AssetBuilder Inc. Registered Investment Advisor - Simple Investing. Smart Future.

What are you thoughts on Variable annuities?  Do you have good experiences?  Bad experiences? 

I believe they are tooooo risky for the return....I am not a savvy investor, and get easily confused with the various fees, charges, etc...and for that reason, I think I get too focused on the bottom line(value of the account to me), and lose focus on what I'm being charged...

In other words, if I thought I could make a nice return, it wouldn't bother me too much if the fees are a little higher...

But, the risk factor still scares me...I'm in my mid-fifites, and getting very close to pernament retirement(already once retired from the Fed.)...I would take a safe 5 over a mild risk 6 to 8, at this point in my life...

Thanks for the opportunity to offer my input.

Joe Gray, Northwood University, Midlothian, Texas.

 

My husband has had a variable annuity since the 80's with ING.  His boss started it for him as a SEP.  It has not been a good investment.  It has reached $12,000 in the past and guess where it is now?  $12,000!  How do we turn this into a good thing instead of a constant frustration as we receive the ING updates???  20 years is a long time not to make very good money on an investment.  HELP!

They are great if you are brain dead and want to feed a insurance salesman.

A. Dunlap

Scott,

Could you please compare the advantages/disadvantages of using the Omega Portfolio Strategy vs. using a Lifetime Annuity Strategy.  They appear to be very similar.  What is the historical probabilities of success for each strategy assuming that you start the strategy during the 1970's bear markets.

Thank you,

J

In not so sure that they are very similar, if I understand what you mean by Lifetime Annuity Strategy.

The life annuity strategy calls for replacing a portion of your portfolio with a lifetime annuity. Doing so gives you an immediate current income boost which allows you to reduce the cash demands on the remaining marketable asset portfolio. The more the cash demands are reduced, the greater the long term survival odds for the portfolio. Still, there is some demand on the marketable asset portfolio from day one. In addition, the lifetime annuity strategy isn't directly geared to the cash needs of the retiree, it just approximates them with a combined income demand from the annuity and remaining portfolio.

The Omega strategy is directly geared to the income needs and time frame of the retiree. It effectively annuitizes a portion of the portfolio by committing it to be spent, year by year, as inflation protected securities mature. As a consequence, there is ZERO cash demand on the remaining portfolio for as long as the front-end ladder of TIPS exists. This eliminates the negative impact that statistical types like to call "varience sink"--- the defacto reverse dollar averaging that happens with portfolios in distribution.

Basically, the Omega strategy reserves a portion of your portfolio to grow unimpeded by withdrawals--- and aided by years of dividend and capital gain reinvestment. Researchers like Zvi Bodie, at Boston University, are very interested in such strategies because they materially reduce the risks to which the financial services industry pays inadequate attention.

Scott

 

Scott,

 

I really appreciate your response!  Thank you for your time and knowledge.  I will spend some time researching Professor Zvi Bodie's work on the topic.

 

Most importantly, thank you for being the consumer advocate that you are.

 

J