On Apr 8, 12:50 pm, "Elle" <honda.lion...@[EMAIL PROTECTED]
> wrote:
> I think that's one potential (but not definite) drawback to
> many: That the principal or what remains of it is often lost
> at death. Of course, as I was trying to propose in response
> to Douglas, I see these vehicles as insurance policies as
> much as an investment. So no, one does not necessarily get
> back what one put in. But one might also get back more than
> one put in. An annuity (variable or otherwise) with
> reasonable fees is always to some extent about peace of
> mind.
1) The odds of not getting back what you put in are small. It's not
like an immediate annuity that removes all account values and
liquidity right away. As you suggest, with an immediate annuity, you
could invest $100k, die two months later and have only received a
couple hundred dollars. Not the case with deferred annuities. They are
like most other investment accounts until you actually ANNUITIZE the
contract. Many investors NEVER annuitize the contract. If you die
without having done so, the death benefit pays your heirs at least
what you invested.
2) I think you've misread the 10 year requirement on GMIB exercising.
The 6% annual compounding guarantee starts at year one and occurs
every year until age 85 (I called MetLife, it will be moved to age 90
in the coming months). If in a given year, the investor exercises the
GMIB 6% "step-up", then they must wait 10 years to annuitize the
contract (this is what they mean by "exercise the GMIB rider). IOW, if
the $100k account value falls to $90k, the investor would wisely lock
in the 6% guarantee (resulting in a $106k benefit base). However, they
must then wait ten years to call Metlife and request an annuity based
on the $106k (or the the account value at that time, ehichever is
greater). Keep in mind they have a $90k account value that they can
withdraw from as they see fit. So why would anyone in their right mind
WANT to annuitize the contract? Annuitizing results in losing all
liquidity and is therefore a last resort only once teh account value
is gone. Furthermore, the Metlife prospectus clearly states that if
the account value ever reaches zero the contract is annuitized based
on the benefit base amount even if the "10 year requirement" has not
been met. So if the account value is positive, the investor cannot
annuitize for 10 years, but they wouldn't want to anyway. If the
account value is $0, they get an immediate annuity based on the
benefit base amount.
The 10 year requirement is a hollow threat, but to be fair, it is the
most common misunderstanding I run into with these annuities.
> To me the other major drawbacks are
>
> 1. committing for a long period of time before one can
> exercise (so to speak) the GMIB. Ten years seems usual.
Given what I stated above, I would appreciate an example of a time
when this would be a drawback.
> 2. expiration of the GMIB at about age 85, or so it seems
> typical.
So a guarantee that stops at 85 (or 90) is a drawback to no guarantee
at all??? The benefit base doesn't disappear at 85, it just no longer
compounds annually at 6%. RMDs and, likely, death will almost
assuredly had a bigger impact by the time this even become
significant.
That reminds me... RMDs may be considered a drawback.
> I think these are important caveats when mentioning a 6%
> GMIB. Not to say (1) and (2) above are "bad" things. More
> that, with all due respect and IMO, it's not quite as great
> a deal as your post might lead one to believe. (Granted the
> constraints of posting preclude a complete discussion.) I
> would in fact be very interested in an investment vehicle
> that guaranteed a return of max(6%, annual S&P 500
> appreciation less 3%). But with the caveats, these annuity
> GMIB products are not attractive to me. With the ten-year
> requirement, I am not sure they would be attractive at any
> age.
>
> These annuities are also sure darn complicated, which to me
> means the insurance company finds ways to make their money.
> This is their right, but I cannot feel secure without
> understanding what the company is getting in exchange for my
> purchase.
I completely agree they are complicated and they are not for everyone
(or for most, even). However, I don't agree that complexity
necessarily means profiteering. The insurance company profits by
charging the M&E fees. They also promise to pay later, but they have
your money today. Consider a case of putting in $100k and leaving it
for ten years: Under the GMIB, they owe you at least $196k, but
they've had your money for a decade with which they hopefully made
more than 6% with. Furthermore, if you ever do annuitize, they are not
giving back all $196k immediately, they'll continue to invest it while
the pay you an income stream.
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