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Author: crawf One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35400  
Subject: Fixed Index annuties by Allianz Date: 7/4/2008 6:11 PM
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Anybody familiar with these. What should I be thinking about here. They are saying you take no losses however you only get a percentage of the gains when they occur.
Specifically This is the "Allianz Endurance 15 Annuity" Any help or thoughts would be appreciated. There are many twists and turns to look at with this proposal however if this group has analyzed it already it could help me understand them all.
Thanks, Crawf
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Author: WendyBG Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24161 of 35400
Subject: Re: Fixed Index annuties by Allianz Date: 7/4/2008 7:02 PM
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<There are many twists and turns to look at with this proposal >

Toss the proposal in the trash. You aren't the first to come to this board with an Allianz annuity hard-sell.

If you are truly interested in an annuity, go to www.vanguard.com. Read their clear explanations of what annuities can do. Take your time, and run scenarios. Vanguard is the lowest-cost provider of annuities. You won't pay a commission or an entry or exit fee, as you probably would with the Allianz annuity.

An annuity may not be what you need, or it may be what you need. It's important for you to understand every aspect, which you can't do if it is full of "twists and turns."

Tell the Allianz salesman to take a hike.

Then, study the subject and decide for yourself whether you really need either an accumulation annuity (which defers taxes) or a distribution annuity (which provides income).

It only makes sense for accumulation if you have maxed out your emergency fund, IRA, and 401(k), and still want to save more in a tax-shelter.

It only makes sense for distribution if you are already quite elderly, and come from a very long-lived family.

Wendy

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Author: ziggy29 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24162 of 35400
Subject: Re: Fixed Index annuties by Allianz Date: 7/4/2008 10:37 PM
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>> It only makes sense for accumulation if you have maxed out your emergency fund, IRA, and 401(k), and still want to save more in a tax-shelter. <<

And possibly for additional asset protection from creditors and lawsuits for high net-worth individuals, depending on your state. If you are in an occupation at high risk of being sued, in some states assets in an annuity are mostly judgment-proof.

#29

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Author: mrparrotfez Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24163 of 35400
Subject: Re: Fixed Index annuties by Allianz Date: 7/5/2008 2:49 AM
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It is helpful to think of annuities by dispensing with a subconscious principle that has its place in jurisprudence but has none in investing: innocent until proven guilty.

The unconscious tendency is that we think an instrument might be good and the burden of proof is on the investor to prove it isn't. I suggest you take the opposite tack with annuities. I suggest you begin by assuming that all annuities are ripoffs designed to give you less money than you would otherwise make, based on the seller's actuarial analysis of likely probabilities. Then place the burden of proof on the seller to demonstrate that this just isn't so.

Few can. You're welcome to hear them out, but if you place the burden of proof on them, few can meet it. What is more: you could surely achieve sustainable 8% dividends with a diverse mix of closed-end bond funds if you bought sensibly, without dumping your assets into an annuity (in other words, they'd remain yours). Therefore, the burden of proof is on the seller to demonstrate a way in which an annuity is somehow superior to that.

Feel free to hear them out if you want, but if you're like me, you tend to reckon that if most of something are lousy, the rest are lousy until proven otherwise. Remember, if the seller thought that you were going to come out ahead in the long run, they wouldn't sell it to you. That's just business. It's their right to offer you a product that's mostly a sweet deal for them, and your right to set the bar very, very high.

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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24164 of 35400
Subject: Re: Fixed Index annuties by Allianz Date: 7/5/2008 8:07 AM
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What is more: you could surely achieve sustainable 8% dividends with a diverse mix of closed-end bond funds if you bought sensibly, without dumping your assets into an annuity (in other words, they'd remain yours).

I seriously doubt you can get sustained 8% dividends with closed-end bond funds unless they are taking on high risks, including usually use of leverage (if they're claiming 8% in an interest rate environment with most Treasuries under 4%). But I don't think the annuity would be able to do that either.

Look at the FAQ section on annuities. I believe this particular offering is not an instant lifetime annuity where you are giving up the right to give up all or part of the principal (or right to pass on to heirs) in exchange for a payment schedule that will be less than you would get by drawing down principal until average life expectancy in exchange for continuing payments should you live well beyond average life expectancy. Those kind of lifetime annuities can be a play-it-safe option if you are likely to run out of money if you live too long, but that's only something you do if you reach the point where you are starting to draw down principal.

Most annuities just delay paying taxes at the cost of expenses that make the tax delay unlikely to outweigh the added expenses unless you are in a high enough bracket you can afford to be highly invested in stocks and pay lower taxes, anyway.

If what you are being offered is a guarantee not to lose money (or some fixed income return much below what you could get with a CD) in exchange for less return than if you did it on your own if some index (usually S&P 500)does well, you need to crunch the numbers for yourself in terms of typical S&P 500 returns over a period. You could always put half in a CD and half in a stock index fund or a junk bond fund in hope of enhancing the CD return. Also watch out how the rules for an "guarantee plus" work. They often cap return on good stock years not over the life of the annuity, and stocks don't have average years, so you lose.

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Author: ResNullius Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24165 of 35400
Subject: Re: Fixed Index annuties by Allianz Date: 7/5/2008 9:10 AM
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Run, don't walk, in the opposite direction from these theives. There's a reason why they drive expensive cars and live in huge homes. They bought these things with your money.

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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24166 of 35400
Subject: Re: Fixed Index annuties by Allianz Date: 7/5/2008 9:51 AM
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There's apparently something new from Vanguard that might be an interesting (and probably cheaper) variant on this theme, where there are target payouts depending on needs.

https://personal.vanguard.com/us/JSP/Funds/All/FundsMgdPayou...

Their basic fixed annuity is now 4.65% for 5 years.

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Author: crawf One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24167 of 35400
Subject: Re: Fixed Index annuties by Allianz Date: 7/5/2008 10:16 AM
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Thanks to all who replied for waking me up to what is happening here. This is a 10 year fixed annuity with caps on every type of crditing method. Getting your money back after 10 years is also tied to them keeping your money and dribbling it out to you monthly. If you take a lump sum you lose all the "bonus" interest they give you up front to make this look attractive.
I am retired already and have no problems with cash flow needs or feel that I will outlive my nestegg. Given that outlook, what would this board suggest as asset allocation for my nestegg? Would that include an annuity?
Thanks, Crawf

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Author: ziggy29 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24168 of 35400
Subject: Re: Fixed Index annuties by Allianz Date: 7/5/2008 10:52 AM
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>> Given that outlook, what would this board suggest as asset allocation for my nestegg? Would that include an annuity? <<

The answer is *probably* no, IMO, but if you meet a long list of criteria, the answer becomes "maybe" in terms of a good, low-cost annuity that isn't loaded with onerous fees and unreasonable surrender charges.

Here's a checklist for people considering an annuity, with the understanding that a few special situations could fall out of this area:

* Have you maxed out your 401K, 403B, IRAs and other qualified retirement plans? If not, fund those to the max first before considering an annuity.

* Are you self-employed and have a high income? In addition to the above, consider setting up your own defined benefit pension plan before going with the annuity. (Clearly this wouldn't apply to a retiree.)

* Are you in a high marginal income tax bracket to the point where the value of the tax deferral offsets the fees? If not, an annuity probably won't benefit you much.

* Do you need the cash flow from the annuity or do you plan to never need the money and pass it to your heirs? Annuities tend to be one of the most tax-INefficient ways to pass money to your heirs. And you probably don't want an SPIA kind of annuity that gives you monthly payments if you don't need the income -- as that will often leave nothing to your heirs upon your passing. When you (and a spouse if the annuity includes survivor income) pass, that's the end of the money you put into the annuity.

* Are you in a high-risk occupation with a high net worth that is subject to seizure by creditors and lawsuits? If so, AND if you are in a state that provides solid asset protection for annuities (Texas and Florida, to name two large states, do so), then again if you won't need most of your unprotected assets for many years, an annuity can be part of a solid financial plan for protecting yourself against creditors and lawsuits IF all other qualified retirement plans available to you have been maxed out. (Again, if you are retired, you're probably at a lower risk of being sued, and if you're concerned about asset protection you're probably better off beefing up your umbrella liability coverage.)

And even if all of these considerations indicate that an annuity might be right for you (this probably leaves something like 2% of us), make sure you only consider good, low cost annuities with no up front sales charges and a reasonable (less than about 1%) fee per year.

Again -- for most people the answer to an annuity is "no." But there are a few exceptions, and then it's important to know whether you are in the small minority of people for whom annuities make sense, and you need to know how to evaluate annuities so you don't buy one that bleeds you dry. If you don't need current income and you want to pass it on to your heirs -- sounds like you primarily want the annuity tax deferral on the growth (and perhaps secondarily for asset protection) -- I'm not convinced that's enough of a reason given the big tax bite usually applied to inherited annuities.

#29

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Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24169 of 35400
Subject: Re: Fixed Index annuties by Allianz Date: 7/5/2008 11:59 AM
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Given that outlook, what would this board suggest as asset allocation for my nestegg? Would that include an annuity?
Thanks, Crawf
----------------------------------------------------------------------

Since you are retired including a low-cost single premium immediate annuity will allow you to increase your safe withdrawal rate.

It is really simple you are giving up estate value to spend the money now. Your estate will be reduced, however.
Even with a return of premium rider the time value of money effectively reduces an heir's buying power.

Consider buying an annuity with a portion (and only a portion) of the fixed income side of your portfolio.

Deciding if an annuity is appropriate is a very complex decision. My recommendation is to get advice from someone who will not be compensated by selling a product and/or is not interested in managing assets.

Two websites: www.GarrettPlanningNetwork.com and www.NAPFA.org

buzman

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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24170 of 35400
Subject: Re: Fixed Index annuties by Allianz Date: 7/5/2008 1:11 PM
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I am retired already and have no problems with cash flow needs or feel that I will outlive my nestegg. Given that outlook, what would this board suggest as asset allocation for my nestegg? Would that include an annuity?

Assuming your perception about not outliving your nest egg is correct, there is no possible reason for having an annuity as part of your nest egg. You should spend some time, now, looking at the possibility of annuitizing some of your assets down the road should it turn out you may have been wrong. But you certainly don't need to act now. Look at the FAQ and run a calculation on the Vanguard fixed or inflation-adjusted annuity for an age when you might really need some insurance. Remember, annuities are insurance products.

As to asset allocation, that's impossible to suggest without a better sense of our circumstances (expenses after any steady income from pension and social security versus total assets) and you age (or spouse's age if younger). Basically, if you're 65 and you only need a 3% return from your savings and investments to cover remaining expenses, all you have to do is keep pace with inflation and you're home free. That allows for a very conservative allocation. If you think you need 5% return a year not to run out of your nest egg, then you need a more risky allocation. Don't forget, expenses after retirement include taxes and home maintenance/big ticket items and usually higher health care costs.

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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24171 of 35400
Subject: Re: Fixed Index annuties by Allianz Date: 7/5/2008 2:01 PM
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I ran an inflation adjusted joint annuity (with 75% survivor benefits) through Vanguard, since it's been a while. Not a good time, with low rates, but if I were age 65 with a 63 year old wife, I would get 5.43%, with inflation adjustments i the future.

So, if my current needed supplement to cover expenses were $27,000, a $500,000 annuity would keep me covered for life, assuming CPI adjustments were a good proxy for actual inflation.

If you buy and lifetime annuity when interest rates are higher, you lock in a better deal. But it is useful to know this kind of option is available. You lose if you don't outlive the actuarial tables, but you have some protection if you don't have a big enough nest egg to survive if you live too long. It's really very similar to social security.

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Author: ziggy29 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24172 of 35400
Subject: Re: Fixed Index annuties by Allianz Date: 7/5/2008 3:16 PM
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>> You lose if you don't outlive the actuarial tables, but you have some protection if you don't have a big enough nest egg to survive if you live too long. It's really very similar to social security. <<

I guess in some sense, this is why an annuity is sold as an insurance product in many cases -- what you are doing is buying security for a price. You could look at it as an insurance policy against outliving your money.

#29

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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24173 of 35400
Subject: Re: Fixed Index annuties by Allianz Date: 7/5/2008 4:36 PM
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I guess in some sense, this is why an annuity is sold as an insurance product in many cases -- what you are doing is buying security for a price. You could look at it as an insurance policy against outliving your money.

I think that is really the only kind of annuity worth thinking about. You can delay taxes with tax-deferred annuities, but unless you are in a top tax bracket the numbers never add up (added costs aren't compensated for by delayed taxes), and if you're rich enough, there are better alternatives. And if you just want a fixed return, I'll find you a CD that can beat any fixed annuity for 5 years without the fine print.

I really do feel better, though, knowing there is an option to exchange leaving an inheritance for drawing out my principal if my calculations about having enough to cover expenses through my lifetime with room to spare prove wrong (probably because of inflation being even more than my high estimates).

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Author: DrTarr Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24174 of 35400
Subject: Re: Fixed Index annuties by Allianz Date: 7/5/2008 5:55 PM
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What should I be thinking about here

Well, this is a nice list from Ziggy!

* Maxed out your 401K, 403B, IRAs and other qualified retirement plans? * Are you self-employed and have a high income?
* Are you in a high marginal income tax bracket?
* Do you need the cash flow from the annuity?
* Are you in a high-risk occupation

pls note:
<bias> not a big fan of paying some one a huge commission for something you can do synthetically for your self</bias>

After you have thought about the above list, what exactly about an annuity do you like? What made you think this might be a good idea for YOU!? Listen to the sales pitch (unless you know you will sign under weakness) and find out what you like. Then ask how you can do that without an annuity.


d(Annuity Free)/dT
Which should tell you I have maxed my 401(k), not self-employed, opps better stop there ...LOL

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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24175 of 35400
Subject: Re: Fixed Index annuties by Allianz Date: 7/5/2008 7:12 PM
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They often cap return on good stock years not over the life of the annuity,

I never thought about it in just this way-----but this is a brilliant insight.

This is the exact same fallacy as the "covered calls" strategy. You cap the upside but keep the entire downside, in return for small but steady gains.

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Author: Lokicious Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24176 of 35400
Subject: Re: Fixed Index annuties by Allianz Date: 7/5/2008 9:59 PM
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I never thought about it in just this way-----but this is a brilliant insight.

Don't know about brilliant, but not my insight so I won't deny its brilliance. There's something in the FAQs about this and CDs that have lower than normal guaranteed rate but promise a capped boost if the 500 does well. Only you need to read the fine print to see the cap is annual not over the life of the CD.

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Author: DrTarr Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24177 of 35400
Subject: Re: Fixed Index annuties by Allianz Date: 7/5/2008 10:06 PM
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Brilliant I say - Brilliant.

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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 24178 of 35400
Subject: Re: Fixed Index annuties by Allianz Date: 7/7/2008 9:26 AM
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$(*#&#($*&(

The Endurance is AN EQUITY INDEXED ANNUITY.

It is not a fixed annuity.

The agent that sells you that POS makes between 8.75 and 10% commission.

Your money is locked up behind a surrender charge (starting at over 9%) for 10 years!

You are guaranteed .44% on 90% of your investment - which works out to a total of 4.4% (simply interest mind you) guaranteed at the end of the 10 years.

You have caps on what you can make as low as 5.5%!

Don't get tricked by the 'fake' bonus!



Call your state department of insurance and file a formal complaint against this company for trying to sell you this as a fixed annuity. Seriously.

I have seen more of this nonsense from this company than all other companies combined!

I recommended someone call and cancel this exact policy just on Friday!

Dateline on Allianz - http://www.msnbc.msn.com/id/24095230/

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