Equity Indexed Annuities: Are they the real deal or junk products?

[Winter_123]

I think it's safe to say that an IA should average somewhere in the 4%-6% return range. Generally better than a traditional fixed annuity or CD, but will likely underperform the equity markets over any 10-year period.


===============================================

Depends on when you bought into the equity markets. If you bought into the market just before 9/11 you lost about 45% of value and are just now thinking about the possibility of getting back to where you were then maybe sometime late this year, with luck. If you bought into a broad based NASDQ just before 9/11 or the high tech bubble broke then you may not get back there again in your lifetime. In other words if you were just about ready to retire then, you are still working or retired at a lower lifestyle. However mediocre performing an equity indexed annuity might be at times it would have saved the investor from that decline. Even 0% can look pretty next to a 50% drop. Of course it can be argued that many funds did not experience such a decline even though the broader market did, and I think that there is merit to that argument. If you can afford to go backwards in life for a while because you are young or not at retirement age and you "know" which funds or stocks are going to do well then an indexed annuity is not for you.

Winter

 

[sman]

Here's why they're not "registered products." It's idiotic. The fees to agents are enourmous compared to other fixed products. The sales charge is onerous.

There is no sales charge on an IA. Yes, commissions CAN be high. Some IA's pay very little commissions.

The only guy I know who's selling these is using leads from Cold Solutions ( see my other thread) getting 80 year olds to sign up and kicking back cash because his commission is so high he can afford that.

My goodness. He must be a great sales person. There were $25.3 billion in IA sales in 2006.

Other than that I know no one who is selling these - if you do some Googling you'll see the actual amounts sold are not that high, they just garner alot of space.

Again, $25.3 billion in sales for 2006. Not likely to be just one person with Cold Solutions. And as far as the Schwab guy talking you out of one, that doesn't mean anything other than it may not have been right for your situation.

The fact that there were this many dollars moved to IA's doesn't make them good or bad. But I think it dispells the idea that no one is selling them. And I can assure you, not everyone is convincing 80 year olds to go into an annuity and giving them a kick back.

 

[sman]

I think it's safe to say that an IA should average somewhere in the 4%-6% return range. Generally better than a traditional fixed annuity or CD, but will likely underperform the equity markets over any 10-year period.


===============================================

Depends on when you bought into the equity markets. If you bought into the market just before 9/11 you lost about 45% of value and are just now thinking about the possibility of getting back to where you were then maybe sometime late this year, with luck. If you bought into a broad based NASDQ just before 9/11 or the high tech bubble broke then you may not get back there again in your lifetime. In other words if you were just about ready to retire then, you are still working or retired at a lower lifestyle. However mediocre performing an equity indexed annuity might be at times it would have saved the investor from that decline. Even 0% can look pretty next to a 50% drop. Of course it can be argued that many funds did not experience such a decline even though the broader market did, and I think that there is merit to that argument. If you can afford to go backwards in life for a while because you are young or not at retirement age and you "know" which funds or stocks are going to do well then an indexed annuity is not for you.

Winter

Winter,

Either I am misunderstanding you or you are misunderstanding me. I stated that one could likely expect an IA (Index Annuity) to average 4%-6%. This is of course assuming a 7-10 year period.

You stated that it depends on when one bought into the markets. And then referenced a 45% downturn. If you know anything about IA's, you know that you don't experience negative returns.

And while we're on this topic, what funds are you investing in, where you've not even gotten back to pre-9/11 balances? Everyone of my investment clients (those in the markets) are well ahead of their pre-9/11 balances. Of course, I use American Funds almost exclusively and they have a great track record.

This is not an endorsement for IA's. I am an equities guy. I would much rather see someone stay invested in the markets. Simply because I believe that over the long haul, it's the place to be. But there are times when someone was the safeety of not losing their money. They are more concerned about the return OF their money than they are the return on their money.

 

[Guest]

But there are times when someone was the safeety of not losing their money. They are more concerned about the return OF their money than they are the return on their money

.

On every balance sheet I've ever looked at that shows ten to twenty years of returns, the determining factor is NOT how much was made or the size of the return, but HOW MUCH WAS NOT LOST.

I don't think I've ever met anyone who ever made 10% more than they lost over a period of at least 10 years. I'm sure there ARE some (a lot of) people, but my guess is that they are the more savvy investors. Your average, garden variety wage earner who is an active trader is basically a poor investor.

My generation (babe-booms) have gone through 2 huge market crashes (87 and 2001). We are terrified of out-living our money. And to make matters worse, our rates of saving have been terrible.

We will be coming into inheritances from "greatest generation" parents as well as coming into 401 retirement money. I don't believe we want to put a lot of it into equities... not again. I think annuities will look very good to a lot of us. They do to me (and no, I'm not licensed in CA to sell them... I've not taken the required 8 CE units.)

That's my take, YMMV (your milage may varry).

Al
www.insurancesolutions123.com

 

[senior-advisor-indiana]

DO you think maybe the people licensed to sell securities are upset because someone with thier insurance license can make more money of a 75 year old than they can? We (agents selling IA) are helping alot of seniors out, regaurdless of how you see it, my clients thank me after I protect thier money. I tell some of them how much I make off of them if they ask.
The best thing about it is the money they put in is all working for them.

By the way isn't it illegal to give kickbacks?

 

[arnguy]

It is definitely illegal to give kickbacks!

 

[senior-advisor-indiana]

It's pretty bad he has to give kickbacks to get his business. Those are the agents that make annuities bad.

 

[sman]

It's pretty bad he has to give kickbacks to get his business. Those are the agents that make annuities bad.

They don't make annuities bad. The annuity is the same whether the guy breaks the law or not. But these types of agents do give the industry a black eye.

 

[senior-advisor-indiana]

I was just saying that maybe he is giving kickbacks because the product doesnt quite fit thier needs.Sorry. I know annuities aren't bad. Another thing that gives annuities a bad name are the advisors that sell variable annuities and never touch the accounts again.

 

[Winter_123]

Winter,

Either I am misunderstanding you or you are misunderstanding me. I stated that one could likely expect an IA (Index Annuity) to average 4%-6%. This is of course assuming a 7-10 year period.

You stated that it depends on when one bought into the markets. And then referenced a 45% downturn. If you know anything about IA's, you know that you don't experience negative returns.

And while we're on this topic, what funds are you investing in, where you've not even gotten back to pre-9/11 balances? Everyone of my investment clients (those in the markets) are well ahead of their pre-9/11 balances. Of course, I use American Funds almost exclusively and they have a great track record.

This is not an endorsement for IA's. I am an equities guy. I would much rather see someone stay invested in the markets. Simply because I believe that over the long haul, it's the place to be. But there are times when someone was the safeety of not losing their money. They are more concerned about the return OF their money than they are the return on their money.

=============================================
I would have to go back and check but I believe that the statement about the returns for IA's was followed by the statement that the IA would likely underperfom the equity markets in any 10 year period. I took equity market to mean mutual funds and stocks and hence my comment that it depended on when you invested a sum. If you invested right before the high tech and 9/11 crashes the broad market lost 45% or more (even more, much more in the NASDQ) and yet an IA would not have lost a dime.

Your comment about American Funds is well taken and it is a good fund family that did well throughout. Let us just say that if the S&P and the NASDQ are not back to pre 9/11 and those indexes are made up of the major stocks in those markets then *many* stocks are also not back up. I believe that I hedged my comment by saying that those who do believe that they can do better in the market should just go and do that or try because the potential gain is much greater. The appeal for IA's is to those who were never comfortable in the market to begin with or were burned or want to use them for diversification as part of their asset allocation plan. Well performing funds will always shine next to IA's. Problem is, clients do not always get matched up with well performing funds and an IA will always shine next to funds that have tanked.... and so it goes.

Winter

Winter