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    Annuities

    I'm looking for information about annuities. If you can help me out please pm me. Thanks

    #2
    Originally posted by HACKNSACK44 View Post
    I'm looking for information about annuities. If you can help me out please pm me. Thanks
    Can you provide a bit more context to your question? in simplest terms, annuities are insurance products where the buyer contributes money now with the promise of getting paid in future installments.

    That said, annuities can be rather complex financial planning tools. They often carry very high commissions (which can, in my opinion, create a situation where the selling party - usually an insurance company salesperson - has a financial incentive to recommend a product that may not be in your the best interest) and are often misrepresented as a way to improve/guarantee returns while avoiding/minimizing taxation.

    The simplest (and in my opinion the only useful) type of annuity is a fixed immediate annuity. With this type of annuity, the customer pays a lump sum now in exchange for a guaranteed future stream of periodic payments. For example, pay $100k now and get a monthly payment of $425 each month util you die. The $425 never increases or decreases and will be paid until you die, whether that is next month or if you live to 110 years old. This can be a useful tool, especially for those who have significant assets, as it allows you to 'lock-in' a certain amount of income. It's important to note that very few immediate annuities have any sort of cost-of-living adjustments, which can be important if the income is expected to continue for decades. Immediate annuities are frequently used when settling a personal injury lawsuit. The insurance company will settled with the injured party by guaranteeing them $1k per month for the rest of their life (for example). Lotteries frequently pay-out this way too. Immediateannuities.com lets you plug in different amounts and payment periods with no registration or obligation.

    There a several other types of variable future annuities that invest payments in an underlying mutual funds. Future payment amounts are dependent on how well those underlying investment perform. Unless you are sophisticated and knowledgeable investor with a trustworthy financial adviser, I would steer clear of these all together. They are typically sold using best case examples while overstating the tax advantages. Annual expenses can exceed 4% which drag total returns down significantly.

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      #3
      Originally posted by quadfather View Post
      Can you provide a bit more context to your question? in simplest terms, annuities are insurance products where the buyer contributes money now with the promise of getting paid in future installments.

      That said, annuities can be rather complex financial planning tools. They often carry very high commissions (which can, in my opinion, create a situation where the selling party - usually an insurance company salesperson - has a financial incentive to recommend a product that may not be in your the best interest) and are often misrepresented as a way to improve/guarantee returns while avoiding/minimizing taxation.

      The simplest (and in my opinion the only useful) type of annuity is a fixed immediate annuity. With this type of annuity, the customer pays a lump sum now in exchange for a guaranteed future stream of periodic payments. For example, pay $100k now and get a monthly payment of $425 each month util you die. The $425 never increases or decreases and will be paid until you die, whether that is next month or if you live to 110 years old. This can be a useful tool, especially for those who have significant assets, as it allows you to 'lock-in' a certain amount of income. It's important to note that very few immediate annuities have any sort of cost-of-living adjustments, which can be important if the income is expected to continue for decades. Immediate annuities are frequently used when settling a personal injury lawsuit. The insurance company will settled with the injured party by guaranteeing them $1k per month for the rest of their life (for example). Lotteries frequently pay-out this way too. Immediateannuities.com lets you plug in different amounts and payment periods with no registration or obligation.

      There a several other types of variable future annuities that invest payments in an underlying mutual funds. Future payment amounts are dependent on how well those underlying investment perform. Unless you are sophisticated and knowledgeable investor with a trustworthy financial adviser, I would steer clear of these all together. They are typically sold using best case examples while overstating the tax advantages. Annual expenses can exceed 4% which drag total returns down significantly.
      Thanks for your reply. I'm considering settling my case. I would need an annuity that pays me for life with a guarantee of 20 years. I'm 45. If I was to settle for lets say 2M. How much would I get yearly?

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        #4
        For annuities there is a thing called "present value" of the annuity, which is based on the current interest rate. In basic terms it means you'd rather have 2 million dollars today than 2 million dollars paid out at $100,000 a year for the next 20 years (assuming your a rational person and expect inflation and interest rates to still exist in 20 years).

        Are you asking if you get a one time settlement of $2,000,000 and opt to receive that as an annuity rather than a lump sum how much would you get yearly?

        Comment


          #5
          Originally posted by funklab View Post
          For annuities there is a thing called "present value" of the annuity, which is based on the current interest rate. In basic terms it means you'd rather have 2 million dollars today than 2 million dollars paid out at $100,000 a year for the next 20 years (assuming your a rational person and expect inflation and interest rates to still exist in 20 years).

          Are you asking if you get a one time settlement of $2,000,000 and opt to receive that as an annuity rather than a lump sum how much would you get yearly?
          No. I would receive $2,000,000 cash. Then I would buy an annuity that would pay me X amount yearly.

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            #6
            You could probably do better with investing the money wisely.

            (KLD)
            The SCI-Nurses are advanced practice nurses specializing in SCI/D care. They are available to answer questions, provide education, and make suggestions which you should always discuss with your physician/primary health care provider before implementing. Medical diagnosis is not provided, nor do the SCI-Nurses provide nursing or medical care through their responses on the CareCure forums.

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              #7
              Originally posted by SCI-Nurse View Post
              You could probably do better with investing the money wisely.

              (KLD)
              I agree, interest rates are at historic lows (though they have been low for an equally historic amount of time). I'd gamble on the probability that interest rates will rise in the relatively near future (you seem to be banking on 20 years). Take the lump sum.

              Unless you have a reason to believe you won't be able to control your spending for some reason.

              Comment


                #8
                Talk to someone who knows the current tax law. Long ago it was that damage awards were tax free at the time of receiving them. That meant if you delayed receiving them such as in an annuity (forget interest rates for now) the capital gains accrued were also not taxable even when eventually taken. I know someone who did this, not me.
                You might be able to set up some similar investment vehicle with a good chunk of your proceeds. Incidentally my friend took one third cash, and the other two thirds in separate annuities maturing about ten years apart.
                I have had periodic paralysis all my life. I lost my ability to walk in 2011 beginning with a spinal block, which was used for a hip fracture caused by periodic paralysis.

                Comment


                  #9
                  Originally posted by nonoise View Post
                  Talk to someone who knows the current tax law. Long ago it was that damage awards were tax free at the time of receiving them. That meant if you delayed receiving them such as in an annuity (forget interest rates for now) the capital gains accrued were also not taxable even when eventually taken. I know someone who did this, not me.
                  You might be able to set up some similar investment vehicle with a good chunk of your proceeds. Incidentally my friend took one third cash, and the other two thirds in separate annuities maturing about ten years apart.
                  I would not have to pay taxes on the $2,000,000.

                  Comment


                    #10
                    Originally posted by funklab View Post
                    I agree, interest rates are at historic lows (though they have been low for an equally historic amount of time). I'd gamble on the probability that interest rates will rise in the relatively near future (you seem to be banking on 20 years). Take the lump sum.

                    Unless you have a reason to believe you won't be able to control your spending for some reason.
                    20 years is my life expectancy. That is why I would get an annuity with life so if I live past 20 years I'm covered.

                    Comment


                      #11
                      Originally posted by HACKNSACK44 View Post
                      I would not have to pay taxes on the $2,000,000.
                      Or interest if nothing changed, and you set it up correctly.
                      I have had periodic paralysis all my life. I lost my ability to walk in 2011 beginning with a spinal block, which was used for a hip fracture caused by periodic paralysis.

                      Comment


                        #12
                        Based on current interest rates a 45 year old male buying a $2M annuity would be paid approximately $8/month ($96k/year) until death regardless of how long you lived. A 20 year certain annuity would pay out approximately $11k per month ($132k/year). The difference is due to the fact that the insurance company expects that you will (on average) live more than 20 years. If you choose the 20 year certain but live to say 69, you will have no income from the annuity for the last 4 years of your life. Also, inflation will erode the purchasing power of the fixed monthly payment.

                        People who receive large settlements, like lottery winners, often spend it all away in a short period of time. It takes discipline and knowledge (and to resist those close to you who may want to get at the money).

                        The good news is that this is not an all or nothing decision. You can take half the settlement as a direct cash payment and use the other half to purchase a lifetime annuity. Or you can split it however you wish.

                        Do you wish to leave an inheritance to anyone?

                        Given the amount of money, I recommend that you find an independent financial advisor that is paid on a fee only basis (no commissions). Look for one with a "CFP" designation.

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                          #13
                          That's 4.8%. I didn't realize annuities were so good. My understanding is that they were poor investments. Time to take another look.

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                            #14
                            4.8% is the equivalent cash flow but that's not the same as interest rate on a CD or annual return on a mutual fund. The difference is that the 4.8% includes the return of principal. A 20 year annuity returns 5% of your principal per year., for example

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                              #15
                              You may want to consider a Structured Settlement with income increases every year, payments every month, no income tax, for THE REST OF YOUR LIFE! Your attorney needs to set you up. So glad we did this for our son.

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