Rich, broke, or dead?

[ThisDinosaur]

I sense Jason lost some money to an annuity salesman.

[BRUTE]

it's subtle, but it's there.

[RealPerson]

Jason, come on, don't sugarcoat it! Tell me how you really feel about annuities.

[Jason]

Well, there may have been a call to ICE suggesting that detention space could be replenished with children of annuity salesmen.

[arcyallen]

I thought annuities were invented so Rolex wearing douchebags could dupe ordinary investors* into buying high fee investments instruments that they don't understand.

*Approx. 9k to go before I completely liquidated mine.

Jason, it's obvious you're unhappy with an annuity you bought. Got it. That's fine. But it's an insurance policy. By definition it's likely going to cost you money versus non-insured alternatives. If you buy an immediate annuity with a life payout, you're buying a guaranteed stream of income for life. If it's worth it to YOU, great. If not, that's fine too. But they are, despite you not liking them, or how much money people make selling them, or the fact I personally have no interest in them, not bullshit. They're just a product like a used car, a warranty on a dishwasher, or legal advice.

Listen to someone who wanted one, bought one and likes it after knowing all there is to know. You might understand a little more why they're not the devil, just like people who think the stock market is bullshit probably needs to dig a little deeper, too.

[thegreatvoid]

@arcyallen pretty sure child sacrifice is involved in getting hired in banking / insurance

[ThisDinosaur]

Does arcyallen sell annuities?

I think the annuity concept makes sense as a mutual insurance product. It nicely solves both the "outliving your money" and "money out living you" scenarios simultaneously. You can also look at it as a betting pool where everyone bets on their own longevity. But once fees get higher than, say, half a percent, it makes less sense to put your money into the pool. Furthermore, if someone is investing the float, you can just find out how they are investing and copy that.

[Jason]

@arcyallen

Perhaps. But along with "the dreaded reverse mortgage" 1, I can recall no financial instrument as universally despised as an annuity. And since the time I have been on this board which collectively possesses about as much financial acuity focused on the issue of retirement as one can find on the WWW, I have never heard anyone recommend an annuity as a viable financial option. Well, until you.

Yes, I had a terrible experience with it and felt that I was completely taken advantage of and it is why I believe that financial advisors should be liable as fiduciaries. But that being said, unlike stocks, mutual funds, index funds, ETFs, etc. no one ever said to me "You bought THAT annuity?" They just said "You bought AN Annuity?"

1 JLF - "I Can't Even..." Jennypenny thread on MONEY QUESTIONS

[arcyallen]

I don't sell annuities now, but I was a financial advisor and sold stocks, bonds, mutual funds, annuities, and more. I'm a big believer that there are very few bad product categories in the world, but there are bad applications of those products. And bad individual products.

Annuities can be suitable if you can't stand market fluctuations, and want a guaranteed income. After some education most people are better off with simple stock and bond based investments, but there are some that absolutely want nothing to do with "that scary stock market". For them, the choice might be between a savings account, CDs, or an annuity.

Jason: I don't know all the details, but sorry you got taken advantage of. It unfortunately happens. But that's not a bad product, that's a bad person. Used car salesman have a bad rap too, but I'm not going to shy away from used cars.

Just because it seems "no one" likes annuities doesn't mean they're bad. I'm not a big fan of them either, but like most things they are a good tool for some situations. Like morphine. Or a wig.

I try hard to see what the actual value is in everything. The fact is most things have a value that some people can't see, because they don't think they have a need for that value. That's fine. But even if I don't have a personal need for that value, there are other people that -do-. Reverse mortgages are a great example. I'm not really interested in an emotional conversation, but a calm logical one (like I usually see on here) is quite welcome.

[Jason]

Unlike annuity purchasers, the junkies standing in line for their morphine completely understand what they're getting.

[Peanut]

Iirc IlliniDave recommended an annuity to me way back when I joined the forum. (He may have one himself, I’m not sure.) I have recently been reading about them again as I’ve been trying to be more active in my management of our funds again. They’re definitely not for everybody or even most but they may be suitable for our situation in the future.

It’s true that when Obama changed some rule about financial advisors having to act in clients’ fiduciary interest the sale of annuities dropped significantly, indicating they were being oversold for commissions. Likely you were in such a situation, which sucks. We all get financially schooled at one point or another, hopefully not too dramatically.

[Jason]

I understand that they may be appropriate for some. And I am to blame. I bought the bullshit. The issue is that based upon my age at the time, my risk tolerance, etc. it was the worse thing for me. It didn't ruin me, but if he was a doctor, I would have sued him for malpractice.

[RealPerson]

Just because it seems "no one" likes annuities doesn't mean they're bad. I'm not a big fan of them either, but like most things they are a good tool for some situations.

I don't know a lot about annuities. I am curious what you see as the type of situation where they are a good fit. It is a question of curiosity because I have zero interest in buying one. I can only think of people who can't stop spending money who truly benefit from an annuity. Like giving your money to a third party to stop yourself from spending it. Then again, such a person would probably not be able to save a lump sum, unless they get a windfall such as a large inheritance. But I truly am wondering what you see as the appropriate customer group for annuities.

[jacob]

https://www.amazon.com/Can-Retire-Yet-F ... 98928302X/ considers annuities part of the complete portfolio towards the end years as an insurance against going broke. This holds particularly for those optimists who FIRE with >3% SWR. The rest of us can likely ignore them and still sleep well at night.

[Sclass]

Wow. Thanks for posting this. Fun tool.

I’ve been thinking a lot about this stuff lately while I spend down my mother’s assets to take care of her. I have a ginormous burn rate due to our 24hr team that changes her, rolls her over in bed, bathes her and spoon feeds her.

On one hand I’d like to give her the best possible care she can afford and spend her down to zero. That’s pretty much what I’m doing.

On the other if she outlives her money I’ll be in a tight spot.

I’m an engineer and I don’t like over designing my systems. It’s wasteful and it cuts into profits. Yet there is always a factor of safety.

As for heirs, yuck. My siblings have made quiet inquiries around the family as to what they are to get. They’ve shouldered 0% of the responsibility for my moms care yet they seem to want a handout. I guess they have to retire too. Last year my SIL complained she was counting on a grandma college fund. Brother was quiet because he feared what I’d demand in exchange. Complete BS.

Stressful. Spend Mom to zero and leave my sibs with nothing or save a cushion so I don’t end up spoon feeding and toileting Mom myself?

[arcyallen]

I am curious what you see as the type of situation where they are a good fit.

There are several different types of annuities which can be very, very different. I'd say the two I'm most useful ones are:

-An "immediate annuity", where you give the insurance company your money and they give you an income stream. Everything is fixed, and there are no changes once it's set. It's permanent. Example: you pay the insurance company $100,000 and they give you $4k/year until you die. Period. The numbers vary wildly based on parameters such as how old you are, if you want any money leftover after you die, is the payout indexed to inflation, is it based on just your life or your spouse's life too, etc. This could be good for someone that wants to "die broke", as they give up their money in exchange for a lifetime stream of income. The only risk of principle is the insurance company goes under and no one comes in to save the day - possible, but highly unlikely.

-A "variable annuity" with an "income rider". This would be good for someone that wants a guaranteed stream of income and is willing to take a possibly lower income stream now for the potential of higher income in the future. There are hundreds of versions of this, all with their own expenses and details. Too much to go into. This could be good for someone who wants the guarantee, but isn't afraid of some stock exposure. Also they're generally tax deferred accounts so if money does accumulate it's delaying the tax bill. The fees on these are generally very high, as it's combining an investment AND insurance.

Both of these could be good in some situations, and horrible in others. They're tools.

And I'm sorry to hear about your mom. That's a tough situation, and from a financial perspective THAT'S where a financial advisor might be able to help. It never hurts to ask, listen, think, and then decide if a change should be made.

[BRUTE]

Stressful. Spend Mom to zero and leave my sibs with nothing or save a cushion so I don’t end up spoon feeding and toileting Mom myself?

brute recommends loudly announcing that there will be absolutely nothing left, zero.

the plan seems to be to have Sclass care for the mother human. if she does not have the most luxurious last years ever, it will be his fault for being cheap. if there is no inheritance, it will be his fault again for wasting her money and who knows, even stealing it. then, everyone will be surprised/upset that there is no money left (because Sclass "managed it badly").

Sclass can make a fancy engineer graph of the burn rate and say that, according to his predictions, there will be absolutely zero money left for anyone. especially if this is said in front of them as a group, not individually, they all know the others know. this will of course upset them, but not as much as finding out later will, when they will claim Sclass wasted/stole the money.

[Sclass]

I have a team doing Monte Carlo simulations for my mother’s portfolio. Part of our paid management service. The big uncertainty is time of death. Even mom’s doctor has predicted it incorrectly (she was supposed to die already). I’ve pretty much given up trying to predict the future and proceed fearlessly spending cash.

The funny thing is the better care I buy, the stronger she seems to get. The cheap caregivers were not putting in the energy to feed her teaspoon by teaspoon. So it is a moving target.

Stressful place. That’s my big challenge. I’m conflicted about wanting her to pass soon before the money is gone but I don’t want to wish she’d die. So I am going for broke.

The family is very aware of the money I’m spending. At the end if there’s a fight over the scraps they’re welcome to them. I don’t need anymore money. That’s the least of my worries.

That’s the irony of this whole thing. It fell on me because I had the time to deal with it because I retired early at 43. My older siblings still need to work. But I’m the guy who doesn’t need any kind of inheritance. I just want my time back. Time is far more valuable to me than any extra money that I might inherit.

And that’s where the go for broke strategy comes from. Spend like there is no tomorrow. Because at the end of the day there isn’t.

[Hobbes]

Spend her down to zero; this is, after all, her money. Not her heirs' money. She deserves the last part of her life to be as comfortable as her own money permits it to be. The focus should be on her, to seeing to her needs, not the petty squabble over currency.

[suomalainen]

Spend like there is no tomorrow. Because at the end of the day there isn’t.

If it's not tomorrow, what's at the end of the day?

But seriously, good luck with your mom and the whole family situation. A friend of mine was in the same situation (had power of attorney, health care proxy, etc), except it was his dad who was the thorn. He kept trying to undo everything my friend did to take care of his mom (told the nurse to go home, etc). The siblings just weren't any help and were glad to have my friend do it all. His mom died rather quickly, so it was a fairly short trial, but just an awful experience.