What are the drawbacks to a Fixed Annuity with a guaranteed monthly income after 10 years for life?
Thank you for your question. I will do my best to assist you with your concerns. If you would like me to clarify my answer, I will be happy to do so. Prior to law I was an NASD/FINRA licensed representative who specialized in fixed and variable annuities.The biggest drawback is a fixed annuity does not continue to earn money and interest. In theory an annuity that isn't yet annuitized can possibly earn more in interest than the minimum distribution and monthly payment would cover. On the other hand a fixed annuity, once annuitized, is absolutely fixed at whatever dollar amount is set. The second biggest drawback is loss on principal. For example if the fixed annuity is worth $100,000, and the monthly payment under the annuity are at $700 a month, that would equate to $8,400 for the year, or $84,000 guaranteed payout. Even discounting inflation and devaluation of money, there is still a $16,000 loss against the initial fixed annuity amount that you or your beneficiaries never see. Therefore while there is a great option for someone who is expecting to live beyond and much further than 10 years, should the person pass away in year 7, for example, beneficiaries get very little and it is the insurance company who pockets the difference.
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I see that you rated my answer as a negative respone, Al. What specifically have I failed to address?
Are there any annuities worth buying?
Thank you for your follow-up, Al. For future reference pressing a “1” or a "2" provides me with a negative rating from the website and reflects poorly on my work. If you need a follow-up request, please press the "CONTINUE CONVERSATION" link and as I stated above, I will be happy to respond further. To respond to your concerns:That is a very loaded question. Without knowing your strategy, age, investment risk, or what it is that you are ultimately trying to accomplish, I cannot answer that directly. I personally rarely see an annuity as a viable option unless you have a lot of capital and wish to hide some for purposes of estate preparation. Otherwise even maintaining an annuity but taking out 'minimum distribution' while it is still growing is a far better option than annuitizing because then you have more assets to work with, and your beneficiaries can obtain full value of your investment rather than a contractual remainder.Good luck.Dimitry Esquire41077.0788358449
Sorry about that. I'm new to this site. This is the senero I'm trying to figure out.I'm 58 I'll invest $100,000 for 10 years at a guaranteed 8 percent rate. I'll have over $200,000 . If I pass in the mean time the principal and interest will go to my family. If I make it to 10 years I can draw a set yearly amount for the rest of my life. If I outlive the principal the yearly income remains but family members will see nothing. What do you see wrong with this?
Thank you for your follow-up, Al.Not a problem, this is a new site feature that is still being tested. The fact that you are having difficulty seeing the link is something I will forward to the moderators as feedback, so that you are served the best way possible, and I am not unfairly negatively impacted also. Thank you again for that information, as it is truly useful.To respond to your concerns:I see two things that are problematic. First, if you make it to 68, then your family and your spouse obtain nothing. The chance that you will pursue and obtain a large amount of payments is simply not the case unless you are in excellent health and sure you will make it to your 80s. Otherwise you are in essence keeping your funds with a company that upon annuitization keeps all of it. Those $100,000 you invest are not yours if you cannot remove them, or if you must annuitize. Because of that I see no need to annuitize. When you hit 70 1/2, you would have to start withdrawing funds under minimum distribution based on a set percentage (you can remove more if you like, but there is a set amount for tax purposes that comes out). The remainder continues to accrue, should you pass, that full remaining amount goes to your beneficiaries. Therefore the amount being taken out gets partially replenished by the percentage of growth. This is better for your beneficiaries. But again it all depends on what you want to accomplish--if you want a guaranteed monthly payment, annuitization makes sense, but if you want to protect and grow capital, then continuing to grow the annuity (or mutual fund) and removing a set percentage per year while the remainder grows makes more sense.Hope that helps.Dimitry Esquire41077.0958107639