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| Subject: Re: Annuities | Date: 3/23/2014 2:55 PM | |
| Author: Howie52 | Number: 292 of 354 | |
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"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 maturity. 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. Howie52 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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