then there are better options. At age 26, an annuity shouldn't even be on your radar. You've got decades for your money to grow and overcome any short-term downturns in the market. Unless you are permanently disabled, you've got no need to invest for guaranteed income at this stage in your life. And even if you are disabled, you don't want to lock into a payment today that won't change over time because over the years, inflation will eat away at the value of the fixed payment and you'll be screwed in years to come.

So forget that annuities even exist and start investing for growth, not income.

[photo]

I really like the idea of investing in something and then getting a certain return back even after your intial capital runs out.

I don't know much about annuities, but in the situation that the capital is all gone, how do you get something from nothing?

Did you receive a windfall from an inheritance? Not many 26-year-olds would have enough money to put into something like that.

[Robert742]

An immediate annuity is when a person swaps out a lump sum of cash for a stream of cash they can't outlive. The highest payout would have you giving the insurance company a lump sum, like $500,000, and they will pay you back your principal & interest at set intervals based on your life expectancy. But if you die a year after annuitizing, the insurance company keeps your principal (There are variations of the product, to make sure you get payments for a certain period of time,even if you die). If you live until you are 120 years old, the insurance company is on the hook for paying you the annuity payments, even if the principal & interest was exhausted years ago. Annuities are insurance to prevent you from outliving your money. Immediate annuities are great investments for vampires, or other immortals.

An immediate annuity can have its place in a financial plan for retirees, but it is best to buy them when interest rates are high.

You can't take distributions from an annuity until you are 59 &1/2 years old, without a 10% tax penalty. Immediate annuities are not meant for 26 year olds.

A deferred annuity, with a guaranteed rate of return, for an amount of money you will wish to turn into a stream of income you can't outlive (its like creating your own pension) might be a good idea for extremely risk averse people, or for diversification, if you want less exposure to the stock market.

However, they are extremely complicated products, sold aggressively, with people not understanding what they are buying. You can lose a lot of money buying the wrong annuity, or at the very least, pick a sub-par investment.

If you are interested in annuities, hire a fee-only financial planner, with expertise in the product, to find one which fits your needs, or suggest better alternatives.

[jpg7n16]

I don't know much about annuities, but in the situation that the capital is all gone, how do you get something from nothing?

My view of annuities is essentially this: you are betting the insurance company that you'll live a long time, and they're betting you won't.

The immediate annuity is a contract where you give them $X today, and they'll pay you $Y/month for as long as you live. If you die tomorrow, they keep your $X and never have to pay you a $Y.

To put this in perspective, you'd have to give the company about $120k today, to get $500/month. (per Immediate Annuities - Instant Annuity Quote Calculator. )

Do a little quick math. $120k/$500 = 240 months = 20 years; So if you live longer than 20 years, you'll keep receiving that $500/month even though you've now received more than $120k back.

If you live another 40 years, you'll get 40 more years of $500/month payments.

If you die tomorrow, they keep your $120k, and your heirs get nothing.


Here's the thing though... to create your own 20 year annuity, just put the money in a bank account and withdraw $500/month. It'll last exactly 20 years, and if you die early, you keep all the money. To create your own annuity that lasts 40 years, you'd only need to earn 3.98%. To last 120 more years, you'd only need to earn 5%.

Did you receive a windfall from an inheritance? Not many 26-year-olds would have enough money to put into something like that.

Like Robert was saying, they are insurance products, sold aggressively - and are not meant for 26 year olds. But you still get a commission for selling a 26 year old one... what's an unethical salesman to do??

Having said that though, the OP was specifically looking for a product that would pay a consistent guaranteed lifetime income stream. An annuity is the only product that will do that. You can try and talk someone out of it, but there's only so much you can do. If someone is dead set on buying one, it's better to buy from you than someone else.

[photo]

If you die tomorrow, they keep your $120k, and your heirs get nothing.

Wow, I could never do that to my children. And I do plan to live a very long life!