Holding Period for Fixed Types of Annuities?
- Thread starter Drifting
- Start date
that must refer to a comparison between taxable and tax-deferred growth? I mean, if it's in an IRA then you're probably buying an income rider - in which case the analysis makes no sense (you either pay for a guarantee or you don't, and you're partially just paying for the resulting piece of mind). If it's NOT in an IRA, then it depends on tax bracket. After all, there is zero tax on growth for a couple making less than 72k/year taxable (WITHOUT the annuity). Many variables...
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Just noticed you titled the thread Fixed, but only mentioned variable (?).
I'm not sure what you're asking here...traditional deferred fixed annuities don't normally have any internal fees (with a few exceptions that offer riders for purchase). They are often compared to a CD or bond.
If you're talking fixed index, there can be a lot of interpretation of what is actually a "fee"...
Ray the quote says "variable"
You're right...I guess I shouldn't pay attention to the thread title or the last sentence.
Now I'm even more confused.
T Rowe ignores fixed annuities when doing a fee article I'm sure, so...You're right...I guess I shouldn't pay attention to the thread title or the last sentence.
- 2,584
Do they mean the "fees" or surrender charges?
What is a "net plus" ?
I'll do some simple math here. 7% surrender charge must be held until you make a little less than 7% for it to be a break even. (You get 10% free withdrawl)
I really doubt T Rowe would write about fixed products...
- 10,318
"To justify Fees" and a Net Plus are not the same thing.
When they say "to justify Fees", they mean having the tax-deferral vs. a taxable account. Of course that is assuming that the investments are the same.
So basically they are assuming that the VA will be 1%-2% higher in fees, which will take 10-20 years for the tax-deferral of the VA to overcome the higher Net (after fee) Returns of the taxable account (assuming they both grow at the exact same rate of return).
But this issue is not an issue with Fixed Annuities, since Fixed Annuities have no Fees.
So the expenses of a tax-deferred Fixed Annuity are no higher than a taxable alternative (such as a CD).
And since there are no Fees on a Fixed Annuity, the Tax-Deferral is an immediate benefit that takes no time to "catch up" when compared to taxable alternatives.
The extent of the tax-deferral benefit depends on your tax bracket, here is a chart:
Of course there are 3 exceptions to all of this.
1. Fixed Indexed Annuities that have bought a "Lifetime Income Rider" (an optional benefit that variable annuities offer as well)
2. If the funds are in a Qualified Retirement Account such as an IRA/SEP/401k/etc.
Then there will be no taxable alternative since the alternative will be tax deferred as well.
3. The fact that in real life things are not that cut and dry. You can get VAs that have very low Fees if your not looking for extensive subaccounts. But in real life you most likely will not be in the same funds in a managed account as you would if you put those funds in a VA. So once the investments are not the same the assumptions that study is using go right out of the window.
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