Annuities vs 30 Year Bonds with Interest

[ljevtich]

My parents put $400K into an annuity and get a certain amount out every month. We put our money into 30 year bonds 6-7 years ago and earn a nice return. My DH's IRA CD is going to come due next year and there is a good amount of change in that CD. We will not need that money for a while yet so:

A. We roll it into another CD (only if it is earning 4% though)
B. We buy Treasury Bonds with it (I believe by next year the yields on the 30 year bonds will be back up at 4%) and put the money earned into a IRA CD but I don't know how to set that up.
C. We consider an annuity but again, I do not know anything about those.


I asked my parents about the annuity because they get a set amount of money every month from it. Whether or not the stocks or mutual funds go up or down, they get the exact same amount every month. Thing is, they use a financial advisor and pay for it with the fees. They found they did not want to take the time to do it themselves, either because they did not understand it or they did not want to take the time to do it themselves.

I personally feel I want to know what is going on with my finances, and I take pleasure in learning about it plus doing it on my own. I think 4% is a reasonable amount of interest and figure that we can be frugal if necessary so that the numbers work. And they do. We still work half the year, and so will not need those saving for a long time, but I figure I should start researching it now, so that I can make an informed decision later.

Therefore, I need your help.

Does anyone have an annuity and can share information about it - the nuts and bolts of an annuity?
Or do you think Annuities are scams to be avoided at all costs?

And does anyone know how I can set up to buy 30 year Treasury Bonds (I actually know how to do that part but...) taken out from an IRA and set up the interest to go into an IRA Money Market or CD?

Thanks everyone for your help. Glad to be back in Internet Land for a few days, then I'll head up to the Mountain again.

[try2bfrugal]

Does anyone have an annuity and can share information about it - the nuts and bolts of an annuity? Or do you think Annuities are scams to be avoided at all costs?

I do not think the annuities from established companies are scams. They are often good investments, especially when interest rates are higher, the buyers are older, and maximizing the amount of money for an inheritance isn't an issue.

If you check the posts on the early-retirement.org forum there many discussions on the pros and cons of annuities. Most posters there do not seem to be fans of annuities right now because of the low interest rates, but some still buy them.

You can spread your risk of default by buying multiple, smaller annuities from different companies instead of a single annuity from one company.


And does anyone know how I can set up to buy 30 year Treasury Bonds (I actually know how to do that part but...) taken out from an IRA and set up the interest to go into an IRA Money Market or CD?

I buy TIPS and Treasury bonds for IRAs and 401K plans through our retirement accounts at Fidelity.

[ljevtich]

Thanks try2bfrugal. See, I do not know why you would go with an annuity if the interest rates are higher anyway, because then there would be higher interest rates for bonds too, and they are more secure than an annuity that could belly up.

I would rather not go to another forum to read, that is why I posted here. I belong to a few places to begin with which is why I asked the question here. If necessary I will go to other places, but I first wanted to try here.

With Fidelity, you have it set up through them but I am trying not to use an investment company which charges fees, but instead buy through Treasury Direct and have a simple IRA Money Market which then could have the interest go into CDs when necessary. The money right now is in a semi high interest rate CD and won't come due for a year.

So I do not want to incur a penalty by taking the money out after the CD is done and buying Treasuries. I guess I have to check with Treasury Direct too.

[try2bfrugal]

With Fidelity, you have it set up through them but I am trying not to use an investment company which charges fees.

Fidelity does not charge a commission fee on TIPS and Treasury bonds bought at auction for our retirement accounts. I do not know if they have the best rates when we buy and sell on the secondary market. For our business 401K plan many other companies I checked into would charge a percent of assets or other annual fees so I went with Fidelity because they do not. I am sure they make their money up in other ways, like I know their brokered CD rates are not the best. I just try to stick to investments with competitive rates and without any extra fees or commissions as much as I can.

[SteveinMN]

I do not think the annuities from established companies are scams. They are often good investments, especially when interest rates are higher, the buyers are older, and maximizing the amount of money for an inheritance isn't an issue.
We bought a couple of annuities as a way of diversifying our retirement funds. Yes, interest rates could be higher, but the returns we expect are decent. And, yes, inheritance is not an issue for us. We'll know we've done it right when there's nothing left over at the end. :)


You can spread your risk of default by buying multiple, smaller annuities from different companies instead of a single annuity from one company.
As we did. Our annuities are with Allianz and Met Life; I trust them as much as I trust any other investment firm -- and more than some. Rather than buy one "big" annuity, we bought two for half the amount. This has the added advantage of letting us diversify annuity payment approaches: some annuities pay faster; others offer higher potential returns.

[ljevtich]

So Steve,
What percentage are these annuities at, or what were they at when you got them? We are not worried about inheritance either. And roughly how much are the fees every year?

[Zoebird]

thanks for the early-retirement.org message board connection.

i have decided that i've done really well so far being an ignorant PITA about money. first, we moved to living on one income; then, we moved to NZ and invested most of our money -- we won't get a full return. But, we learned to live even more lean, and in a lower COL city, I think we'll do well. We will be leaving here with no additional debt (thank goodness), and the student loan is trucking along fine (we will get it done).

My next big personal goal is to get us total financial freedom: debt gone; income well invested and growing so that we can "retire." Both DH and I want to continue to work (i want to grow my business!), but DH doesn't want to work "corporate." (Looks like a lot of the things that he did here to build a foundation for his film-writing career is starting to flower a bit!) So, I want to get the business to where it can support us very comfortably (20 clients), and then invest the rest of our income so that we can have financial freedom.

As such, DH is taking his job for the next 2-5 years (then we'll re-evaluate); i'm taking on home duties and running my business. I've dedicated in my schedule time to learn how to invest well, and i'm going to start experimenting with this stuff once we get our feet on the ground. MMM recommends index funds, so I'm going to start there, and then branch out from that point. Should be interesting.

The thing that is awesome is that I know that we can do this. I know that in 10 years, we can be "golden." Probably even sooner than that. I'm excited about that prospect, and I look forward to having my money make money!

So, I'll spend some time reading those forums and see if I can get familiar with these different investment opportunities.

[ljevtich]

Zoebird - I am glad to hear that you guys are doing well. I think the move to Pittsburg, PA will be a good one, that town is really nice now that they have cleaned up the air.

Learning from you all has helped me tremendously. We are living the dream with no debt and having to figure out where to put a large chunk of money in some type of investment in a year's time. I did go to that site, but I don't think I can ask questions for a while. Probably will just lurk until I find what I need.

[Zoebird]

Yeah, i jsut started reading their FAQ area. :D