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According to our FA, the Prudential Highest Daily Lifetime Income Annuity with the 5% guarantee is closing out this week.

He feels it is a good investment for the following reasons.

1. If they are suddenly closing it out, they are worried about losing money on it. If they are losing money, we might actually have a higher likelyhood of making money off of it.

2. As a proxy for Long term care - it will switch to a 10% payout if you cannot care for yourself for 120 days.

However, I noted that you have to annuitize the account and have 3 years taking payments before you can use this. So basically, it seems to me that you either have to know that you will need the care three years down the line, or just go for annuitizing after the 12 years to see if you live long enough to get value out of this. The account is guaranteed to double in 12 years for annuitization purposes.

3. It can be used as an estate planning device. Death Benefit locks in at the highest daily point your initial investment hits until you take the benefit or start taking payments.

This seems like a fairly good thing and reason not to annuitize.

If the market just continues to go up, we transfer over the money via a hopefully non-taxable death benefit

If the market goes down, we still transfer over the highest our initial investments hit.

Problem? Comes back to the drag fees might have on the investments.

4. Similar to bonds, real estate, etc. it would add a piece of stability should things go south in the world markets. Assuming Prudential survives.

We currently have an allocation of 37% stocks, 8% bonds, 1% cash, 29% real estate, 8% retirement savings (outside of pensions), and a chunk we are pondering that just came in of about 16% in liquid assets (read inheritance here).

So, the questions. How good of an investment is this in terms of a stability piece. At best, we would put 8% of assets in. Or we could buy another piece of real estate, or bonds, or traditional life insurance.

The annuity is so complex it has taken me a couple of days to just work through it, but I do take the FA point about Prudential closing it out. Just trying to put our retirement planning together


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Am I in the presence of a salesman?
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Actually no - ocean stuff is my job.

I am concerned since our fiscal guy suddenly wants us to buy due to the closeout and I don't like moving fast. My inclination is to say no - but I am trying to figure out if I am missing something. I am working on doing my homework on this, but if I can't feel comfortable, I will just not commit and let it go by.

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Again, I would adhere to the commonly phrased message: "If it sounds too good to be true, it usually is."

Annuities are not my thing. Better to get LTC insurance.

Donna (has had LTC coverage since age 54)
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Remember, a VA should probably not be viewed as an investment, they are sold by insurance companies so think of it as income insurance. If your particular situation would benefit from a set amount of guaranteed income then it could be worth looking at. If you are looking at it as an investment standpoint solely - the fee drag alone makes this a different discussion and possibly not a good decision.

I do know that many good companies such as PRU have pulled products from the marketplace or made changes in such a way to make them less attractive - the low interest rate environment, reserving requirements set by the regulating bodies and other factors relating to the cost of capital have forced their hands with this. So in some instances some have viewed these VA's as a "mispriced bet" in favor of the consumer.

Your comment about not annuitizing is spot on, the way the contracts are structured there is a very limited number of reasons you would ever want to annuitize it, in fact I have been told that a very very small percentage of them actualy ever annuitize.

Again, not for everyone but they are also not your grandfathers annuities either.

One thing to consider is the amount of guaranteed income you could generate from the annuity, this strategy if done right might allow you to maybe take some more aggressive approaches with the rest of your portfolio.

Just some thoughts, but remember the basic premises with annuities, they are an insurance product, not investments. This line I think has become blurred in recent times.
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Well said, tscotta. Welcome to Motley Fool. (Is this really your first posting, or is this a reincarnation?)

If your particular situation would benefit from a set amount of guaranteed income then it could be worth looking at.

Agreed, but its also worth noting that an immediate fixed annuity is often the best and cheapest way to guarantee income. The frustrating part of a variable annuity is the variable part.

That implies that investing your funds in mutual funds or equities could be the best move for now. (No guarantee of minimum returns, but also lower cost and freedom to easily change if your strategy needs adjustment.) Then make the best deal you can and buy a fixed annuity when you need the income.
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The product is not closing so much as it is simply cutting the top off of how lucrative it has been.

This is a trend with most VAs. Many companies have even gotten out of the business because they simply lost too much money on the guarantees they paid clients (win for you, loss for the insurance company).

Hartford quit this business shortly after having to take TARP money. AXA is offering buy-outs to clients if they would give up some of their benefits. Metlife just cut benefits on new contracts too.

Pru is cutting their 5% deal to 4.5%, increasing the cost of that benefit by .10%, and reducing the amount it can grow from double to compound over 10 years.

Getting it before the end of this month makes sense if you are thinking of this at all as those that buy before the cut off get the current benefit and not the lower and more expensive new one.

That does not make this more suitable for a person than it used to be but there is no question that this will not be as good (relatively speaking) of an option after the change.
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Yes, first post, no reincarnation - lol.

Your comments are exactly right and could not agree more but I was operating under assumption that the particular person looking for insight was not looking for guaranteed income today but rather on a deferred basis or at some point in the future.

You are 110% correct, if you need guaranteed income today, I to am led to believe an immediate fixed annuity is probably the most efficient way to get there today. If a guaranteed amount of income is what you are looking for in the future than that is what I was referencing when stating that you might consider the VA.

You are right, in my findings, the variable portion of the VA is the frustrating part and most difficult to understand but some may look at it as just potential gravy on top of the income benefits they can provide.

Based on my orginal comments and my opinions, you should first be looking at this annuity from an income, not investment perspective. I am going to put X dollars in today, my benefit base from a withdrawl standpoint will be X dollars at some point in the future (usually double 10-12 yrs out) and I will get X percentage of income - in this question I am going to have to assume that the VA5 means that the 5 means that 5% of the benefit base will be paid out on a lifetime basis when income is elected to be taken. I have no idea if that is the case but many of the more competitive ones pay out somewhere around 5%. If the variable portion performs better then the guaranteed amounts than the payouts could potentially be higher. One would have to and need to recognize what the realistic chances of this happening are however. The expsensive fee drag, sequencing of returns, timing of purchase, and many other factors are all going to influence and probably provide extreme headwinds in allowing the variable portion to attain levels above the guaranteed benefit bases.

Again, these are not for everyone (including me, not looking for income anytime in the 10-12 yr window) but my mother and mother in law were good fits for them and why I took the time to truly understand them. At some point, many are willing to trade peace of mind for rate of return and if that is the case then it might be worth looking at.

A mentor of mine once told me that expenses and fees are only questioned in the abscence of value. If a guaranteed income stream with minimal risk (carrier default risk is probably the most prevelant risk in these products) is of value to you then they are worth looking at. This is not of any value to me so I am tend to look at these in a different light and beat them up on the basis of being very expensive than someone who might see a different value in them.
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