Annuities

[Molly]

Does anyone know anything about annuities? I was told to stay away from variable annuities, but to consider fixed indexed annuities. How do you find the fees? I heard they are hidden and hard to find.

[LDAHL]

Does anyone know anything about annuities? I was told to stay away from variable annuities, but to consider fixed indexed annuities. How do you find the fees? I heard they are hidden and hard to find.

i would suspect that if you google "fixed index annuities", you would get mainly negative comments (the others would be from annuity salesmen). They are products that charge a fairly high fee in exchange for limiting your downside risk. There's a reason they get marketed so aggressively. For myself, I have two general rules I apply to evaluating these products:

1) If something seems too good to be true, it probably is.

2) Never buy any financial product that you have difficulty understanding.

[bae]

How do you find the fees? I heard they are hidden and hard to find.

And if you think about that for a moment, that tells you all you need to know.

Stay away.

[gwendolyn]

Just saw this apropos post from economist Dean Baker. [...= excerpts]

...The economist Barbara Bergmann died last week... Barbara was an extraordinary person. She got her PhD in economics in the early 1960s; a time when virtually no women entered the profession. She made extensive contributions to the field, most of them in the area of gender economics.

... She gave a talk in which she explained testimony she had given in a case on gender discrimination in annuities. Prior to this case, insurance companies usually made lower annual payouts to women than men, based on the fact that women had longer life expectancies. The case in which Barbara gave her testimony overturned this practice after the Supreme Court ruled it was illegal discrimination.

Barbara explained the nature of her argument by pointing out that there was huge overlap in the distribution of longevity between men and women. Women had longer life-spans on average mostly because a relatively small number of women lived very long lives. She argued that it didn't make sense to give lower annuities to all women because of these long-lived women...

After the lecture, a number of the grad students were arguing over this issue. Most seemed to share the view of our faculty, that the differences in annuities was justified by women's longer life expectancies. Then someone suggested that African Americans should get larger annuities than whites, since they have shorter life expectancies. Several of the advocates of lower payments for women immediately jumped on this as race discrimination. (Yes, everyone was white.)

This episode taught me a lot about economists, if not economics. [eta: and about annuities...]

[SteveinMN]

There is nothing wrong with an annuity so long as you understand what you're paying for and it meets your other investment goals. We have a sizable annuity among our pensions and deferred-comp plans. As anywhere else in the investment world, diversification is your friend. A steady source of income not dependent on how stocks/bonds/real estate is doing when you need the money is A Good Thing. I say this as someone who has no involvement on the commission end of the investment world.

[TVRodriguez]

I don't have any annuities, nor do I sell any. In talks with various financial professionals who have earned my trust, I've heard them say that annuities can be beneficial in some instances. One of these instances was dealing with a client who was a spendthrift but who could budget a bit better with a monthly "salary" from an annuity vs. taking a percentage out of his investments each year.

[Polliwog]

+1 to SteveinMN. I have a sizeable annuity and when the market took a dive, I didn't lose anything. That was my goal in getting an annuity. At my age I felt that I could not risk losing what I had built up. I have been very happy with my monthly income.

Linda