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Lane
Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 4004
Experience:  Providing Financial, Tax & Business advice since 1986
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At age 74 which (,from a professional opinions viewpoint) what

Customer Question

At age 74 which (,from a professional opinions viewpoint) what would be the best type of annuity. I know this is general with all the other variables and I have a good knowledge of
the different types of products out there so I am just asking a general question.
My beneficiary is 68. My income is under 40,000. My Medical insurance is paid through my former job less 15.00 copay. I assume inflation will rise and want to have some sort of inflation protection. No outstanding debt. Any independent thought.
Submitted: 10 months ago.
Category: Finance
Expert:  Lane replied 10 months ago.

Lane :

Good morning! I can help with this..

Lane :

It sounds like you already have a feel for the various types of annuities ... and it sounds like you're interest in an annuity already in payout (rather than still in the accumulation phase, tell me if I'm wrong) ... but the same analysis must go into the purchase of a secondary annuity as with any other annuity ... with these structured payouts, in today's world, the origin is still an insurance company ... so one of the most IMPORTANT factors is the soundness and strength of the underlying insurance company

Lane :

The secondary market DOES provide a higher effective interest rate (amount of payout relative to the principal invested - with all other things being equal, such as age of annuitant & beneficiary, and the payout taken, such as life income, life income with survivorship, life income with survivorship and a refund to a third beneficiary, term certains, etc. etc.)

Lane :

As you probably know, they type of payout taken will vary the amount, but that's just the actuarial math of the annuitant's age (factored by a beneficiary's age, if there is on) ... OR ... The guaranteed length of payout if a term certain is taken....... As you shop from company to company you'll see that, comparing apples to apples (keeping everything else like amount invested equal) those things cause the exact same variations in payout

Lane :

SO .. the only REAL variable is the interest rate that used to drive the payout and there won't be a LOT of variation there either because all of the insurance companies use the same rates (HOWEVER, if you shop ENOUGH, you may find some companies using higher rates than others simply because of their business model ... meaning, they're willing to take a little less profit on their fixed annuity products because (1) they've kept their costs down, (2) use it a s a loss leader to drive traffic to other more profitable products, or (3) maybe have a higher surrender charge on their fixed annuities that are still in accumulation phase (the ones that have not been annuitized and locked into a payout yet)

Lane :

By bringing up secondary market annuities, you have brought up the BIGGEST differentiation, if you want more payout for the money. WHY? because someone sold their annuity payout at a discount, because they wanted the cash NOW ... and after the market maker has taken a little of that spread, many times the buyer (you) of that income stream can still get a much higher payout (all other things being equal) that if you went directly to the insurance company.

Lane :

sorry for the typo "THAN" if you went to the insurance company ...

Lane :

However, DO ALL YOUR HOMEWORK here, because JUST as with all other annuities, there are SO many variables that it's easy to be SOLD ... just remember there are no free lunches ... AND ANYTIME return is higher, risk is higher ... with secondary annuities there are more intermediaries ... more parties between the actual insurance company that's paying out that annuity and you ... and they have re-packaged that income stream by, again buying it at a discount, taking some of that as profit and then paying out to you something higher that a directly purchased annuity because of the hit the person who wanted their money up front as a lump sum

Lane :

The things you should ask are (1) Am I the true owner of the annuity stream OR am i just an assignee

Lane :

(1) Is this income still guaranteed BY the underlying insurance company to ME? OR are you (the person/company selling me this annuity) actually making the guarantee and the insurance company's guarantee still really belongs to you?

Lane :

(2) Each Secondary Market Annuity is unique and comes in various amounts and durations. ... GO to a large highly rated insurance company (Prudential, New York Life, XXXXX XXXXXcock) get them to give you quote for severla different payouts based on you, your beneficiary, a set amount of money, and several different term certains ... that way you can really see by comparing to secondary market annuities with the same exact payout what kind of advantage you're getting by buying in the secondary market

Lane :

(3) Once you know that you have really been guaranteed, to your satisfaction, the payout (either by the underlying insurance company OR the company that is really making you the guarantee) LOOK VERY HARD at the strength of that entity. There are various rating agencies for insurance companies ... AM Best ... Moody's ... S&P ... Wiess are probably the best at truly peeling back the onion ... and if you find that the secondary market maker is really the one making the guarantee TREAD VERY CAREFULLY

Lane :

Again, there are no free lunches ... if they payouts just seem too goo to be true, there may be a reason .. again, there's always a little more risk (of SOME kind) when there's more return

Lane :

I hope this has helped

Lane :

Lane

Lane :

Please let me know if you have any questions at all

Expert:  Lane replied 10 months ago.

Hi Simone,

 

Our chat has ended, but you can still continue to ask me questions here until you are satisfied with your answer. Come back to this page to view our conversation and any other new information.

What happens now?

If you haven’t already done so, please rate your answer above. Or, you can reply to me using the box below.

 

Lane

 

Expert:  Lane replied 10 months ago.
Hi Simone,


I'm just following up with you to see how everything is going. Did my answer help?


Let me know,
Lane
Customer: replied 10 months ago.

Hi, Your answer was excellent as I just responded to JA in their survey via email with a 10 for everything. I didn't see any places on the top of the page where I could give you the 10 rating on top of the page as they usually have. It just says 0 positive ratings.

If you need me to do something else please ask. By the way instead of trying to figure out which way to go on this annuity I was purchasing good quality income stocks so I guess I'll probably stick with that for now.

Expert:  Lane replied 10 months ago.

Hi Simone,

Boy I wish I could see what you're seeing.

I'll forward what you' said here to the moderators and maybe they can fix whatever going on.

I think to rate you may use the "Smiley faces," that correspond to (1) bad, (2)fair, (3)OK, (4)good and excellent?

... just wish I could see what you're seeing.


ON the stocks? Sounds good, especially of you have enough to work with, that you handle the inevitable low periods.

You may want to look for stocks that have a bets of less than 1 (less volatile than the market, generally, and that always pay a good (even better an always increasing) dividend.

Glad you liked the answer ... same old same old really, you just have to look for WHY/HOW they can pay a higher payout (and on those secondary market annuities, it's usually because someone was willing to sell the income stream for less than it was really worth, to get that lump sum "right now.")

THanks!

Lane




Lane, JD, CFP, MBA, CRPS
Category: Finance
Satisfied Customers: 4004
Experience: Providing Financial, Tax & Business advice since 1986
Lane and 5 other Finance Specialists are ready to help you
Expert:  Lane replied 10 months ago.

Looks like they took care of it for you Simone.

Thanks again,

Lane
Customer: replied 9 months ago.
Hello Lane,
This is a follow up new question regarding the same category.
I tried to narrow down the options for you to attempt to give me some solutions (or if you have a better idea) on how I can preserve my money and keep up with inflation at the same time. I want guaranteed lifetime income, predictable steady income payments, growth potential to help keep pace with inflation and a beneficiary in the event I have used all my principle. (Immediate annuity) (hybrid)or anything else. I have been told that there is a fidelity guaranteed life insurance co. with a 3.5 % (not fidelity Brokerage Co.)(looked it up and it has a B++ rating) googenheim (2.85) with A rating. Knight of Columbus with A+ 2.4%
Right now I have purchase a preferred stock (GE with 4.8%) mature 2023. would you consider that an option. I just need to talk to someone without a personal involvement. Thanks.
Expert:  Lane replied 9 months ago.

Hi Simone,

Again, remember that I can't give what's coined "investment advice," as the site isn't registered as an investment adviser. I can, however, provide you with information that I think will help you make an informed opinion.

In today's low interest rate environment, 4.8% (on a security that gets preference over the common stock of the company in the even of troubles) and actually trades more like a bond ... is a pretty good way to SIGNIFICANTLY reduce the volatility that comes with equity AND get that kind of yield.

Also, just so you know, S&P rates GE, generally, right now as a buy (4 out of 5 stars) and Thompson Reuters as a 9 out of 10).

Here are the most recent research reports:

https://app.box.com/s/yl2dez8d8tybu024b50t


https://app.box.com/s/3lmlt6z5cxaoa0bny3af




The annuity is NOT with the best rated company in the world, but in what AM BEst would call the "stable" category;

here, for example is their Debt rating from AMB:

Long-Term: bb+
Outlook: Stable
Action: Affirmed
Effective Date: November 06, 2013
Initial Rating Date: March 26, 2013

And this is the key:

Insurance Company ICR

Investment Grade

Non-Investment Grade

aaa (Exceptional)

bb (Fair)

aa (Superior)

b (Marginal)

a (Excellent)

ccc, cc (Weak)

bbb (Good)

c (Poor)


So that puts them on the plus side of fair. (In terms of the company's debt)

Now, the general overall rating rating for them (about the same):

AMB #Company NameFSRFSR Outlook / ImplicationLong Term ICRICR Outlook / ImplicationShort Term ICRCompany DomicileDebt Ratings Available
050904Fidelity & Guaranty Life Holdings Inc
Insurance - Life, Annuity, and Accident (Intermediate Holding Company)
bb+Stable US: DelawareYes
007122Fidelity & Guaranty Life Ins Co of NY
Insurance - Life, Annuity, and Accident (Operating Company)
B++Stablebbb+Stable US: New YorkNo
006384Fidelity & Guaranty Life Insurance Co
Insurance - Life, Annuity, and Accident (Operating Company)
070403Fidelity & Guaranty Life Group (G)
Insurance - Life, Annuity, and Accident (Data Consolidation - A.M. Best Consolidated Group) Rating Unit
B++Stablebbb+Stable US: IowaNo
Expert:  Lane replied 9 months ago.

To try to connect the dots here, ...

Annuity:

The annuity (if you annuitize, rather than take withdrawals) will probably still provide more monthly income (because a portion of that payment is calculated based on a return of principal) .. but, as we've discussed, as long as the insurance company stays above water, that income will last as long as you do, if you take the life income option.

So only life expectancy tells you which is a better investment, from a purely financial objective.

The annuity will also provide a tax advantage. Because of the exclusion ratio (a portion of the payment will be tax free (the part of each monthly payment this a return of principal... the interest portion is taxable).



Preferred Stock:

Again, the company, GE is much stronger, but in the world we live in, I don't think the government will let either one go under ... Further each state has a fund that insures (not dollar for dollar, however), it's insurance companies ... How long has it been since you heard of a life insurance company going belly up and simply not paying it's insureds and annuitants... Government has already bailed out a couple of giants.

When the preferred stock matures you'll have another decision to make .. for some that's good (more options).


My GUT (pure speculation) is that neither will go belly up and that's what matter most here, again, because both are fairly fixed type investments.

GE's not going anywhere and the insurance company will be bought or bailed out before truly going down.

So you have more guarantees of stability of principal in the Annuity, but probably more financial strength, generally, in GE

Let me know if this is what you're looking for

lane
Expert:  Lane replied 9 months ago.

One last thought Simone.

THis gets dangerously close to investment advice (making actual investment recommendations) but if you do go th annuity route I would look to the larger, stronger companies.

I'm going to give you several, so that I'm not providing recommendations.

Prudential Insurance Co of America
Insurance - Life, Annuity, and Accident (Operating Company)
A+Stable

New York Life Insurance and Annuity Corp
Insurance - Life, Annuity, and Accident (Operating Company)
A++Stable

John Hancock Life Insurance Company USA
Insurance - Life, Annuity, and Accident (Operating Company)
069542 Financial Life Group (G)
Insurance - Life, Annuity, and Accident (Data Consolidation - A.M. Best Consolidated Group)
A+Stable

Lincoln National Life Insurance Co
Insurance - Life, Annuity, and Accident (Operating Company)
069556Lincoln Financial Insurance Group (SG)
Insurance - Life, Annuity, and Accident (Data Consolidation - A.M. Best Consolidated Sub-Group) Rating Unit
A+Stable

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