Investing in variable annuities..

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PostPosted: Tue Sep 15, 2009 9:18 am   Post subject: Investing in variable annuities..  

Any tips on how to invest in variable annuities?


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Clivedixon
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PostPosted: Tue Sep 15, 2009 1:28 pm   Post subject:   

What are your goals for the annuity....to provide income, or only to increase the lump sum value? How old are you? What is your risk tolerance?

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PostPosted: Wed Sep 16, 2009 9:32 am   Post subject:   

Quote:
.to provide income, or only to increase the lump sum value? How old are you?


...income opportunity to be specific and I'm 26.

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Clivedixon
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PostPosted: Wed Sep 16, 2009 9:15 pm   Post subject:   

A variable annuity is not an appropriate investment for a 26 year old who wants income.



1) Gains come out first and are taxed as income.

2) Gains that come out of the contract before age 59 1/2 are subject to a 10% penalty.

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PostPosted: Thu Sep 17, 2009 6:07 am   Post subject:   

I was going through a brochure and the variable annuities seemed to have lucrative offers. What would then be the right age to invest on variable annuities?

Quote:
Gains that come out of the contract before age 59 1/2 are subject to a 10% penalty.


Any other penalties that come to mind?

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Clivedixon
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PostPosted: Fri Sep 18, 2009 11:59 am   Post subject:   

Well, I guess one important factor that you should focus while purchasing fixed annuity is it's 'guaranteed rate'. But this is not the same with variable annuities.



In order to achieve the product that suits your needs, you may need to go through the entire contract (details) and compare a lot of options.



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PostPosted: Fri Sep 18, 2009 7:04 pm   Post subject:   

That's a broad question. You need to sit down with an agent and discuss your needs and goals. I would not rule out fixed and indexed annuity policies either.



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PostPosted: Sat Sep 19, 2009 7:01 pm   Post subject:   

Did you look at the expenses of the variable annuity? The guarantees of the VA make the worst case scenario much better than a comparable mutual fund while the expenses really hurt the upside potential.

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PostPosted: Mon Sep 21, 2009 1:22 pm   Post subject:   

Quote:
The guarantees of the VA make the worst case scenario much better than a comparable mutual fund while the expenses really hurt the upside potential.


It would have been better if you could show me through an example. Mutual funds are risky-no doubt!

But I've heard that the Variable Annuities have their share of risks as well. Pinkfloydfan

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Pinkfloydfan
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PostPosted: Mon Sep 21, 2009 7:09 pm   Post subject:   

Ok. Here's an example. Jim invests $200,000 for 20 years. Let's assume that it's IRA money so that the taxation will be the same for a VA and a mutual fund.



$100,000 goes into a mutual fund. $100,000 goes into a Variable annuity. The VA is invested in the same manner as the mutual fund, but has total expenses that are 2% higher. Assume that the mutual fund gets a 8% return. The VA will get 6%. At the end of 20 years, he has $466,00 in his mutual fund and only $320,000 in the VA. The difference is the impact of the fees.



What if the market does poorly and over the course of 20 years, the value of his MF only increases 1% compounded? He'd have $122,000. In the VA, he would have $200,000*.



*This particular VA guarantees to double in 20 years. The $200,000 can be taken in a lump sum.

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PostPosted: Tue Sep 22, 2009 9:31 am   Post subject:   

Quote:
This particular VA guarantees to double in 20 years.


So, that shows how it can even double under adverse market conditions. Although the return could be lesser if the conditions are favorable for a performing MF, yet it is a lot safer bet. Pinkfloydfan

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PostPosted: Wed Sep 23, 2009 5:06 am   Post subject:   

Don't forget to keep an eye on the surrender and withdrawal charges, the schedule of payments, management costs and the option of lifelong dispersal. These are very important factors to be considered by an annuitant.


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PostPosted: Wed Nov 11, 2009 10:31 pm   Post subject:   

Buying and selling annuities and structured settlements can be a complex process, andit's important to make sure you've got all your avenues covered - mistakes in this area can prove costly indeed.



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PostPosted: Thu Nov 12, 2009 7:35 am   Post subject:   

Quote:
Buying and selling annuities and structured settlements can be a complex process, and it's important to make sure you've got all your avenues covered




It would help if someone explains the different avenues as pointed by heidrek. I'd like to know about the risks associated with such investments.
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PostPosted: Mon Nov 30, 2009 10:28 pm   Post subject:   

What if the market does poorly and over the course of 20 years, the value of his MF only increases 1% compounded? He'd have $122,000. In the VA, he would have $200,000*. *This particular VA guarantees to double in 20 years. The $200,000 can be taken in a lump sum.



I've seen a few newer VAs with costly income guarantees following annuitization, but not lump sum guarantees like you describe.



What insurer is marketing a VA which provides a near 4% guarantee on principal? Certainly has to increase the expense to way more than 2% if they're going to offer a 4% guarantee. The typical VA annual M&E and other fees usually are about 2% or slightly less.



The typical fixed annuity has only a 3% guarantee.



Enlighten me, please.



To respond to the initial question of the thread, a VA for a 26 year old is probably an unsuitable investment, especially if that person is not already maximizing their contributions to all other available retirement plans, and it could result in loss of an agent's securities registrations for encouraging such an application. Additionally, most companies would decline the transaction on the same basis. All insurers that I'm aware of have suitability forms that must be submitted regardless of the applicant's age. FINRA essentially demands it.


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