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Retirement Discussions / Retirement
|Subject: Re: Annuities||Date: 3/23/2014 2:55 PM|
|Author: Howie52||Number: 292 of 294|
"Thanks for your thoughts on this. "
As with any investment, look at what the costs are - and this is not easy
in virtually any insurance product.
There is always a need to define what is the cost versus what are the
returns. e.g. think about a bond - you get a defined return over a
fixed time period and at the conclusion you have your principal returned.
The cost is the purchase price of the bond unless you sell before
Now, look at an annuity - the cost is not only the initial purchase fee
but the entire principal. On the surface, the annuity contract offers
to pay a fixed sum back to you until you die - or reach a certain age.
The return is generally a fixed maximum value - a series of equal
payments out into the future.
The payments tend to be related to the current interest rates.
So, in the current environment, payments will tend to not be as great
as they might be when interest rates go high again.
The question then is how much are you willing to pay to cover risk?
Also, you have to ask what risks may still remain?
What happens if the insurance company goes belly-up?
That risk also exists with bonds - what happens if the government
or the courts order your bond interests to be over-ruled by some
other interest group (e.g. ask GM bond holders how they made out a
few years back).
So - there you have a rather simplistic view of annuities.
You pay a price for what sounds like a no-risk return of funds -
but you have no control over the investments made by the company
selling the annuity - and really have no true knowledge of the
risk that their investments involve. You have a contract that
that company will pay you in the future over a rather long
period of time.
If you choose wisely, the risk is abated somewhat.
I would suggest that the due diligence include a detailed
check on the company offering the annuity as well as a thorough
check of the contract. Know the costs and know the retained risk.
Not an area in which I have great expertise - and I tend to be
both a worrier and a control freak.
Also, I always figure that somehow or other, the world will go to
hades in a hand-basket a day or two after I retire.
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