Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
US and UK Coronavirus Trend Trajectories vs Bear Market and AI Stocks Sector - 30th Mar 20
Are Gold and Silver Mirroring 1999 to 2011 Again? - 30th Mar 20
Stock Market Next Cycle Low 7th April - 30th Mar 20
United States Coronavirus Infections and Deaths Trend Forecasts Into End April 2020 - 29th Mar 20
Some Positives in a Virus Wracked World - 29th Mar 20
Expert Tips to Save on Your Business’s Office Supply Purchases - 29th Mar 20
An Investment in Life - 29th Mar 20
Sheffield Coronavirus Pandemic Infections and Deaths Forecast - 29th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast - Video - 28th Mar 20
The Great Coronavirus Depression - Things Are Going to Change. Here’s What We Should Do - 28th Mar 20
One of the Biggest Stock Market Short Covering Rallies in History May Be Imminent - 28th Mar 20
The Fed, the Coronavirus and Investing - 28th Mar 20
Women’s Fashion Trends in the UK this 2020 - 28th Mar 20
The Last Minsky Financial Snowflake Has Fallen – What Now? - 28th Mar 20
UK Coronavirus Infections and Deaths Projections Trend Forecast Into End April 2020 - 28th Mar 20
DJIA Coronavirus Stock Market Technical Trend Analysis - 27th Mar 20
US and UK Case Fatality Rate Forecast for End April 2020 - 27th Mar 20
US Stock Market Upswing Meets Employment Data - 27th Mar 20
Will the Fed Going Nuclear Help the Economy and Gold? - 27th Mar 20
What you need to know about the impact of inflation - 27th Mar 20
CoronaVirus Herd Immunity, Flattening the Curve and Case Fatality Rate Analysis - 27th Mar 20
NHS Hospitals Before Coronavirus Tsunami Hits (Sheffield), STAY INDOORS FINAL WARNING! - 27th Mar 20
CoronaVirus Curve, Stock Market Crash, and Mortgage Massacre - 27th Mar 20
Finding an Expert Car Accident Lawyer - 27th Mar 20
We Are Facing a Depression, Not a Recession - 26th Mar 20
US Housing Real Estate Market Concern - 26th Mar 20
Covid-19 Pandemic Affecting Bitcoin - 26th Mar 20
Italy Coronavirus Case Fataility Rate and Infections Trend Analysis - 26th Mar 20
Why Is Online Gambling Becoming More Popular? - 26th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock Markets CRASH! - 26th Mar 20
CoronaVirus Herd Immunity and Flattening the Curve - 25th Mar 20
Coronavirus Lesson #1 for Investors: Beware Predictions of Stock Market Bottoms - 25th Mar 20
CoronaVirus Stock Market Trend Implications - 25th Mar 20
Pandemonium in Precious Metals Market as Fear Gives Way to Command Economy - 25th Mar 20
Pandemics and Gold - 25th Mar 20
UK Coronavirus Hotspots - Cities with Highest Risks of Getting Infected - 25th Mar 20
WARNING US Coronavirus Infections and Deaths Going Ballistic! - 24th Mar 20
Coronavirus Crisis - Weeks Where Decades Happen - 24th Mar 20
Industry Trends: Online Casinos & Online Slots Game Market Analysis - 24th Mar 20
Five Amazingly High-Tech Products Just on the Market that You Should Check Out - 24th Mar 20
UK Coronavirus WARNING - Infections Trend Trajectory Worse than Italy - 24th Mar 20
Rick Rule: 'A Different Phrase for Stocks Bear Market Is Sale' - 24th Mar 20
Stock Market Minor Cycle Bounce - 24th Mar 20
Gold’s century - While stocks dominated headlines, gold quietly performed - 24th Mar 20
Big Tech Is Now On The Offensive Against The Coronavirus - 24th Mar 20
Socialism at Its Finest after Fed’s Bazooka Fails - 24th Mar 20
Dark Pools of Capital Profiting from Coronavirus Stock and Financial Markets CRASH! - 23rd Mar 20
Will Trump’s Free Cash Help the Economy and Gold Market? - 23rd Mar 20
Coronavirus Clarifies Priorities - 23rd Mar 20
Could the Coronavirus Cause the Next ‘Arab Spring’? - 23rd Mar 20
Concerned About The US Real Estate Market? Us Too! - 23rd Mar 20
Gold Stocks Peak Bleak? - 22nd Mar 20
UK Supermarkets Coronavirus Panic Buying, Empty Tesco Shelves, Stock Piling, Hoarding Preppers - 22nd Mar 20
US Coronavirus Infections and Deaths Going Ballistic as Government Start to Ramp Up Testing - 21st Mar 20
Your Investment Portfolio for the Next Decade—Fix It with the “Anti-Stock” - 21st Mar 20
CORONA HOAX: This Is Almost Completely Contrived and Here’s Proof - 21st Mar 20
Gold-Silver Ratio Tops 100; Silver Headed For Sub-$10 - 21st Mar 20
Coronavirus - Don’t Ask, Don’t Test - 21st Mar 20
Napag and Napag Trading Best Petroleum & Crude Oil Company - 21st Mar 20
UK Coronavirus Infections Trend Trajectory Worse than Italy - Government PANICs! Sterling Crashes! - 20th Mar 20
UK Critical Care Nurse Cries at Empty SuperMarket Shelves, Coronavirus Panic Buying Stockpiling - 20th Mar 20
Coronavirus Is Not an Emergency. It’s a War - 20th Mar 20
Why You Should Invest in the $5 Gold Coin - 20th Mar 20
Four Key Stock Market Questions To This Coronavirus Crisis Everyone is Asking - 20th Mar 20
Gold to Silver Ratio’s Breakout – Like a Hot Knife Through Butter - 20th Mar 20
The Coronavirus Contraction - Only Cooperation Can Defeat Impending Global Crisis - 20th Mar 20
Is This What Peak Market Fear Looks Like? - 20th Mar 20
Alessandro De Dorides - Business Consultant - 20th Mar 20
Why a Second Depression is Possible but Not Likely - 20th Mar 20

Market Oracle FREE Newsletter

Coronavirus-bear-market-2020-analysis

How to Avoid the Pitfalls of Variable Annuities

Personal_Finance / Pensions & Retirement Jun 21, 2013 - 11:28 AM GMT

By: Don_Miller

Personal_Finance

Last year consumers purchased $200 billion in annuities. On top of that, there are currently $2-3 trillion in annuities already in force. With all the variations, options, riders and strategies available, it's easy to feel lost. At Money Forever, we aim to simplify complex financial topics. To that end I’m going to share a case that jumped out at me as we researched our special report on annuities. The evaluation process used here translates to any sort of annuity you may encounter; its information you can keep in your back pocket and draw on when annuity salespeople try to overcomplicate products and make predictions sound like guarantees.


In this article I'll tackle what could be the most misunderstood flavor: the variable annuity. Let's start with a story about our friend Erik…

Variable Annuities

Erik's friends bought into the idea of buying their own pension with an annuity. They had taken large payouts from their employer and had put it all into annuities. This was back when putting your entire portfolio into annuities was still allowed.

As Erik explained, the annuities were variable and many of his friends had experienced a 30% cut in their monthly benefits after the stock market crash. At one time, his friends used to brag about how pleased they were with their annuities.  Despite the praises from his friends, Erik thankfully didn't follow their lead, and unfortunately for them, the tide turned. Their income was reduced while their expenses continued to rise. 

The insurance company was totally honest and paid their benefits according to the contract. But the buyers did not understand the contract and had very different expectations. When their benefits dropped, they had to make major changes in their lifestyle.

With this story as our background, one of your first questions is most likely: why did the annuity income drop so radically? The answer is easy to understand. 

Prior to 2008, if you took a lump sum investment and put it into a variable annuity, the company would take a conservative approach to investing your funds. Typically, half the funds would have been invested in quality, safe fixed-income products like CDs and top-rated bonds, which used to pay 6% consistently. The other half would have gone into the stock market. Previously, the fixed-income side of the annuity was the safe side, and the stock market side was the less predictable, variable part. But in good times, like the run-up to the 2008 crash, even the stock market side of it could pretty safely expect a 10% return per year.

The way most people saw it, the fixed-income side guaranteed a 6% return on half the money – even if the market crashed, one would still be set. 

What happened in the fall of 2008 changed that picture quickly as banks called in their CDs and interest rates across the board plummeted. AAA-bonds and FDIC-insured CDs were paying nowhere close to 6%. What was once the safe, cash flow portion of the investment capital suddenly became variable as well.  The investments were technically still safe, but the once decent yield became close to nothing. And of course, we all know what happened to the stock market. So the variable side and "safe" side of the portfolio were hit simultaneously.

While the word annuity in "variable annuities" might make it sound like a safer investment, it's ultimately not. Your money is still in the market. In fact, in some ways, it's at even more risk.

If you simply owned your own mutual fund or fixed-income fund, you could have sold at any time without penalties; the same is not always true of annuities. With variable annuities, your money is in the market with more fees and less control – a toxic combination. Variables annuities are certainly not the same as a guaranteed pension for life.

Not all annuities are bad deals, but before you start asking for quotes on annuity products, you'll want to do some homework. To help you get started we've put together an easy-to-read report called Annuities De-Mystified. You'll find our 8-point checklist to find out if an annuity is right for you, our 9-point plan showing you what to look for when buying an annuity, and an important overview of the risks associated with annuities all within the pages of this timely, must-read report. Click here for your free copy today.

Back when I was a kid we purchased our first television. It was one of those with the small, round glass, black and white screen and poor sound quality; it looked more like furniture than advanced technology. But it was ours and we proudly watched it together as a family. As a Chicago native I naturally watched WGN whenever I could. So imagine my surprise when they called to do an interview about my book, Retirement Reboot. Whether you live in Chicagoland or not you likely get WGN-TV Superstation on your cable or satellite system. So if you have a few minutes between 11 am and 1 pm CDT on Tuesday, June 25th be sure to tune in for my interview.

© 2013 Copyright Casey Research - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Casey Research Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules