ANNUTIES-How can we use them?

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#1
Extract:
ANNUITIES- Anyone?
The rich are usually rich for a reason. So do annuities even get their attention when it comes maximizing their investment goals?

A recent industry consumer study showed that almost 7 out of 10 annuity buyers have a household income of less than $100,000 a year. Without getting into an argument of what the definition of “rich” is (I'll let our politicians do that!), it is obvious to an annuity critic like me that the annuity industry continues to target middle America. There are also some underlying reasons why wealthy investors have, for the most part, decided to stay away from most annuity offerings.
Here are the facts from a recent annuity ownership study of millionaire investors with $1 million to $5 million in investible assets. With a little over $200 billion of annuities sold in 2012, below are the % of annuities owned by this group:
• 22% of all variable annuities;
• 20% of all fixed annuities.
Surprisingly, people that have between $100,000 and $1 million in investible assets are even less likely to own annuities. They own:
• 15% of all variable annuities;
• 17% of all fixed annuities.
The study shows that the more complex and confusing an annuity is, the less likely a wealthy investor will buy. However, the local annuity lunch seminars or annuity internet-video ads use that same complexity to sell the annuity “dream” to the middle class. I always tell people that if you can't explain the product in detail to a total stranger or child, then you should not buy it. Unfortunately, common sense doesn't rule with the uninformed investor. The dream of “it sounds too good to be true” is the basis for way too many annuity sales.
Below are the primary reasons, in my opinion, that most wealthy investors aren't buying the current annuity sales pitch:
• Not willing to lock up their money in long term deferred annuities (which represent over 85% of all annuity sales);
• majority of products aren't easy to understand or transparent enough;
• built-in and hidden fees are too high.
The rich, like everybody, are interested in solving for longevity risk and transfer-of-risk strategies in general…and simplistic annuities could be a logical solution. From a non-annuity standpoint, the need for liquidity and not missing possible market growth opportunities are the primary reasons that most wealthy investors don't buy annuities. As I said in my recent article calling for annuity industry changes, the well-deserved negative stigma that annuities have earned could be turned to positive with some logical steps that I laid out.
There are some annuities that the rich currently use. I've listed them below and the reasons why these strategies are attractive to them:
Single-premium immediate annuities & longevity annuities
The original design is still the best design. Single-premium immediate annuities solve for income now, and longevity annuities (a.ka. enhanced deferred immediate annuities) solve for income later.
These pure transfer- of-risk lifetime-income products are the most efficient way to combat outliving your money. These annuity structures are easy to understand, have ultralow fees and commissions, and can combat inflation with attachable cost-of-living increases built into the policy.
No-load variable annuities
This product solves for the top two concerns that the wealthy have concerning annuities: Opportunity cost and liquidity. Pure no-load annuities have full liquidity from day one, the upside potential of market growth, along with the power of tax deferral. Because they are no-load, you are never going to be informed about these great products by advisers because there are no commissions.
Charitable-gift annuities
This is the perfect hybrid annuity for the wealthy because it provides a lifetime income, a potentially large tax deduction, and a philanthropic aspect of helping a specific charity. This type of annuity allows you to structure the lifetime income to start immediately or at a specific time in the future.
A recent financial poll by Nationwide Financial showed that wealthy investors are increasingly open to learning more about annuities and other tax advantaged products. With politicians continuing the ongoing “evil rich, fair share” arguments, tax-deferred annuities will increase in popularity…but only if the annuity industry provides easy-to-understand and transparent solutions.
The annuity industry is constantly talking about the need to educate the public about the value of owning an annuity. Currently, I agree with them because over 85% of annuities sold are very complex variable annuities and indexed annuities with long surrender periods. Most of these annuities are so hard to understand that agents end up focusing on a few sizzle points in combination with the typical fear-and-greed, string-pulling sales pitch.
Wealthy investors are going to demand value, simplicity, and transparency before they seriously consider annuities as a viable addition to their portfolio. Hopefully carriers will start offering these simple solutions so that everyone can have access to more pro-customer annuities. It is going to happen. The sooner the better.

My question?
Is there any Annuity in Singapore worth to buy??? Any honest answer?
WB:-

1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.

Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.

NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.
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#2
interestingly i have been looking at annuities and there seem to be some studies that it has a place in an efficient retirement portfolio.

the stuff they are talking about are single premium immediate annuity (SPIAs). the study seem to answer whether they should answer the question when you should start withdrawing money regularly. the study seem to point that you should start withdrawing as soon as possible.

on the ground, the trend seem to be that there is a active selling of AXA variable annuities with an 3.25% inflation protection component.
Dividend Investing and More @ InvestmentMoats.com
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#3
With Alzheimer's disease hitting many senior citizen; it could be a solution for this group to opt for the longevity annuities.
The CPF Life comes to mind as it pays from 63 (62?) till death as one option.
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#4
annuities can really work against the insurance companies if they cannot accurately estimate the mortality rate of people well.

but you can game it if you yourself can estimate the number of annuity payment you will get. perhaps thats why the study say take payment as early as possible.

if you put $100000 into the annuity, the moment you make money is probably when your total payments collected exceeds this amount.

correct me if i am wrong.
Dividend Investing and More @ InvestmentMoats.com
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#5
(27-03-2013, 12:30 PM)edragon Wrote: With Alzheimer's disease hitting many senior citizen; it could be a solution for this group to opt for the longevity annuities.
The CPF Life comes to mind as it pays from 63 (62?) till death as one option.
i belong to the "lucky group" who can choose to opt-in or opt-out when CPF Life started. i opted out because:

1) there are clauses that stated payout is not "guaranteed". It may be more or less or even stop if conditions warranty it. (correct me if i am wrong)

2) i delay my withdrawal age to 65 as CPF pay a "$Bonus" for delaying withdrawing of minimum sum. (i am fortunate enough to be able to take advantage of this "Delay bonus".)

3) the amount CPF LIFE pays me immediately is slightly lesser then my actual payout from my minimum sum if i did not join.

Urgent some opinions needed

As i am going to reach 65 soon. i wonder whether i should start withdrawal of my minimum sum or self imposed converting my minimum sum to "longevity annuity"? Or as long as possible if i can manage our daily expenses without running out of cash?
The question is how much or how long can we continue to trust Papies?
Actually at age 65, CPF Board only allows me to withdraw monthly amount that my minimum sum can last another 20 years. So Papies already force me to take my minimum sum as "Longevity Annuity";
Isn't it?
WB:-

1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.

Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.

NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.
Reply
#6
Temperament's question - Is there any Annuity in Singapore worth to buy??? Any honest answer?

Annuity like all insurance is based on pooling of premiums to transfer the risk (of running out of cash before death) from the insured to the insurance company.
I have analysed the annuity market in Singapore and has helped my aunty buy 2 single premium insurance policy based on her retirement needs 10 years ago.

One of the annuity pays her monthly and the other pays her yearly (just before Chinese New Year).
So, we always joke that my aunty draws an annuity income and annual bonus (from the other annuity) without working a single day.
The best part is her annuity has been paying her increasing payout every year.

I am glad that I could help my aunty with her retirement planning as she has no children to depend on.
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#7
(27-03-2013, 03:35 PM)a74henry Wrote: Temperament's question - Is there any Annuity in Singapore worth to buy??? Any honest answer?

Annuity like all insurance is based on pooling of premiums to transfer the risk (of running out of cash before death) from the insured to the insurance company.
I have analysed the annuity market in Singapore and has helped my aunty buy 2 single premium insurance policy based on her retirement needs 10 years ago.

One of the annuity pays her monthly and the other pays her yearly (just before Chinese New Year).
So, we always joke that my aunty draws an annuity income and annual bonus (from the other annuity) without working a single day.
The best part is her annuity has been paying her increasing payout every year.

I am glad that I could help my aunty with her retirement planning as she has no children to depend on.
Sound very interesting. You said ten years ago. Did she receive immediate payment ten years ago after one time premium payment or later; When? And under what "category" are these 2 annuities?
i suppose at least one annuity should be under "variable annuity"
Care to share?
WB:-

1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.

Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.

NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.
Reply
#8
(27-03-2013, 03:50 PM)Temperament Wrote:
(27-03-2013, 03:35 PM)a74henry Wrote: Temperament's question - Is there any Annuity in Singapore worth to buy??? Any honest answer?

Annuity like all insurance is based on pooling of premiums to transfer the risk (of running out of cash before death) from the insured to the insurance company.
I have analysed the annuity market in Singapore and has helped my aunty buy 2 single premium insurance policy based on her retirement needs 10 years ago.

One of the annuity pays her monthly and the other pays her yearly (just before Chinese New Year).
So, we always joke that my aunty draws an annuity income and annual bonus (from the other annuity) without working a single day.
The best part is her annuity has been paying her increasing payout every year.

I am glad that I could help my aunty with her retirement planning as she has no children to depend on.
Sound very interesting. You said ten years ago. Did she receive immediate payment ten years ago after one time premium payment or later; When? And under what "category" are these 2 annuities?
i suppose at least one annuity should be under "variable annuity"
Care to share?

Both are single premium annuity but it did not state that it was a variable annuity (the schedule shows fix payout). So my aunty was pleasantly surprised when she receives an increasing annuity payout yearly.

Apparently, this insurance company is pro-customer and shares its returns by increasing the annuity payout annually.

When I can buy annuity (only at a certain age), I want to buy from the same insurance company too.
Reply
#9
(27-03-2013, 10:40 AM)Drizzt Wrote: on the ground, the trend seem to be that there is a active selling of AXA variable annuities with an 3.25% inflation protection component.

I googled the AXA stuff and looked a touch at the sample terms.

http://sgmoneymatters.com/news/2013/03/a...come-plan/

for 15 years, u pay 285300 in total, so $19020 p.a.
"accumulation period" 5 years
from 20th year, u start getting 24000 in first year, and escalating 3.5% p.a. so 24840 in 2nd year, $25740 in 3rd year......$38800 in 15th year.
total guaranteed payout == $463500
non guaranteed payout == $407260 (based on 5.25% returns p.a.)

so i used the good ol' solver in excel to reverse engineer what they did.
basically:

each year u pay 19020 p.a. for 15 years.
this sum is split into
a) 12400 which is invested at the rate of 4.5% p.a. for 20 years or so.
b) 6620 which is invested at the rate of 5.25% p.a. for 35 years (since the non-guaranteed portion is only paid as a longevity bonus at the end)

Guaranteed== 12400*1.045^20*15== 449k
Non-Guaranteed== 66200*1.0525^20*[(1.0525^15-1)/(0.0525)]==405k

the final numbers are a bit different from the example since the final guaranteed payout is escalating etc but that's trivial.

Anyone employing a corporate bond (4.5% yield over 20y) + equity investing (5.25% p.a.) strategy will achieve similar returns and achieve a whole lot more liquidity control (u can never get ur money out of the annuity at fair value), credit risk (why give all ur money to one insurance firm i/o a portfolio of decent firms?).
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#10
(27-03-2013, 04:00 PM)a74henry Wrote:
(27-03-2013, 03:50 PM)Temperament Wrote:
(27-03-2013, 03:35 PM)a74henry Wrote: Temperament's question - Is there any Annuity in Singapore worth to buy??? Any honest answer?

Annuity like all insurance is based on pooling of premiums to transfer the risk (of running out of cash before death) from the insured to the insurance company.
I have analysed the annuity market in Singapore and has helped my aunty buy 2 single premium insurance policy based on her retirement needs 10 years ago.

One of the annuity pays her monthly and the other pays her yearly (just before Chinese New Year).
So, we always joke that my aunty draws an annuity income and annual bonus (from the other annuity) without working a single day.
The best part is her annuity has been paying her increasing payout every year.

I am glad that I could help my aunty with her retirement planning as she has no children to depend on.
Sound very interesting. You said ten years ago. Did she receive immediate payment ten years ago after one time premium payment or later; When? And under what "category" are these 2 annuities?
i suppose at least one annuity should be under "variable annuity"
Care to share?

Both are single premium annuity but it did not state that it was a variable annuity (the schedule shows fix payout). So my aunty was pleasantly surprised when she receives an increasing annuity payout yearly.

Apparently, this insurance company is pro-customer and shares its returns by increasing the annuity payout annually.

When I can buy annuity (only at a certain age), I want to buy from the same insurance company too.
i am definitely qualify to buy. So can you email me the details. i may buy if really so good like what you say. So far i have not come across one that can make me buy.
On the other hand, if you like you can give the details here for everyone to share and consider. No obligation definitely!
Thanks.
WB:-

1) Rule # 1, do not lose money.
2) Rule # 2, refer to # 1.
3) Not until you can manage your emotions, you can manage your money.

Truism of Investments.
A) Buying a security is buying RISK not Return
B) You can control RISK (to a certain level, hopefully only.) But definitely not the outcome of the Return.

NB:-
My signature is meant for psychoing myself. No offence to anyone. i am trying not to lose money unnecessary anymore.
Reply


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