are annuties from insurance cos. a safe investment

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PostPosted: Wed Jun 17, 2009 8:08 pm   Post subject:   

Insurance Expert we're going to have to agree to disagree.



Quote:
It's simply a false statement that someone will NEVER make up a 39% loss of principal. First of all, your statement ignores all gains made before the loss.


See PDF below. I'm not ignoring all the gains made before the loss. The loss is what wipes out all the gains.

If you study THIS chart October 1st 1998 through September 30st 2008 you'll find that a Fixed Indexed Annuity with a 40% participation rate far out paces the market precisely because there isn't any loss of principal during the down years.



Further, during the past 11 years "the market" barely exceeded a minimum 1% guaranteed rate over the same 11 years.



The loss of principal is what is devastating to a person's retirement savings.


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PostPosted: Wed Jun 17, 2009 10:35 pm   Post subject:   

Quote:
The loss of principal is what is devastating to a person's retirement savings.




It is amazing how many people approaching retirement fail to realize this simple, but true statement. When I was working as a financial advisor for a major bank, I encountered so many baby boomers that were looking to retire in the next few years. Their entire portfolio was made up entirely of stocks and because of the downturn in the markets, they were resistant to making any changes.



I actually had a client tell me that he would never do an annuity, because he wanted his money to earn something...not sit stagnant. I looked at his last 5 years and showed him that even if he had earned NO interest...he would still have $127,000 more in his retirement accounts if he didn't have his technology sector stocks.



The annuity is a major tool and when used properly can be the answer to most retirement concerns! The last thing I would personally want is to lose my life savings in the last couple years before I retired. Better yet, I don't want to watch my nest egg bleed money profusely!
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PostPosted: Wed Jun 17, 2009 11:14 pm   Post subject:   

We have a client who had a $3 million retirement portfolio and was ready to retire next year from his practice (he's a doctor). He lost $2.2 million last year because his advisor had him in very aggressive stocks and hedge funds. We have been telling him for two years now about the equity linked index annuity. He would still have $3 million+ if he had just taken it. Even if he took a portion of it and put it in there, he'd still be in ok shape to retire. Now he'll be working another 5-10 years.

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PostPosted: Thu Jun 18, 2009 10:42 am   Post subject:   

Having safe money is very important. It can be an indexed annuity or it can be something else. It doesn't make sense to have enough money to retire and then because of a downturn in the market, not be able to retire.



I'm a believer in being as conservative as possible to the extent that it will allow one to achieve their financial goals. Unfortunately, for many people, this means that they still have to be fairly aggressive because being conservative may mean that they won't lose any money, but it may also mean that they will never have enough money to retire comfortably.



Gary, I have no problem with agreeing to disagree. However, before we do that, we must deal with factually correct information. I think that you may be using information that isn't factually correct.



Take a look at the marketing piece that you linked to in your last post. Read the fine print. That piece DOES NOT compare the index annuity to an investment in the S&P 500. It compares the hypothetical index annuity to the historical prices of the S&P 500. In other words, dividends are not included. Yet, we know that an investor in the S&P 500 receives dividends and historically, this has been a significant part of the return.



By the way, during that time period, the hypothetical index annuity did slightly outperform even when we calculate the return correctly. You asked me to compare any 10 year period during the time horizon that you gave me. When we do that, there are lots of 10 year periods that the annuity didn’t outperform. There are some that the annuity did outperform. What does this mean? One certainly shouldn’t draw a conclusion about something being better. It means that 10 years is too short of a time period for someone to take risk if they can’t afford the loss.



I'm not trying to disagree with your assertion of the FIA being the best asset class over the period of time from 1/1/1995 to the present. For this to be true, the return would have to be over 7%. That’s why I’m asking you to back this up. If it is true, I would like to know that it is true because I can’t find anything that shows this. If it isn’t true, you need to know that you are giving incorrect information. Too often, index annuities get compared to the S&P 500 index instead of the return of the S&P 500. Like I said, during the time period in question, the S&P 500 has returned over 6.5% and the Dow has retuned over 8% even with two giant drops.

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PostPosted: Thu Jun 18, 2009 12:15 pm   Post subject:   

Insurance Expert,



Those numbers are accurate for the indexed annuity.



Now you are correct the example doesn't included dividens but they also only used a 40% participation rate for the indexed annuity. Until the crash of 2008 the typical participation rate on the point to point uncapped strategy was 60%.



That illustration is a middle of the road example.



Some indexed annuities would have performed better and some would have performed worse but none of them would have lost one penny of the client's money.



And for some mathematical fun even a Traditional Fixed Annuity at 2% would have $124,337 at the end of 11 years.



I didn't write these words below:

Quote:
Over the past 15 years, the products have become increasingly popular and are offered by major insurers like like Allianz ( AZ - news - people ) and The Standard ( SFG - news - people ). While the investment features have looked increasingly alluring, the catch is that the stock market's wild seesawing could hardly have been better designed to enrich holders of equity-indexed annuities. Since 1995, these annuities have easily outpaced the S&P 500 and bond indexes alike.



"There is no asset category that outperformed them. We were extremely surprised, really just amazed," says David Babbel, professor emeritus of insurance and risk management, who conducted a study of equity-index annuity returns beginning in 1995.


Those words came from THIS article in Forbes.



The article has factual flaws and isn't written to be favorable to indexed annuities, yet, they don't disputed the facts.


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PostPosted: Thu Jun 18, 2009 12:38 pm   Post subject:   

Gary, we're certainly in agreement that one won't lose money in an indexed annuity. We can certainly agree that if a client's primary goal is to not lose money, an indexed annuity is better than a variable investment.



It is true that the index annuities have beaten the index (no dividends)during that time period, but they have not beaten the return of the index (including index). Investors get the latter and not the former. It's the latter that matters.

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