[‎‎‎‎‎‎‎‎‎David‏]

My Fidelity Rep. suggested a Guardian SecureFuture Income Annuity, Deferred paid up fixed annuity. I don’t have any pension, I’m 60 and so is my wife.

This Annuity would kick in at 62 and was paying about 7.2%.

What do y’all think about this type of product??

[Joel]

You wrote, 𝑻𝒉𝒊𝒔 𝑨𝒏𝒏𝒖𝒊𝒕𝒚 𝒘𝒐𝒖𝒍𝒅 𝒌𝒊𝒄𝒌 𝒊𝒏 𝒂𝒕 62 𝒂𝒏𝒅 𝒘𝒂𝒔 𝒑𝒂𝒚𝒊𝒏𝒈 𝒂𝒃𝒐𝒖𝒕 7.2%.
That 7.2% is almost certainly the payout ratio.

The payout ratio is just the sum of the annual payments divided by the entire policy premium.

This is NOT the same thing as a yield or what we’d normally call a rate of return in an investment context because usually the payments are mostly a return of that premium.

Also, if I understand the terminology correctly, a deferred income annuity is just a SPIA (Single Premium Immediate Annuity) that has a start date deferred by at least a year.

Both types of annuities are annuitized at day one, but the deferred annuity doesn’t make the first payment for at least 12 months.

Deferred annuities provide somewhat higher payout ratios because the insurance company gets to sit on the premium and earn interest before they start the payout.

That means the payout is starting from a slightly higher base dollar amount.

However, a deferred annuity could be a better choice than a SPIA if you believe the benchmark interest rates are likely to fall before you would want to start receiving income.

If you believe interest rates may rise, you might be better off waiting to purchase a SPIA until just before you need the income.

I assume you are looking at this product because you would like to fill a gap between Social Security plus any pensions you will receive and your minimum dignity floor.

This is a common application for these types of annuities. Deferred income annuities and SPIAs are both relatively common and competitively priced products.

But I would recommend you shop around to make sure you are getting the best rate of return possible, given some minimum bar for the insurer’s credit worthiness.

You may find that Fidelity is not offering you the best product available for your application.

[Kevin]

That 7.2% is not based on the amount of cash you put into it. It’s based on a calculation that will pay you much less than that.

If you don’t fully understand exactly how that calculation works you have no business buying it.

Oh yeah and I used to work for fidelity and can tell you with absolute certainty that a huge portion of that reps annual compensation is based on how many client dollars he places in annuity products.

Would you ask your local butcher if you should have steak or salad for dinner?

[Amanda]

Retirement & IRA show is doing a month about Annuities now. I recommend you listen to it from the start of June.

[Michael]

Like all insurance products, annuities have an ideal use case. There’s not enough information to determine if that’s you or not.

[Brad]

The only person that profits from an annuity or a whole life policy is the “rep” selling it to you.

[Bill]

Garbage. Run. The rep is flat out lying about the return. Actual real return will be around 3%

[Joel]

Let’s back up a bit …
One of the issues is that it’s not clear exactly what kind of
annuity this is.

A few questions and advice:
– Do you need more Guaranteed Income? Many of us prefer to have our Minimum Lifestyle Floor covered by guaranteed income (Pension, SS, or Annuity).

This is the Safety First approach to Retirement Planning (see Wade Pfau).

– Why would you consider buying it 2 years before you need the income? Generally, I recommend stashing assets to fund a future purchase closer to the time you need the income. Look for a SPiA rather than a DIA.

– Is this in an IRA? Or other type of account? iRAs have an advantage since the annuity payment can be counted to the collective RMDs for all your IRA accounts.

– What Credit Rating does the company have. For a DIA/SPIA I suggest only a AA+ company headquartered in the US and using our account standards

– How much will your State Insurance pool cover in case of default? Annuities are backed by State Insurance pools and the coverage differs by state.

– The Return figure includes (Interest, Mortality Credits, and Return of Principle). This can be misleading since it’s larger than the just the interest rate earned.

– A DIA (or a SPIA) is a commodity product and you can
compare annuities using a number of sources.

I hope you made it this far, a SPIA can be a great retirement income tool, or totally in appropriate. It’s starts with your Plan, Goals and Situation.

Hope this helps….

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