Re: Annuities...are they a crap shoot?

Financial Planning - Financial planning in general. (Moderated) 

  Yahoo!   Google   Windows Live   del.icio.us   digg   Netscape

Subject Author Date Re: Annuities...are they a crap shoot? Don 03-28-2008  Re: Annuities...are they a crap shoot? Mark Freeland 03-29-2008  Re: Annuities...are they a crap shoot? Don 03-29-2008  Re: Annuities...are they a crap shoot? Thumper 04-05-2008  Re: Annuities...are they a crap shoot? Cal 04-06-2008  Re: Annuities...are they a crap shoot? Douglas Johnson 04-06-2008  Re: Annuities...are they a crap shoot? Don 04-06-2008  Re: Annuities...are they a crap shoot? kastnna 04-08-2008  Re: Annuities...are they a crap shoot? Don 04-08-2008  Re: Annuities...are they a crap shoot? kastnna 04-08-2008  Re: Annuities...are they a crap shoot? Elle 04-06-2008  Re: Annuities...are they a crap shoot? Douglas Johnson 04-06-2008  Re: Annuities...are they a crap shoot? kastnna 04-08-2008
Posted by Don on March 28, 2008, 4:40 pm > My wife has a broker acquaintance that wants her to invest her > retirement fund (all of it) in a Pacific Life annuity. The annuity is > supposed to double your money in 10 years or sooner. I noticed on the > cover of the Pacific Life brochure that it states "may lose money" > > What sort of guarantee do these things have if the company goes belly > up? With today's rocky financial climate how safe are these investment > vehicles? BTW, I think my wife would have to pay $6600 in commissions > on this deal. If I were you, I would not pay much attention to the financial stability of that particular company, nor to the "may lose money" disclaimer, but instead would focus on that extraordinary $6600 in commissions and ask for convincing evidence that the monetary return from the annuity would justify such an expense. Of course, that evidence will not be forthcoming. She might hear something like "But this is an excellent fund. It has done great in the past ...", etc., etc. But how many thousands of times has that been said. The chances are that she would come out far better by leaving the money where it is. The fact is that by moving the funds into a new product with a $6600 cost just for making the move, she would be taking a risk and a gamble far larger than the gamble that the new fund, or any fund, "may lose money" because of market fluctuations. If I had to choose between accepting a "deal" like that one, and offending and losing a friend, I would choose to lose the friend. -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Posted by Mark Freeland on March 29, 2008, 11:34 am >> If I were you, I would not pay much attention to the financial >> stability of that particular company, nor to the "may lose money" >> disclaimer, but instead would focus on that extraordinary $6600 in >> commissions and ask for convincing evidence that the monetary return >> from the annuity would justify such an expense. > Lets clear up a few points here. That alleged $6,600 [...] > is a commission paid to the seller by the Carrier, from thier > General Funds. It is NOT DEUCTED from from the purchase price This is true for fixed annuities, but the vast majority of variable annuities are sold with loads (aka commissions) > The ONLY way that one can LOSE money on the purchase purchase > of ANY Annuity, is to surrender that Annuity EARLY. Variable annuities can certainly lose value. In addition, one can lose money on a fixed annuity if the insurance company defaults (just as any other creditor of the company can lose money). > Thier is a Surrender Charge, very > similar to one found on the issue of any CD....................... It is fairly common for CDs in IRAs to come without surrender charges for savers subject to RMDs. Other CDs are called "liquid CDs", which provide quite broad, penalty-free access to savings. In contrast, typically annuities allow withdrawal of only 10%/year w/o penalty. http://banking.yahoo.com/20011221a02.html (Liquid CDs) > MOST (but not all) Annuities are INTERST EARNING instruments, and > are NOT invested in any fund. Therefore there are NO "Up's & Down's." The OP said that the annuity should double in a decade. What INTEREST EARNING annuity on the market now will yield that much? It doesn't matter what MOST annuities are; it matters what the particular annuity being offered is. But for the sake of argument, let's say that you're right, and what is being suggested is Pacific Life's fixed annuity. (According to their web page, they only offer a single fixed annuity: http://www.annuities.pacificlife.com/public/corporate/corp_home.html?uri=/public/corporate/product_info/corp_product_index_fa.html ) As the OP said, right on the cover of the investor guide (well, actually page 2), it says: "Not a deposit", "May lose value", etc. As a final note, there have been periods of time when as many variable as fixed annuities were sold (I haven't located current statistics): "annuity sales were formerly evenly split between fixed and variable annuities" http://www.insure.com/articles/annuityinsurance/variable-annuity-trouble.html (2002 article). But as I stated above, it doesn't matter what is true about most annuities; what is important for the OP is what the facts are about this one. I have no reason to doubt the $6,600 commission or the alleged doubling in a decade, both of which point to a variable annuity. Mark Freeland BnetOnewsX@sbcglobal.net -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Posted by Don on March 29, 2008, 5:06 pm > Lets clear up a few points here. That alleged $6,600 in commision is > NOT the same as a commssion payable on the purchase of a stock ! ! ! = > ! It is a commission paid to the seller by the Carrier, from thier = > General Funds. > It is NOT DEUCTED from from the purchase price................... > Instead, normally, the entire amount is credited to the Cash Value = > Account. > and earnes a stipulated (good or bad) Interest Rate. I would not be concerned so much about who pays the sales charge or commission as the very fact that one exists, which tends to negate any, probably slight, advantage of switching from one financial product to another. Presumably the OP's acquaintance suggested some benefit in making the switch, but it is hard to imagine what it could be. And there could be disadvantages. I would have the same doubts if it were some product other than an annuity and certainly would want to consider more than its recommendation by an acquaintance. -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Posted by Thumper on April 5, 2008, 9:45 pm wrote: > > >> >> >> If I were you, I would not pay much attention to the financial >> stability of that particular company, nor to the "may lose money" >> disclaimer, but instead would focus on that extraordinary $6600 in >> commissions and ask for convincing evidence that the monetary return >> from the annuity would justify such an expense. > > Lets clear up a few points here. That alleged $6,600 in commision is > NOT the same as a commssion payable on the purchase of a stock ! ! ! ! > > It is a commission paid to the seller by the Carrier, from thier General Funds. > It is NOT DEUCTED from from the purchase price................... > Instead, normally, the entire amount is credited to the Cash Value Account. > and earnes a stipulated (good or bad) Interest Rate. > The ONLY way that one can LOSE money on the purchase purchase of ANY > Annuity, is to surrender that Annuity EARLY. Thier is a Surrender Charge, very > similar to one found on the issue of any CD....................... > > Did that 6600 grow on a tree? It comes out of profits generated by the annuity for the company selling it. It's not a matter of losing money. It's that the buyer could make $6600 dollars MORE if the commission didn't exist. Thumper > > >Of course, that >> evidence will not be forthcoming. She might hear something like "But >> this is an excellent fund. It has done great in the past ...", etc., >> etc. But how many thousands of times has that been said. > > > MOST (but not all) Annuities are INTERST EARNING instruments, and > are NOT invested in any fund. Therefore there are NO "Up's & Down's." > >The chances >> are that she would come out far better by leaving the money where it >> is. The fact is that by moving the funds into a new product with a >> $6600 cost just for making the move, she would be taking a risk and a >> gamble far larger than the gamble that the new fund, or any fund, "may >> lose money" because of market fluctuations. > > > > As I have stated above, GENERALY speaking there is NO COST involved > in the purchase of an ANNUITY.................... > > > Cal Lester CLU -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Posted by Cal on April 6, 2008, 7:11 am >> Lets clear up a few points here. That alleged $6,600 in commision is >> NOT the same as a commssion payable on the purchase of a stock ! ! ! ! >> >> It is a commission paid to the seller by the Carrier, from thier >> General Funds. >> It is NOT DEUCTED from from the purchase price................... >> Instead, normally, the entire amount is credited to the Cash Value >> Account. >> and earnes a stipulated (good or bad) Interest Rate. >> The ONLY way that one can LOSE money on the purchase purchase of ANY >> Annuity, is to surrender that Annuity EARLY. Thier is a Surrender >> Charge, very >> similar to one found on the issue of any CD....................... >> >> > Did that 6600 grow on a tree? It comes out of profits generated by > the annuity for the company selling it. It's not a matter of losing > money. It's that the buyer could make $6600 dollars MORE if the > commission didn't exist. > Thumper Apparently you have not been reading the thread. It was already explained that any commissions paid to the seller come out of the general fund of the carrier, NOT out of the investment of the buyer. The comparison was made of a purchase of a Mutual Fund of $10,000, FROM WHICH the commission IS deducted, and the remaining balance is the only amount INVESTED. In the case of the purchase of the Annuity, the entire amount is placed in the Cash Value Account, and earns the stipulated interest from DAY 1. Cal Lester CLU -------------------------------------- Misc.invest.financial-plan is a moderated newsgroup where Moderators strive to keep the conversations on-topic for financial planning. Other posting guidelines include a request for brevity and another for trimming posts to which we respond. For all of the other tips and suggestions, see "FROM THE MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the Newsgroup. Similar Threads Posted Re: Annuities...are they a crap shoot? March 28, 2008, 3:27 pm Re: Annuities...are they a crap shoot? March 28, 2008, 6:10 pm Re: Annuities...are they a crap shoot? March 30, 2008, 1:29 am Re: Annuities...are they a crap shoot? March 29, 2008, 4:15 pm Annuities August 10, 2007, 8:14 am Variable Annuities October 12, 2006, 5:01 am annuities question(s) October 24, 2006, 8:33 am in-plan annuities September 1, 2007, 5:28 pm longevity annuities October 24, 2007, 10:55 am Variable annuities not so bad? October 22, 2008, 8:14 pm