D. Jeff, I was approached by someone extolling the benefits of equity indexed annuity with "Company-X". It is said that my money will be safe, there is a minimum return and a cap with a participation rate of 100%. They also said that probably average between 6% and 7%, without risk to the money I put in. I am confused by all this. Any help you can give would be much appreciated!
A. I would be happy to assist. This is completely wrong when you say you should earn 6-7% a year, without any risk. The only "guarantee" on any equity indexed annuity is the guaranteed minimum rate. The capital-X-indexed annuities, their guarantee is 3% on 75% of premium.
As you can tell, are not interested in equity-indexed annuities are easy to understand. 3% on 75% of the premium which means you are only "guaranteed" a minimum of 2.25% for the full amount invested. If you put $ 100,000, which pays 3% of $ 75,000 or $ 2,250 interest.
Why not just say that you will pay 2.25%?
The rest of the 6-7% return, but I must say that you gain in security is based entirely on the stock market. More specifically, you are guaranteed to earn 2.25% if you leave all your money in equity-indexed annuity for 10 years. Other revenues are subject to the performance of the stock market.
They are not even directly with the market-based returns. You have the choice of "yield spread deducted from average monthly gains or cap, without the propagation.
The spread Option: The contract is divided into monthly periods and the return for each period. This gives you 12 months back. These are added together and divided by 12. Finally, the "spread" is derived from the average.
I do not know what is their dissemination (this may change in any case), but if was 3%, then we subtract the 3% of the average, I have just mentioned. Let's say the average was 7%. 7% 3% = 4%. Then 4% credit for this contract years.
100% option: You can get 100% but only up to the roof, for example 9%. So if the index is 9%, you get 9%. If you go up to 23% as in 2003, only 9%. It can change course.
The key is that you are locked in an index annuity equity and control of everything. They can change your return is calculated from year to year and you have no recourse.
D. She said that can not guarantee that the 6-7% of my back, but that the return would be based on the average S & P 500. What is the average of the last ten years? And do not come back? Company-X has a participation rate of 100% and that sounds good, but said that there is a limit of 7% interest rate. This seems pretty decent from what I can get a fixed annuity. What do you think?
A. On 2/18/2005, the average of 10 years the return of S & P 500 was 11.5%. It is part of 100%, but only up to the roof – 7%. For example, in 2003, the S & P 500 has gained 23%, but this study would have won only 7%. Last year, the S & P 500 gained more than 10% with dividends reinvested. This EIA has gained 7%.
This is a huge difference. $ 100,000 gain of 7% for ten years will be worth $ 196,715. The same investment of 11.5% will be worth $ 217,852. This is more than $ 21,137. In other words, they earn 21% more than ten years at 11.5% and 7%.
We should not compare an equity indexed annuity the annuity is fixed. A better comparison would be a variable annuity, because none of the returns of a fixed annuity are subject to the premium.
I have no financial incentive for the advice that I offer. On the other hand, the person recommending the equity indexed annuity probably 10% commission and provide little or no service after you subscribe. They talk about this?
July 28th, 2009