deferred income annuity (DIA)

[+ TooSchoolForCool]

Hi!  I'm 50 and I'm contemplating putting 500K into a DIA that will give me 4000 per month starting at 60 until I die.  I can change my mind after 7 years.  Anyone else use this type of investment?  Thoughts????

Edited July 25, 2022 by TooSchoolForCool

[+ The Big Guy]

These do sometimes offer good yields but make sure you understand the steps to exit and how long it may take to get your money back.  My mom had one and it took a long time jumping through multiple hoops to get the cash.  Best wishes. 

[OCClient]

I resist this type of investment.

I worry what happens to my  $$ if the insurance company becomes insolvent.

That said, if Warren Buffet (Berkeshere Hathaway) owns the insurance company that would raise my confidence significantly.

 

 

[+ FrankR]

19 hours ago, TooSchoolForCool said:

Hi!  I'm 50 and I'm contemplating putting 500K into a DIA that will give me 4000 per month starting at 60 until I die.  I can change my mind after 7 years.  Anyone else use this type of investment?  Thoughts????

I considered it years ago when I came into a windfall.  Return rate was low and commission/fees were eye watering at the time. Would be nice to have a fixed “personal pension” but the cost vs. benefit did not work for me. 

[+ TooSchoolForCool]

Thanks for all your input!  Much appreciated!!

[spider]

It's part of my portfolio, but not a large one, and it is with a large company that's been around forever.

[Guest]

@TooSchoolForCool, do you mind sharing the name of the company offering this return? Like others previously mentioned, it really comes down tothe strength of the company.  While I’ve considered annuities, I’ve never actually pulled the trigger based on concerns about the company and the concern of having too many eggs in one basket.  In addition, the embedded front end sales commissions are obscene..and commissions always make me suspicious.    

I’m doing quick math (subject to 3AM brain fog) and it seems that this one is not a great deal.  If they earn 8% on the money, in 10 yrs, they’d have your account to about $1.1mill.  Continuing at 8%, you could draw at least twice as much out each year fir 30 yrs if you lived to age 90 (albeit without death benefit if you did this yourself outside the annuity).   Is the $4,000/mo a guaranteed minimum with higher potential with higher returns?

[MscleLovr]

On 7/25/2022 at 3:09 AM, TooSchoolForCool said:

Anyone else use this type of investment?  Thoughts????

I have one. Like @spider and @OCClient, I thought it would be interesting as part of my retirement planning.

I feel that whether it makes sense for you @TooSchoolForCool depends on various factors - your age, prevailing interest rates, your income tax liability and your overall investment portfolio. 
 

I took mine out years ago (when I was 40 with some payments starting at 50 and more at 60). Then interest rates were high. It was structured so that part came back to me tax-free after 10 years. Also I was able to select the funds in which it was invested (I chose 100% equities). The current payments are taxable. I chose a well regarded provider that has since been acquired and split up by two large insurance companies.
 

It’s been a wonderful investment for me. The tax-free payment was 230% of what I’d paid in years before, and the taxable amounts equate to a gross annual yield of 55% (of course, this is much less after tax is levied at my top marginal rate). The only ‘drawback’ is that the payments are fixed and so decline in real terms over the years.  

My overall approach is to be a contrarian investor. I like to buy assets that are out of favour. These annuities were not popular when I bought mine, and I’ve lived long enough to benefit. 

 

[OCClient]

On 7/28/2022 at 1:13 AM, MscleLovr said:

I have one. Like @spider and @OCClient, I thought it would be interesting as part of my retirement planning.

I feel that whether it makes sense for you @TooSchoolForCool depends on various factors - your age, prevailing interest rates, your income tax liability and your overall investment portfolio. 
 

I took mine out years ago (when I was 40 with some payments starting at 50 and more at 60). Then interest rates were high. It was structured so that part came back to me tax-free after 10 years. Also I was able to select the funds in which it was invested (I chose 100% equities). The current payments are taxable. I chose a well regarded provider that has since been acquired and split up by two large insurance companies.
 

It’s been a wonderful investment for me. The tax-free payment was 230% of what I’d paid in years before, and the taxable amounts equate to a gross annual yield of 55% (of course, this is much less after tax is levied at my top marginal rate). The only ‘drawback’ is that the payments are fixed and so decline in real terms over the years.  

My overall approach is to be a contrarian investor. I like to buy assets that are out of favour. These annuities were not popular when I bought mine, and I’ve lived long enough to benefit. 

 

Full disclosure, I do not own a DIA and have no plan to.    You are all responsible for your own due diligence.    I made no recommendation.

[gallahadesquire]

Most of my net worth i s in various 403(b)s, which are fall intents and purposes just 401(k)s. I am living off my net worth, which over the past two years dropped about 15%. It’s now back up so I’m just down 10% from the peak. 
 

But the kickers is that anything I take out is taxed as current income. No Roth conversion because my other income is too high. The 30 years of essentially compound interest are going to the Feds, which pleases me not at all. 
 

And the tax law changes from ? 2017 increased my tax liability significantly. 
 

NOT a happy camper. 

[+ TooSchoolForCool]

@BnaC My financial advisor is Fidelity but the DIA is through someone else.  I believe it's NY Life but I will double check and get back to you.

[MscleLovr]

On 7/30/2022 at 10:06 PM, gallahadesquire said:

anything I take out is taxed as current income.…..The 30 years of essentially compound interest are going to the Feds

I sympathize with your plight @gallahadesquire.

This is exactly why, whenever friends ask me for investment advice, I always recommend that they first make use of every tax-advantaged investment available to them. Secondly I recommend high-quality equities that you can hold  over time, even decades. 
 

The ability to compound growth free of tax is often undervalued. And when you are in retirement, it’s not really a problem to have to pay taxes on a large income. 

[gallahadesquire]

In the mid-‘80’s, I was discussing stocks with a colleague. She mentioned Berkshire Hathaway. I’d never heard of it. I called my Advisor:

”It was too expensive at $200; it was too expensive at $400; it was too expensive at $800; and you’re getting a. Real deal at $1600.”

we bought two shares. He sold one when it had tripled. “We don’t want to be greedy.”

And it’s in my IRA. I shan’t be able to claim it as capital gains, but I can annuitize it as current income. 
 

 WHY didn’t we buy more?

[MscleLovr]

3 hours ago, gallahadesquire said:

In the mid-‘80’s, I was discussing stocks with a colleague. She mentioned Berkshire Hathaway. I’d never heard of it.

That resonates with me. I always did my own research into stocks, and I was a client of a smart stockbroker in NYC. 
 

At that time, I had some spare cash (IIRC it was 1983/84). I called my broker to discuss buying a sound longterm investment (there were listed funds that sold at a discount to net asset value then). I specified I wanted diversified assets and to hold the investment for years. Our discussion turned to insurance companies and Berkshire Hathaway. I asked why Wall Street never recommended the shares. He explained the shares traded infrequently, and the price never traded with the market but tended to move up like a staircase. To make it easier for me, he charged me a reduced commission so my initial holding was at exactly $1000. He told me the next day that he was so impressed by my decision-making that he invested the same amount of money himself. 
 

As luck would have it, a few months later I was invited to a business lunch which included Mr Buffet. (Malcolm Forbes was also a guest and I think the host invited me - I was openly gay - as Forbes’s nightly excursions were becoming known). I had a long talk with Mr Buffet about investing which I found very encouraging. 

Edited August 7, 2022 by MscleLovr

[+ TooSchoolForCool]

On 7/28/2022 at 12:24 AM, BnaC said:

@TooSchoolForCool, do you mind sharing the name of the company offering this return? Like others previously mentioned, it really comes down tothe strength of the company.  While I’ve considered annuities, I’ve never actually pulled the trigger based on concerns about the company and the concern of having too many eggs in one basket.  In addition, the embedded front end sales commissions are obscene..and commissions always make me suspicious.    

I’m doing quick math (subject to 3AM brain fog) and it seems that this one is not a great deal.  If they earn 8% on the money, in 10 yrs, they’d have your account to about $1.1mill.  Continuing at 8%, you could draw at least twice as much out each year fir 30 yrs if you lived to age 90 (albeit without death benefit if you did this yourself outside the annuity).   Is the $4,000/mo a guaranteed minimum with higher potential with higher returns?

New York Life Clear Income Fixed Annuity - FP Series