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NEED HELP FOR MOM - RE INVESTMENT/ANNUITY? - 9/20/2008 11:28:12 PM
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gail_k
Posts: 11
Joined: 5/13/2006
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My mom sold her house and moved into an apartment half a year ago. Now she wants to put the proceeds from her house into savings. She is 80, and needs to secure her capital, wants to get her money to grow as much as possible, without risking the capital, and have a large chunk of it where she can't touch it.
She's heard about something called an indexed annuity, which she said she heard can go up but won't go down. Is that true? Does anyone know how indexed annuities work, and how they pay out (as in, after 10 years, or in annual installments, or whatever)?
Whatever info you can give me will be greatly appreciated! Thank you.
Gail
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RE: NEED HELP FOR MOM - RE INVESTMENT/ANNUITY? - 9/21/2008 1:01:33 PM
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Mrs.Wifey
Posts: 5097
Joined: 4/12/2005
From: The Gorgeous plains of Colorado
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Indexed Annuity - An annuity is a form of regular payments, examples of them are pension plans, Social Security, Variable Annuities, Fixed Annuities, and Indexed Annuities. An example of an Index is S&P 500, Dow Jones Industrial, NYSE, NASDAQ, etc... There are hundreds of different Indexes.
The advantages of Annuities are that unless the world ends they should be a safe place to invest your money. Even if the institution holding them goes belly up, your pretty close to the front of the line when it comes to paying out debts that they owed. The sever disadvantage is that you are paying a large fee for very little performance. The way that an Indexed Annuity works is this; Your investments are held in a contract to the institution whom you give it to that does several different things all at once. First, it invests your money in a fund that is designed to act like a particular index, usually the S&P 500, but this varies. Second, it combines a form of insurance similar to life insurance but it protects your investments instead of you. Third, it promises things like, guaranteed withdrawal rates, guaranteed growth rates, etc... there are about a dozen riders that are available and they usually don't allow you to combine them in very many ways, and each of them carry a price tag that is in the form of a % fee on your investment. Finally, you are held by the contract to keep the money with the granting institution for a minimum # of years (7-8) otherwise you will be penalized heavily.
Typically Annuities are a good way to earn a large fee for the Adviser and some peace of mind for the investor. But they are almost never a 'good' investment from the standpoint of actual growth of your nest egg.
Most importantly of all is YOU (or your mother) need to shop around or hire some one that you trust who already understands all of this before you make your decision.
Just one other observation, every model that you will see for an Annuity will show an illustration of investing in them when the market is doing well or at a peak (this is definitely the best time to have done any annuity). The market isn't at a high point right now and if you invest in an annuity you will risk loosing a large chunk of the up-side swing of the market by having to pay a lot of your gains into a fee for the contract. A good adviser will only recommend them as a last resort or if they believe that there is simply no way that the investor is willing to take any risk at all.
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RE: NEED HELP FOR MOM - RE INVESTMENT/ANNUITY? - 9/21/2008 1:09:00 PM
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blessedinnyc
Posts: 1960
Joined: 10/12/2007
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Considered an inflation-indexed or market-indexed CD? A lot of large commercial banks offer these as investments, and the FDIC guarantees that you won't lose money on them.
LaSalle and Merrill Lynch used to offer these guys, and I'm sure there's several other banks out there that still do.
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RE: NEED HELP FOR MOM - RE INVESTMENT/ANNUITY? - 9/21/2008 1:29:49 PM
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Mrs.Wifey
Posts: 5097
Joined: 4/12/2005
From: The Gorgeous plains of Colorado
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quote:
ORIGINAL: blessedinnyc
Considered an inflation-indexed or market-indexed CD? A lot of large commercial banks offer these as investments, and the FDIC guarantees that you won't lose money on them.
LaSalle and Merrill Lynch used to offer these guys, and I'm sure there's several other banks out there that still do.
If it's a CD though she can't access it during an emergency or until the CD term has been completed.
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RE: NEED HELP FOR MOM - RE INVESTMENT/ANNUITY? - 9/23/2008 1:45:09 PM
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BlueAdept
Posts: 99
Joined: 4/18/2005
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Unless your mother is VERY wealthy, and it sounds like she is not, she has absolutely no business getting into ANY ANNUNITY!
At 80 years old she will have no ability to get access to her money for years. There are normally HUGE penalties to pull funds out. If you have someone trying to sell her this, there are 2 things you should be doing.
Step 1. RUN FROM THEIR OFFICE
Step 2. Turn them into the proper authorities. - These people are preying on your mother, they are going to be paid a huge commission for this sale, and your mother is going to be stuck with a nearly worthless investment. Chance are you and your siblings will get stuck with it on her death and it will be worthless to you as well.
As a source for this, I would check out Clark Howard. You could arrange to call him off air (or his staff) and they could verify what I have posted.
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