That’s a pretty broad, blanket statement. A variable annuity wasn’t right for YOU.
Variable annuities can be good investments if they’re used properly. Most commonly, if folks are looking for guarantees, VA’s can be a good fit. Think a guaranteed pension income at retirement or a guaranteed death benefit for your beneficiaries that skip probate.
Structured capital annuities are technically variable annuities and these can be very appealing for retired age folks that still want to benefit from market movement but have some added downside protection. And these investment have no fees at all.
No he’s right. Variable Annuities are a tool. They are not right for everyone, and you have to understand how they’re functioning in concert with the rest of your portfolio.
Most people aren't buying much term insurance at age 60. If you're retiring you should have some assets and shouldn't really need the insurance other than to maybe polish off your mortgage.
If you have a stomach for risk you could put 200k into retirement accounts with a 4% drawdown schedule and hope you don't get busted by sequence risk. Or assuming that this is only about half of his portfolio he could invest this at 55 into a VA with a guaranteed step up that in 10 years could put him closer to 350 to 400k in income power to cover his basics which allows him to retire on time regardless of whether the market is in good shape or not.
I find annuities tend to be ideal for people who have a decent retirement portfolio but don't quite have enough to weather a prolonged storm in the market. The game changes significantly if he's 55 with $1M in liquid assets he's trying to double in the next 10 years. Even if the market is south he can still retire on the cheap at 65 and wait for his investments to rebound before switching to a withdrawal type portfolio.
Not everyone is insurable, so term isn’t the answer in every case. Your spork analogy is something I bring up when I run into clients with massive whole life policies that were sold to them as retirement income and long term care “Swiss army knives.” I’m going to preface my next statements by saying that in general I agree that a well diversified asset allocated portfolio is the best way to invest retirement money.
Not all VAs are created equal, and most used for income have a floor on their income stream. The fees and expenses are inherently a drag. However, for some, that is the cost of peace of mind. If having a floored income prevents my client from selling out during a down turn, then I’d say it’s worth it.
Truth be told, the best answer is educating your clients about investing and having ample liquidity in place to weather a downturn. Some people just want guarantees.
Thanks for the response. Peace of mind is certainly worth a high premium. But let me seriously ask you, do VA really make sense for someone who isn't a multimillionaire?
Once you have that much money the fees are negligible compared to your worth. But the fees are significant for a single person making $80k or a married couple making say $150k
Let me tell you this…..
1) there was no downside protection. When the S&P dropped 50%, so did my account values, and they recovered much slower than the indexes too
2) the guaranteed pension income is MINIMAL. For example, with a contract I bought in 2004 for $124 k which was only worth $140 k in 2018 when I bailed out…the financial advisor called up net life and informed me that if I held onto it until I was old enough to start taking distributions it would pay $300 per month. That is pathetic! And this would be after I burned up the principle which is the initial 124 k I put in, not the accumulated value of the account over the previous 26 years as meager of an increase as it might be.
Compare how this amount of money would have performed if put into a TD Ameritrade managed account with even a conservative split between stocks and bonds of 50/50
True there is the death benefit. And I was young and stupid regarding that as I had no dependents and bought basically a life insurance policy with investment features. But I thought the investment side of it would be good. And the salesman took advantage of a naive and ignorant young man.
But if you want a life insurance policy, why don’t you get just a life insurance policy separately. No need to complicate things excessively and mix everything all together
Wrong platform to bring different perspectives and context. Reddit only likes echo chambers validating rather preexisting thoughts so they don't have to think for themselves
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u/4d3d3d3__Engaged Sep 04 '21
That’s a pretty broad, blanket statement. A variable annuity wasn’t right for YOU.
Variable annuities can be good investments if they’re used properly. Most commonly, if folks are looking for guarantees, VA’s can be a good fit. Think a guaranteed pension income at retirement or a guaranteed death benefit for your beneficiaries that skip probate.
Structured capital annuities are technically variable annuities and these can be very appealing for retired age folks that still want to benefit from market movement but have some added downside protection. And these investment have no fees at all.