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Uptick in annuties

Many of you may be interested in this article in M*.   It could be  the sign of times.

 

12 Replies
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Participant ○○

Re: Uptick in annuties

  1. It is interesting that the increase in sales has come in an environment of low interest rates.  (I do not know what future interest rates will be, of course.)
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Valued Contributor

Re: Uptick in annuties

Seems like it's a very targeted part of the market--fixed annuities--which are more competitive and liquid than than CDs--e.g.,

"fixed market was up 24%, according to LIMRA SRI. Fixed-rate deferred showed an even more impressive gain, rising 20% from 2018 to 2016. And fixed annuities are gaining market share against variables: They accounted for 57% of sales last year, up from 53% in 2016."

I wish the article broke out who is making the purchases--e.g., accumulators, decumulators, or both.

Bob

P.S. I was surprised by this quote: " Income annuities (such as Single Premium Income Annuities) typically have commissions around 3%."  Income annuities, as the saying goes, tend to be bought, not sold .  With a commission of 3% (higher than any similar figure I've seen), I would think more would be "sold."  I believe Vanguard charges a one-time 2%, and TIAA may be the same or less for an income annuity.

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Explorer ○○

Re: Uptick in annuties

This site shows products from several companies.

The interest rate guarantee years and surrender charge years match all or most of the time.

Companies that offer the highest interest rates aren't the highest rated companies. The best rated companies offer lower interest rates. Scrolling down shows offers by Pacific Life (with strong ties to PIMCO) and Fidelity.

 

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Re: Uptick in annuties

I have not been a fan of deferred annuities, which are very different from immediate annuities, because of the high fees.  I understand the uptick in sales though.  Too many people are wondering where their income is going to come from in retirement and many of these products have downside protection against downturns, of course, this “insurance” costs missing out on bIg returns.   Making these products attractive to naive investors.

Stats

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Re: Uptick in annuties


@Statsguy wrote:

I have not been a fan of deferred annuities, which are very different from immediate annuities, because of the high fees.  I understand the uptick in sales though.  Too many people are wondering where their income is going to come from in retirement and many of these products have downside protection against downturns, of course, this “insurance” costs missing out on bIg returns.   Making these products attractive to naive investors.

Stats


I am not a fan of annuities either. I posted this for information purpose. I saw your post in Div Income forum on whether to sell T or something else. From tax point of view, I still prefer div and cap. gain approach.

As usual, people go for the wrong product at the wrong time. They panic and sell at the low end. They get euphoric and buy at the peaks.

Life goes on.

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Valued Contributor

Re: Uptick in annuties

"Too many people are wondering where their income is going to come from in retirement and many of these products have downside protection against downturns, of course, this “insurance” costs missing out on bIg returns. Making these products attractive to naive investors."

"As usual, people go for the wrong product at the wrong time."

On the face of it, there's a certain presumptuousness to these remarks.

Happily, the article cites some work by David Blanchett and Wade Pfau that has some empirical heft.

It's rarely all or nothing.

Bob

P.S. In the interests of full disclosure, feel free to indicate whether you participated in a DB or DC or combo program as an accumulator, and whether, if in decumulation, you get or have a pension.  I was DC all the way until I chose to do partial annuitization.

 

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Re: Uptick in annuties

I retired at age 70 in 2014. I kept open the possibility of annuitization for a few more years, including holding a significant position in TIAA Traditional. While technically I can still take an annuity, I definitively gave up that option this year -- at age 75.

Although, as that old line goes, "prediction is hard, especially about the future"* I've seen enough of the future in the 5 years of my post-retirement economic life to forego annuitization. Accordingly, I've begun a multi-year further realigning of my TIAA portfolio by removing my investment in TIAA Traditional via a TPA (Transfer Payout Annuity). Had I retired at a younger age, I would have been inclined toward a partial annuity option. Also, some good fortune (inheritance) made this post-retirement decision much easier.

* That line is attributed to physicist Niels Bohr. Scientists, including social scientists, are constantly making predictions. But many such predictions or forecasts are about the past, or about the results of experiments.

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Re: Uptick in annuties

To be clear, a TPA is also an annuity but not a life-time annuity but rather a 10-year annuity that begins with an initial payout , and then at an effective rate of interest of 2.50% makes subsequent payouts at 12-month intervals.

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Participant ○○○

Re: Uptick in annuties

Juris "at an effective rate of interest of 2.50%.."

Is the interest rate you are getting for the amount not distributed yet? If it is, are you sure about that?

I thought that it is vintage rate. It looked like that I was getting the vintage rates for the amounts that remains in the account (not distributed yet). Of course, my original interest rates were much higher than the vintage rate at that time.

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Valued Contributor

Re: Uptick in annuties

@Juris2 , isn't 2.5% the min for TPA with any additional amounts declared annually on Jan 1?


@Juris2 wrote:

To be clear, a TPA is also an annuity but not a life-time annuity but rather a 10-year annuity that begins with an initial payout , and then at an effective rate of interest of 2.50% makes subsequent payouts at 12-month intervals.


 

YBB
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Valued Contributor

Re: Uptick in annuties

What Yogi said is correct. My wife has a TPA, with a guaranteed 2.5% that has picked up additional amounts annually.

Bob 

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Participant ○

Re: Uptick in annuities

Crazy, I know, but I had quickly skimmed a document that I received in the mail today. Here's the relevant part. What I wrote before is wrong.

1. General Description: This contract will provide periodic payments to the payee for the period of years specified above. [Annually, for 10 years, with an amount specified -- $AB,ADE.AG -- with an "effective rate of interest" of 2.5%.]

Issue Date: 05 17 2019; Date of last payment 05 01 2028. Then discussion of possible change of payee and possibility of applying the commuted value of all remaining annuity payments to purchasing a lifetime income annuity.

2. The Rates that Apply to each part of the annuity payment is shown. A surrender charge will be deducted from any lump-sum benefit paid. The charge is equal to 2.5% times the amount of the lump sum requested.

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