Multi-Year Guaranteed Annuities

Sorry to swear right in the subject! Clark warns us about the high commissions on annuities. There is an annuity that seems like a CD with deferred interest. The rates seem comparable to CDs. I guess a small percent lower in return could cover the commission but with the rates being similar and deferring taxes it seems like a potentially good option. I would like to hear more about better options and the downsides to these guaranteed annuities.


Numbers, please. What the proposal? The number sharks here want to dine.

The only thing that matters is what you pay, and the series of monthly or annual cash flows you are guaranteed and when they start and end. Any kind of other mumbojumbo is just salesperson obfuscation.

Even given a complex series of cash flow, the IRR or Internal Rate of Return, can be computed and directly compared to other investments.

Not sure there is much upside, other than guarantee not to lose value. I still have one called a fixed annuity and it held steady over the last disasterous Biden year. But the flim flam is thick. This instrument was sold as just about the greatest thing since sliced bread. Gives the owner a 15% bump in value just for having it.

Well not so fast hold your horses. That bump is called “Protected Income Value” even for a Roth that does not “have income,” and you only get it after you fulfill all the requirements, like holding it a full 10 years. Then if you want the PIV rather than the “Accumulation Value” you must take it over at least 5 years. In other words, insurance company keeps your money and dribbles it out a little each month or year. This is like winning the 20 million dollar lottery prize. The ONLY way you see the 20 is if it comes in payments over a number of years.

FYI there is a guy out there named Fisher who hates annuities so much he will pay for your surrender charge if you let him manage your money. He sends slick green propaganda in the mail.

This is not what I was thinking when I heard Annuity. They have 2, 3, 4, or 5 year guaranteed interest rate periods, much like CDs. The rate they quoted for 2 years was 4.5% I checked bank rate and saw some for 4.6% the same day. When it matures you have your principal plus the interest. Somehow it seems like the tax is deferred until you make a withdrawal. When the period is up you can roll it into another period.

I would look into the Prospectus and see what the underlying investments are. If they are steaming piles of shaving cream then it makes the entire offer more risky if a financial panic ensues. Is it guaranteed as in FDIC insured quality or do that make “best efforts” to pay? The devil’s in the details!

It may be a loss leader to get you hooked on a real steaming pile with that same firm and agent later…

Sell gas at a loss, beer and chips and jerky for a profit

I guess if I just buy gas then I am getting an advantage. Bernie Madoff and FTX were paying for awhile. Sent for the details to see if it is shaving cream :slight_smile:

Ask yourself… why are you considering an Annuity.
It is unlikely you will do better than a couple of well chosen MFs.

However if you are on the edge and need discipline in your spending could be an answer.

Obviously the Annuity folks think they can do better than what they are paying you. That is my opinion.

That said, I do not need whatever positives the annuity might provide.

#DashQuark… The first tangible positive executed in an annuity sale is the annuity salesman’s commission.

THAT’s why the salesman is talking to you… :nerd_face:

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You are correct…There are smoke and mirror annuities, and then there are fixed annuities…also referred to as CD annuities or MYGA (Multi year guaranteed annuities)

A fixed annuity is basically no different than a CD…the rates are guaranteed, and backed by the financial rating of the annuity carrier. However, all interest earned is tax deferred, potetntially making them even more attractive to someone in a higher tax bracket.

In todays crazy inflation economy, for example, you could get a 3 year fixed annuity with a guaranteed yield to surrender at 5.3%, A 5 year fixed annuity can pay 5.6% guaranteed. No fine print…no big commissions for people selling them…just simple to understand guarantees…unlike a lot of other types of annuities that are virtually impossible to understand…hence the reluctance many people have when someone mentions the word “annuity”

Not saying I recommend them…just saying they exist, and 5%+ is not a terrible return

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MYGAs are issued by an insurance company and comparable to the rates on CDs. They are not FDIC insured thus CDs and Treasury Bonds could be lower risk. They’re tax deferred and thus subject to a 10% penalty if cashed out before 59 1/2. These are the best annuities if you change your mind.

Equity index annuities (EIAs) have an index option return for 1-3 years but then lock you in for 10-15 years. You can buy an income rider for a fee but those guarantees only apply if you annuitize. The upfront bonus might only apply to the income rider.

Income annuities are longevity insurance. They provide protection against outliving your money. Your payment depends on the interest rate, how long you choose to defer the annuity, and your mortality credit. The net present value or IRR is usually very low. You can get income for life, income for you and another person, period certain, and cash/installment refund.

The bigger question is how much should be in MYGAs or CDs or how much should be in income annuities or indexed or variable annuities if anything?

What should be in stocks, bonds, cash, real estate, or commodities, currencies, crypto, etc and variations of these such as preferred stock?

Asset Allocation depends on when you need the money and your risk tolerance level