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Author: Watty56 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75797  
Subject: Re: Professionally Managed versus Self Directed Date: 12/14/2011 4:41 PM
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In additions to the problems with annuities often being way to expensive and often underperforming add the following to your list;


1) Generally speaking now is a wonderful time to get a home mortgage because interest rates and inflation are both low. For the various types of annuities the current interest rates are usually a major factor in how much they pay. Just like getting a mortgage looks good right now; the flip side is that it is a rough time to buy an annuity. Depending on the details of the annuity you could be clobbered if (when) interest rates and inflation go up.

2) Annuities are sometimes sold as being a simple retirement solution. In reality these are some of the most complex financial products that most people will ever see. These should never be bought without getting professional advice from a financial advisor who will not a get a commission from the sale of an annuity.

3) If by some chance annuities are right for you, then for diversification you should buy several annuities from several different options from several different companies at several different ages so that the impact of something going wrong will not affect your whole nest egg.

4) Past performance numbers do not mean much. The problem is that ten years ago they could have had 20 different products and they are now only showing you the two or three that outperformed by random chance. Companies have even been known to create two essentially identical but opposite products. One of them will do great the other will quietly disappear.

5) Cost are critical. Often the stated cost does not include many legally hidden fees and costs. At the age of 65 the "safe withdrawal rate" (SWR) that you can start withdrawing from your portfolio and have a good chance of not outliving your money is around 4% (there are various assumptions and opinions about this. ) The problem is that if you are paying 1.5% in known fees and another 0.5% in hidden fees then that is 2% a year or half of you spendable money each year. It is worse for you because you are younger so your SWR is probably closer to 3% so they would be taking two thirds of you money each year with 2% in fees.

6) Often if you to lock in future income the best way to do it is by delaying when you start receiving social security so one option would be to live on your savings(instead of buying an annuity) until you are 70 and then state getting social security then to get a larger SS check each month. This really depends on the details of your situation.


7) 7) 1% of your portfolio could be a significant amount each year. Even at $200 an hour you can likely buy a lot a lot of one on one time with a fee only financial advisor who can help you without being biased to put you in high commission products.
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