I’m very risk averse. So, I went with a fixed annuity that will cover the gap between my anticipated retirement expenses and my monthly social security income. One thing it has done for my mindset, is that I’m now much more accepting of risk in my growth bucket.
In my experience, annuities work best for people who need income and have no need to be growing an investment portfolio either because they have no heirs or because they will be dead in the next 20 years. Many people get stuck on continued potential growth via the stock market when in the end what they should be doing is drawing lifetime income and not having to sweat the volatility. That said, if what you need is growth for whatever reason, then annuities are not the solution. Some people do both, and that’s okay if your portfolio is large enough and/or your expenditure needs are not that huge. Good video.
Moshe Milevsky did a lot of research about when is the best time to annuitize. Most people would do best by waiting until age 79-80 to annuitize (lock in the payment amount for life). Before then, use a bond ladder, CDs, or MYGA while waiting. The reason is that the annuity payout goes up each year you wait, so you have to include the lost opportunity cost in the calculation if you lock in a lower rate too early. 80 is also when the SPIA payouts start approaching 10% which compares favorably with stock returns.
Great content as always! Thanks so much. I have a 5 year MYGA paying 6.2 percent and a 7 year FIA with an index lock feature that I’m pleased with. Annuities can serve a useful purpose as part of a portfolio if you take the time to understand them.
"Why some people should consider annuities" I was looking forward to hearing the answer to that, but you did not. So which people and in what circumstances are annuities a good retirement vehicle ?
Why can’t financial advisors charge a fee for offering advice on retirement planning based upon reviewing a persons situation but without taking over management of the the person’s assets?
Some do, but honestly the implementation and ongoing support is where you find the real value. Vanguard has a great study on this. static.twentyoverten.com/the-added-value-of-financial-advisors.1465329922518.pdf
@@chrisforker7487I don’t get it. It’s not the advisor’s money. Why would he or she be liable for what the client does with his or her own money? It’s like a lawyer giving advice. Client can do whatever he wants including filing a suit pro se. the lawyer has no liability.
You can hire a fee-only financial advisor who will act as a fiduciary, they're very common but will charge $3k-$5k. Anyone can do it themselves if they are half decent with numbers, there are a lot of free online calculators and tools that can help you plan your retirement, especially AI!
I’m a school teacher about 7 years from retirement. I took 200,000 from my 403B and bought a FIA from Ameritas with guaranteed income rider. If I wait the 7 years to take income, the least I will receive is $25,000 a year for life. Along with SS and a small frozen pension, I will be making more money in retirement than I do now. Granted, I’m a teacher and don’t make much now but I feel much more financially secure that I’m getting about $60K a year guaranteed . I’m not married and have no outstanding bills or credit card debt. I will still have 500,000 in the rest of my 403B and a Roth IRA to deal with inflation or any big purchases or bills that may come my way. I just didn’t want to have all my money in the market and have to suffer through a 2008 type year right near retirement where I lose 30% of my portfolio and have no time to recover it.
This is where an adjusting portfolio comes into play. At the very minimum you put 3 years worth into a very safe investment like municipal bonds or t- bills. If the market takes a 5% dump one month, you withdraw 5% less. For example: let's say your one bucket is 12k/year income planned. So 3 years saved up is 36k in the safe bucket. One month in the market drops 5%. So instead of transferring $1k/month into that safe bucket, you transfer $950. It helps ensure long term stability. If you have a really positive year and did better than you expected, you keep that excess of the $12k in the high returns bucket in case there's a rainy year. In the Monte Carlos I have run this seems to work well in the vast majority of cases with a 1.9% std dev based on historical market data. But my overall ratio of safe:high return money is small. Your results may vary. So talk to a professional about an adjusting portfolio based on the returns.
Being a Public Sector worker in NYC(retiring in 5 months) I have a 403b/TDA in addition to a pension and social security. I can choose 403b/TDA to be either a traditional 403b or I can annuitize. The vast majority of workers who have partners and/or kids will choose to keep it as a 403b, however a percentage of single people with no kids or heirs will annuitize it to have a 3rd guaranteed monthly income. I’m choosing to keep it as a 403b because I had a child very late in life and now have an heir and I have some health issues (the thought of the government keeping any of my hard earned money would drive me nuts). That said, before the health complications and the child I was going to annuitize.
Bernstein said "when you've won the game, stop playing" but I've always found that phrase off putting because it assumes one will know when they've won, and know how to stop. But anyway, read an article where it was said Bernstein stated at a conference that someone living on 1% of their portfolio annually could go with 100% stocks and be fine.
We are looking at asset based Long-term Care, and one of the options being provided is an annuity with a long-term care option. I’m trying to understand the pros and cons of this vs life insurance with a LTC option - any thoughts on this?
Given the fact that academic-types such as Wade Pfau have been paid by insurance companies who sell annuities for some of this "academic" research, gives me some concern.
Kevin - I think you are doing great work. I like your channel. I know there are good and bad advisors out there. This is NOT a rant on all of them., However, I've met plenty of Fiduciaries who claim they are "obligated to do the best for their clients" and yet all they care about getting as much AUM because when they keep that clients money for 10, 20, 30 years thats an income stream for the ADVISOR where the annuity the advisor gets paid 1x.
I think an immediate annuity, purchased in a high interest rate environment, is a nice option in which to invest no more than 20% of your nest egg. Having that guaranteed income to supplement social security to cover your most basic expenses can provide some nice peace of mind. Investing more than about 20% of your nest egg in an annuity, and giving up the returns you can get over several decades from a total stock market index fund, however, would I think be a mistake.
@@markwat54 Hi dear Good evening . I hope my comment didn't sound as a form of privacy invasion your comment tells of a man with a beautiful heart which led me to comment I don’t a normally write in the comment section but I think you deserve this complement. If you don’t mind can we be friends? Thanks God bless you….🌺🌺🌺
I think it'd have been helpful to discuss the pros and cons of different types of annuities. For example, you said "you're not stuck in the annuity you purchased", which is simply not true for a Single Premium Immediate Annuity, which is irrevocable.
@@fungusamungus4930 I think it is apples (stocks) and oranges (annuities). One is an investment, the other is an insurance product. One is for growth, the other is for safety. The S&P 500 is great, until you retire right before 2008. Then have to go back to work.
I just submitted annuity review request 🙂. I now know that I could have had better returns with a term life insurance and socking the rest in a Roth IRA. But I was financially naive 2 decades ago, and if I wasn't forced to fund my annuity, I might have just consumed all that money. At least I know that at a bare minimum, I have something extra guaranteed on top of my social security during retirement.
Kevin-how was Future Proof? You stated in a previous video that you were looking forward to the shindig. I follow other financial advisor / CFP channels that have also talked about it, but would like to hear your thoughts.
Such a great conference. I really enjoyed it. I mean I got to spend 3 days outside on a beach, meeting great people. I will say didn’t find much new tech that blew me away though, but I can see that it’s coming.
Interviews with Wade Pfau are what helped me to understand that there are different ways to preserve financial security in retirement that are appropriate. Creating an income "floor" with an annuity can be a way to ensure cash flow, in the same way bonds are supposed to secure wealth during a stock market drawdown. For a lot of people, especially those with relatively high social security or pension income, annuities would not be appropriate replacements for equity investments.
Just retired. Deciding what to do with 401k. Introduced to Equitrust and a fixed index annuity w/ an income rider added. Your thoughts. Was planning to rollover into Fidelity account and invest.
Don't buy an annuity until you thoroughly read and understand every bit of the contract and all riders. Brew a fresh pot of coffee and find a comfortable chair, you'll be there awhile. I expect that your "fixed index" annuity is sold as "get market returns without the risk" or a similar pitch. In reality on the down years you will get 0 instead of losing, but on good years your returns are likely capped so your average return will be less than the index (e.g. maybe capped at 8% which sounds good, but the market tends to be bursty so you suffer a considerably lower average return than the market). In addition it might have a limited participation rate (e.g. you only get 70% of the market return, so if the market goes up 10%, you only get 7% - not even enough to hit an 8% cap, or if the market went up 20% like it did last year you might get 14% but if capped at 8% then you only get 8%. And then the fees come out, reducing your return even more. Many of these terms are subject to change at any time by the insurance company (and in my opinion they are unlikely to change significantly in your favor). In general the easiest annuities to understand are "immediate annuities" - you pay $X and they in turn will pay you $Y per month for life or for some defined period. Easy to understand means fewer places for gotchas to hide, so you are more likely to get what you expect from hearing the selling pitch. But they are not pushed as hard, because they are not as profitable for the agent.
Well they are not investment vehicles, they are insurance will a lot of fees and cost thousands because of the security it brings to someone. Plus your family members get nothing except your wife.
There’s different types of annuities. There’s also very terrible rip off mutual funds and stocks. Everything is buyer beware. I DO NOT feel sorry for fools
The only case for expensive convoluted poor return annuities is if you’ve maxed out all tax deferred options and still want to put money in a tax deferred account. This is not even smart! No annuities ever, ever, ever, unless you’re the one selling them. This is the only person they are good for!
Chris, that’s simply not what the best academic research says. At least for retirees. If you have academic research to the contrary, please share. I sympathize with your opinion, because I felt the same way - but I’ve released I was wrong or at least didn’t have a full picture. BUT, I do feel people are sold products they don’t need way more often than the opposite.
@@foundryfinancialyou can easily outperform an annuity by investing in the proper index funds! Historically they beat annuities time and time again! I have taken countless annuity CE classes for my CFP and it always, always is an expensive poor way to invest.
Annuities are terrible. Yes you are better off with stocks and bonds. What does the insurance company do with the money, but invest it of course. They don’t buy other annuities. The fiduciary standard is also a joke in your industry.
I don't have any annuities, but nothing is inherently good or bad. When people say something is good or bad, you should always ask: Good/bad for what? Good/bad for whom? I think annuities probably have a place.
Annuities have a place for uninformed who don’t want to plan…all insurance firms do is invest and hope they make more than owed out. Annuities work for those with no financial sense or ability to manage money
@@alcw625 - You're essentially saying insurance has no purpose. It's a silly thing to say. The video makes clear it is chiefly behavioral. I don't use annuities, but I might consider it so that when I'm gone my wife who has less financial acumen than myself will feel permission to spend more money without worrying about depletion even though there isn't very much chance of that.
![Twenty One Pilots - The Line (from Arcane Season 2) [Official Audio]](http://i.ytimg.com/vi/XCz7WUotXs8/mqdefault.jpg)
I’m very risk averse. So, I went with a fixed annuity that will cover the gap between my anticipated retirement expenses and my monthly social security income. One thing it has done for my mindset, is that I’m now much more accepting of risk in my growth bucket.
Same here. People are eager to chase return and ignore the risk ( market & their own cognitive decline) in retirement.
I am considering the same to cover the gap until I start SS at 70.
In my experience, annuities work best for people who need income and have no need to be growing an investment portfolio either because they have no heirs or because they will be dead in the next 20 years. Many people get stuck on continued potential growth via the stock market when in the end what they should be doing is drawing lifetime income and not having to sweat the volatility. That said, if what you need is growth for whatever reason, then annuities are not the solution. Some people do both, and that’s okay if your portfolio is large enough and/or your expenditure needs are not that huge. Good video.
Moshe Milevsky did a lot of research about when is the best time to annuitize. Most people would do best by waiting until age 79-80 to annuitize (lock in the payment amount for life). Before then, use a bond ladder, CDs, or MYGA while waiting. The reason is that the annuity payout goes up each year you wait, so you have to include the lost opportunity cost in the calculation if you lock in a lower rate too early. 80 is also when the SPIA payouts start approaching 10% which compares favorably with stock returns.
Great content as always! Thanks so much. I have a 5 year MYGA paying 6.2 percent and a 7 year FIA with an index lock feature that I’m pleased with. Annuities can serve a useful purpose as part of a portfolio if you take the time to understand them.
"Why some people should consider annuities" I was looking forward to hearing the answer to that, but you did not. So which people and in what circumstances are annuities a good retirement vehicle ?
Why can’t financial advisors charge a fee for offering advice on retirement planning based upon reviewing a persons situation but without taking over management of the the person’s assets?
Some do, but honestly the implementation and ongoing support is where you find the real value. Vanguard has a great study on this. static.twentyoverten.com/the-added-value-of-financial-advisors.1465329922518.pdf
Because they have zero control over the investment choices in the plan and what those funds invest in. It’s a liability issue for the advisors!
@@chrisforker7487I don’t get it. It’s not the advisor’s money. Why would he or she be liable for what the client does with his or her own money? It’s like a lawyer giving advice. Client can do whatever he wants including filing a suit pro se. the lawyer has no liability.
You can hire a fee-only financial advisor who will act as a fiduciary, they're very common but will charge $3k-$5k. Anyone can do it themselves if they are half decent with numbers, there are a lot of free online calculators and tools that can help you plan your retirement, especially AI!
@@foundryfinancial if you invest in a combo of ETFs you don’t need ongoing support. Maybe once a year to look into it.
I’m a school teacher about 7 years from retirement. I took 200,000 from my 403B and bought a FIA from Ameritas with guaranteed income rider. If I wait the 7 years to take income, the least I will receive is $25,000 a year for life. Along with SS and a small frozen pension, I will be making more money in retirement than I do now. Granted, I’m a teacher and don’t make much now but I feel much more financially secure that I’m getting about $60K a year guaranteed . I’m not married and have no outstanding bills or credit card debt.
I will still have 500,000 in the rest of my 403B and a Roth IRA to deal with inflation or any big purchases or bills that may come my way. I just didn’t want to have all my money in the market and have to suffer through a 2008 type year right near retirement where I lose 30% of my portfolio and have no time to recover it.
Why would you have no time to recover? Pretty much nobody recommends 100% stock market exposure when you retire.
This is where an adjusting portfolio comes into play. At the very minimum you put 3 years worth into a very safe investment like municipal bonds or t- bills. If the market takes a 5% dump one month, you withdraw 5% less. For example: let's say your one bucket is 12k/year income planned. So 3 years saved up is 36k in the safe bucket. One month in the market drops 5%. So instead of transferring $1k/month into that safe bucket, you transfer $950. It helps ensure long term stability. If you have a really positive year and did better than you expected, you keep that excess of the $12k in the high returns bucket in case there's a rainy year. In the Monte Carlos I have run this seems to work well in the vast majority of cases with a 1.9% std dev based on historical market data. But my overall ratio of safe:high return money is small. Your results may vary. So talk to a professional about an adjusting portfolio based on the returns.
Being a Public Sector worker in NYC(retiring in 5 months) I have a 403b/TDA in addition to a pension and social security. I can choose 403b/TDA to be either a traditional 403b or I can annuitize. The vast majority of workers who have partners and/or kids will choose to keep it as a 403b, however a percentage of single people with no kids or heirs will annuitize it to have a 3rd guaranteed monthly income. I’m choosing to keep it as a 403b because I had a child very late in life and now have an heir and I have some health issues (the thought of the government keeping any of my hard earned money would drive me nuts). That said, before the health complications and the child I was going to annuitize.
What do you think of buying a QLAC to help alleviate and/or lessen RMDs in the future.
I have a whole video on this. I think they’re an interesting tool for this purpose.
Kevin...my concern is about cognitive abilities as one ages. Do annuities make sense to do so as a means to protect their assets from themselves?
That’s an interesting thought. Possibly. I mean it’d make it harder to get scammed. Although a good advisor could help with that as well.
Any info on inheriting an annuity?
Bernstein said "when you've won the game, stop playing" but I've always found that phrase off putting because it assumes one will know when they've won, and know how to stop. But anyway, read an article where it was said Bernstein stated at a conference that someone living on 1% of their portfolio annually could go with 100% stocks and be fine.
We are looking at asset based Long-term Care, and one of the options being provided is an annuity with a long-term care option. I’m trying to understand the pros and cons of this vs life insurance with a LTC option - any thoughts on this?
Given the fact that academic-types such as Wade Pfau have been paid by insurance companies who sell annuities for some of this "academic" research, gives me some concern.
The best financial advisor usually is someone you meet with a couple of times a year and gets paid hourly for their advice.
Kevin - I think you are doing great work. I like your channel. I know there are good and bad advisors out there. This is NOT a rant on all of them., However, I've met plenty of Fiduciaries who claim they are "obligated to do the best for their clients" and yet all they care about getting as much AUM because when they keep that clients money for 10, 20, 30 years thats an income stream for the ADVISOR where the annuity the advisor gets paid 1x.
I think an immediate annuity, purchased in a high interest rate environment, is a nice option in which to invest no more than 20% of your nest egg. Having that guaranteed income to supplement social security to cover your most basic expenses can provide some nice peace of mind. Investing more than about 20% of your nest egg in an annuity, and giving up the returns you can get over several decades from a total stock market index fund, however, would I think be a mistake.
@@markwat54 Hi dear Good evening . I hope my comment didn't sound as a form of privacy invasion your comment tells of a man with a beautiful heart which led me to comment I don’t a normally write in the comment section but I think you deserve this complement. If you don’t mind can we be friends? Thanks God bless you….🌺🌺🌺
I think it'd have been helpful to discuss the pros and cons of different types of annuities. For example, you said "you're not stuck in the annuity you purchased", which is simply not true for a Single Premium Immediate Annuity, which is irrevocable.
QYLD/JEPQ produce monthly income and are not evil, like insurance annuities
My government pension is an annuity. My Social Security is an annuity. Just a generation ago, pensions were the "default".
Social security has a horrible ROI if you compare it to just investing the money over the same time period.
@@fungusamungus4930 I think it is apples (stocks) and oranges (annuities). One is an investment, the other is an insurance product. One is for growth, the other is for safety. The S&P 500 is great, until you retire right before 2008. Then have to go back to work.
I have several mygas at 6.15%. I use them in place of bonds.
I just submitted annuity review request 🙂. I now know that I could have had better returns with a term life insurance and socking the rest in a Roth IRA. But I was financially naive 2 decades ago, and if I wasn't forced to fund my annuity, I might have just consumed all that money. At least I know that at a bare minimum, I have something extra guaranteed on top of my social security during retirement.
Kevin-how was Future Proof? You stated in a previous video that you were looking forward to the shindig. I follow other financial advisor / CFP channels that have also talked about it, but would like to hear your thoughts.
Such a great conference. I really enjoyed it. I mean I got to spend 3 days outside on a beach, meeting great people. I will say didn’t find much new tech that blew me away though, but I can see that it’s coming.
Interviews with Wade Pfau are what helped me to understand that there are different ways to preserve financial security in retirement that are appropriate. Creating an income "floor" with an annuity can be a way to ensure cash flow, in the same way bonds are supposed to secure wealth during a stock market drawdown. For a lot of people, especially those with relatively high social security or pension income, annuities would not be appropriate replacements for equity investments.
where is the link for dave blanchett's paper?
papers.ssrn.com/sol3/papers.cfm?abstract_id=3875802
never
Just retired. Deciding what to do with 401k. Introduced to Equitrust and a fixed index annuity w/ an income rider added. Your thoughts. Was planning to rollover into Fidelity account and invest.
I’d get quotes for various, don’t go with a captive broker. But, I’d need to see a full plan before I know if it’s right for you.
@@foundryfinancial Thx so much. I keep my ears tuned to your channel.
Don't buy an annuity until you thoroughly read and understand every bit of the contract and all riders. Brew a fresh pot of coffee and find a comfortable chair, you'll be there awhile.
I expect that your "fixed index" annuity is sold as "get market returns without the risk" or a similar pitch. In reality on the down years you will get 0 instead of losing, but on good years your returns are likely capped so your average return will be less than the index (e.g. maybe capped at 8% which sounds good, but the market tends to be bursty so you suffer a considerably lower average return than the market). In addition it might have a limited participation rate (e.g. you only get 70% of the market return, so if the market goes up 10%, you only get 7% - not even enough to hit an 8% cap, or if the market went up 20% like it did last year you might get 14% but if capped at 8% then you only get 8%. And then the fees come out, reducing your return even more. Many of these terms are subject to change at any time by the insurance company (and in my opinion they are unlikely to change significantly in your favor).
In general the easiest annuities to understand are "immediate annuities" - you pay $X and they in turn will pay you $Y per month for life or for some defined period. Easy to understand means fewer places for gotchas to hide, so you are more likely to get what you expect from hearing the selling pitch. But they are not pushed as hard, because they are not as profitable for the agent.
Ask Dave Ramsey about annuities.
I’m not going to go to Dave Ramsey for nuance. I’m sympathetic to his negative reaction.
Well they are not investment vehicles, they are insurance will a lot of fees and cost thousands because of the security it brings to someone. Plus your family members get nothing except your wife.
Exactly
That’s correct. They do have fees, but not all annuities are created equal. Some are way more expensive than others.
Not all annuities.
Bitcoin
Ha
@@foundryfinancial CAGR
There’s different types of annuities. There’s also very terrible rip off mutual funds and stocks. Everything is buyer beware. I DO NOT feel sorry for fools
Give me a COLA annuity! Otherwise no thanks
The less middle men the better. They are just making money on you. If you pay me three dollars, I will give you two dollars back!
Sure, but some things are worth paying for - like peace of mind.
The only case for expensive convoluted poor return annuities is if you’ve maxed out all tax deferred options and still want to put money in a tax deferred account. This is not even smart!
No annuities ever, ever, ever, unless you’re the one selling them. This is the only person they are good for!
Chris, that’s simply not what the best academic research says. At least for retirees. If you have academic research to the contrary, please share.
I sympathize with your opinion, because I felt the same way - but I’ve released I was wrong or at least didn’t have a full picture. BUT, I do feel people are sold products they don’t need way more often than the opposite.
What is wrong with a MYGA?
@@foundryfinancialyou can easily outperform an annuity by investing in the proper index funds!
Historically they beat annuities time and time again! I have taken countless annuity CE classes for my CFP and it always, always is an expensive poor way to invest.
Annuities are terrible. Yes you are better off with stocks and bonds. What does the insurance company do with the money, but invest it of course. They don’t buy other annuities.
The fiduciary standard is also a joke in your industry.
Exactly
I don't have any annuities, but nothing is inherently good or bad. When people say something is good or bad, you should always ask: Good/bad for what? Good/bad for whom? I think annuities probably have a place.
Annuities have a place for uninformed who don’t want to plan…all insurance firms do is invest and hope they make more than owed out. Annuities work for those with no financial sense or ability to manage money
@@alcw625 - You're essentially saying insurance has no purpose. It's a silly thing to say. The video makes clear it is chiefly behavioral. I don't use annuities, but I might consider it so that when I'm gone my wife who has less financial acumen than myself will feel permission to spend more money without worrying about depletion even though there isn't very much chance of that.
Annuities are for fear based people, those who have no idea how to manage their own money, and are easily convinced by sales people.