On today, Sunday 5/13, I pray: Please God, make the stupid stop!
With traditional safety nets such as company pensions and Social Security dwindling, many of the 78 million baby boomers are left trying to answer one question: “Who’s going to pay my retirement paycheck?”
Annuities are one investment that more and more prospective retirees are considering. These financial products are created by the insurance industry, and offer a lot more flexibility and advantages than other investments. Here are a few reasons why you should think about adding them to your retirement plan.....
And the article continues.....
There's a very serious missing element however: There is no discussion of the risk of business failure and the losses you may suffer if it happens.
Annuities are insurance products. You need to put very large amounts of money into them in order to obtain reasonable monthly payouts. That would be ok if you knew the money was safe.
The problem is that you don't.
There is no national program to guarantee annuities. There are, however, state-by-state "guarantee" funds of various sorts, most of which have similar limits and provisions.
Annuity Cash Surrender: $250,000 for deferred annuity contracts per contract owner
Annuity in Benefit: $300,000 per contract owner
Incidentally, Florida recently increased the limit through House Bill 159 in 2010 -- it was formerly $100,000 (as was FDIC insurance.)
That sounds like a lot, especially with the increase. It isn't. To receive $2,000 a month, for example, the typical fixed annuity will require $500,000 of contribution.
You're only covered for half on cash value and if your expected payout period is 20 years (65-85) you're only covered for about 60% of the benefit payout amount as well!
Are you a State agency?
No. The guaranty association is a private entity, with its membership made up of all the life and health insurers licensed in the state (in fact, under state law an insurer must be a member of the association to be licensed to do business). The association was created by the legislature to serve as a safety net (subject to statutory limits) for residents should their life or health insurer fail. By creating the association, the legislature was able to ensure continued coverage to residents affected by their insurer’s failure. The association does work in cooperation with the Insurance Department in fulfilling its role of protecting residents whose insurance company is being liquidated.
So what happens if there's no money in the guarantee association? For example, let's assume for the sake of argument that a whole bunch of insurance companies go under, and the reserves available to pay the claims are insufficient.
Well, it's a state-created agency, so you'd assume they'd have taxing power (although they call them "assessments") and they more or less do. However, there are limits on the assessment power in the statute, which means that it's entirely possible for enough insurance companies to be able to fail and the fund to not only be unable to pay but also unable to assess in sufficient amount to cover the deficiency.
And if this happens because reserves are inadequate, even if the fund knew it and under-reserved with knowledge of the deficiency, they're immune:
631.727 Immunity.—There shall be no liability on the part of, and no cause of action of any nature shall arise against, any member insurer or its agents or employees, the association or its agents or employees, members of the board of directors, the Chief Financial Officer, or the department or office or their representatives for any action taken by them in the performance of their powers and duties under this part. Such immunity shall extend to the participation in any organization of one or more other state associations of similar purposes and to any such organization and its agents or employees.
Isn't that special?
This is contrast to the FDIC which, at least in theory, has the backing of the Treasury on a "full faith and credit" basis, and in addition has the Prompt Correction Action Law which (again, in theory) should prevent the insolvency of the FDIC.
Oh, and as for the powers on prevention, the Florida agency's enabling statute doesn't use the word "shall" when it comes to examinations -- they instead use the word "may" -- so they're off the hook for any potential malfeasance (despite their statutory immunity) anyway before it occurs.
Be careful folks. Annuities have their place in a retirement planning scenario but remember that you are in effect betting on the continued solvency of a private company to make the payments, and that any "government backstop" is both state (rather than federally) operated and has no resort, generally, to the treasury of the state itself.
These products are frequently touted as having more return than a long-term CD or similar, and in today's ZIRP market that's true.
But there is no such thing as a free lunch, and these products are not an exception. There are risks, they tend to be under-discussed and not well-disclosed, and diving into such a product without carefully considering what happens if the firm fails and the guarantee fund is insufficient, either because you have purchased more than limit of coverage or the fund is short and cannot pay, could result in an ugly surprise when you are least able to afford it.
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|User Info||Here We Go Again: Misdirection For Retirement in forum [Market-Ticker]|
Now some states make it just as easy. And they have broadened the definition of captives so that even insurance companies can create them. This has given rise to concern that a shadow insurance industry is emerging, with less regulation and more potential debt than policyholders know, raising the possibility that some companies will find themselves without enough money to pay future claims. Critics say this is much like the shadow banking system that contributed to the financial crisis.
Aetna recently used a subsidiary in Vermont to refinance a block of health insurance policies, reaping $150 million in savings, according to its chief financial officer, Joseph M. Zubretsky. The main reason is that the insurer did not need to maintain conventional reserves at the same level as would have been required by insurance regulators in Aetna’s home state of Connecticut.
In other big transactions, companies including MetLife, the Hartford Financial Services Group, Swiss Reinsurance, Genworth Financial and the American International Group, among others, have refinanced life, disability and long-term-care insurance policies, as well as annuities.
“Who’s going to pay my retirement paycheck?”Nobody is going to pay it.
Of course everybody already knows that but they think that if they pretend not to know it won't come true.
Thats why you have to invest in annuity owned/operated by AIG. Never invest in a little guy.
Its amazing the rich complain about taxes. The gov't is spending a $1 trillion a year more than it brings in to prop asset prices and the fed is at ZIRP indefinitely. Talk about stalling social mobility, to beneifit the top end. This managed economy crap has to be unconstitutional.
Just North of Detroit
There is no shelter from a general economic collapse.
Your preparations may make things easier for a time, but eventually you will have to deal with whatever new economic reality emerges.
Your grandchildren may appreciate it if you bury gold for them in the back yard, but there is no guarantee it will buy you as much as a ham sandwich when you really need it.
Very good ticker. A little emotional, but with good reason.
We are essentially completing the theft of the assets of the working American worker that started in the early 1980's with the "Reagan Revolution". In those days, the investment community was ruled by large pension funds who couldn't easily be hoodwinked by the banksters and a bought off Congress and White House.
Essentially large pension funds kept corporate executives in check with their large equity positions and the banksters fees under control. Glass-Stegall also controlled the banskters in areas where the pension funds couldn't get into because of regulatory concerns on the other side of the deal.
The leadership of banks and large companies of those days were being quickly replaced by a post-war, Ivy League MBA dominated by individuals who IMHO, were not as capable as those they were replacing and they had been trained in amoral business ethics where making money, not performing the common good was tantamount. This was also the beginning of the takeover of American mass media by corporate and political interests fueled by the ever increasing effectiveness of outlets like Cable TV and their rising costs in elections.
Wall Street quickly became a "What's in it for me" environment (even more than in the past) and the new media power allowed the sheeple to be kept blind while executives could hide behind a brand image and the mainstream media, making theft easier to perform and later with impunity once the politicians joined in to use their power of legislation and packing of the Supreme Court to let them steal with impunity in exchange for "contributions" and outright corruption.
Just like the Mafia did with the teamsters, the banksters and politicians realized the the money was in the private corporate pensions. They needed to release that money to create an age of "faux business expansion". The Democrats, of course wanted to free up the pensions to give Social Security a bigger role and the Republicans wanted to free these assets in order to fund their elimination of social security and the lining of the pockets of the American few which included Republican professional politicians and business "leaders".
So with a common goal, an insidious plan was hatched, first at Harvard Business School then moved over to business and lastly to Congress and the Supreme Court (needed there to seal the deal legally).
The first element was to sell the American people on the value of having your own nest egg, which allegedly was yours and which was portrayed as in your control. This was sold under the guise of rugged individualism, and the egos of Americans were used to pluck them clean. It just made good sense that it was YOUR pile of money, and yours to control and do with as you pleased, but that would not be the case. Thus the IRA, 401(k), and Roth, etc. were born. Oh, it was glorious, you'd have your money, you'd have the power to control your retirement and everybody would be a millionaire! What's not to like about this?
First, the democrats got their hands on it by making it taxable or not taxable when you finally got to retirement. and it also being taxable if you transferred either way. They added rules like the 59 1/2 age, etc. and now it's even being considered for double taxation.
Next, the banking interests loved it because rather than experienced fund managers now the retail dumb sheeple could be fleeced with rules and fees, which most pensions did not get charged. It was nirvana, new funds, financial tools and "financial retirement experts" like Bernie Madoff found their calling to fleece the sheeple, CNBC was now possible as a business and the financial advice industry flourished.
Corporate executives of companies that had private defined benefit pensions, knowing that this could become a source of money for their pockets and lull the shareholders into thinking that they were really productive entities instead of the truth that America was slipping behind, also loveed it. Now with J6P as an investor they could pit employee against investor and let them duke it out. Huge consulting businesses like Towers-Perrin etc. flourished by advising CEOs and CFOs on how to "convert fairly" annuity based pension funds to defined credit plans like cash balance and IRA plans and taking a huge slice of the pie for themselves because the average employee had no knowledge of annuities, the mathematics of investment and the actuarial science. All they knew was that they'd get a huge pot of money but they didn't realize that they'd been robbed blind.
Then came the piper to collect. First the government wanted more and more for their programs. then the once finely negotiated post-retirement medical plans of large multi-nationals became now a thing of the past. Next, Wall Street and the banksters wanted more and more of the action and thus lobbied hard to restrict IRAs and 401(k)s to be strictly a province owned and feed liberally by Wall Street. With all that money looking for return, hedge funds were born and the bubble business was back in full bloom, but the first problems were sensed and thus Glass-Steagall was repealed to keep the ponzi going.
Employers got stung when they tried to steal billions through a conversion of IBM's annuity retirement plan into an IRA/Cash balance plan. They messed with the wrong people then and the ponzi and theft was revealed. Soime IBM employees, along with Boeing, American Express and AT&T employees realized they were INDIVIDUALLY being robbed by sometimes as much as $800K in their conversions. A suit was filed, IBM lost, but when they went to the Supreme Court the Republicans and the business lobby put Justice Roberts in the bench and he killed off the lawsuit.
The ponzi to the average American worker continued, and the latest tool to steal more from the retirement save is the wide range of annuities the banksters offer today. Large fees, little returns and no safety are the hallmarks of the modern annuity, as KD has aptly said.
Then comes Alan Greenspan, Bendover Ben and the ZIRP environment. In order to save the banksters at the expense of the American worker, both the Republicans and the Democrats have endorsed the ZIRP environment and the protection of the banksters against the frauds they have committed. This is done to protect the government and the banksters from the sure to come anger when the sheeple realize that they've been had time and time again for many years, first through pension conversions, then outrageous IRA and other account fees, then band investments, and more recently annuities.
Unfortunately, there is a fly in the ointment. That fly is ZIRP, and it may be the trigger that blows up the ponzi. Most sheeple don't realize that in actuarial mathematics and annuity science the lower the interest rate and resultant returns, the more assets (cash) you'll need to keep the same annuity as with what you had in times of higher interest rates. The age of the annuitant is a factor in that as they approach the actuarial norm for age of death the pot of money needed for the annuity is reduced, but as medicine improves and average life span increases this also increases the size of the pot of money needed for a resultant annuity amount. As a matter of fact, a ZIRP assumption throughout the life of an annuity would mean you'd have to provide all of the money for the annuity, since there would be no growth of the investment during your annuity's payout period. This, of course doesn't include the hefty fees you need to pay to the banksters, brokers and hedge funds which would make an annuity in an ZIRP and no investment growth environment even more expensive than just pulling out a set amount and forgetting the annuity.
This leads to more gambling of your money by the banksters in search of a return, so you can be lulled into giving them your already diminished but hard earned money. Since gambling is risk, then the banksters want to have no liability. Since the government doesn't want to pay the bill for your loss either, here comes the covert legislation to screw you once again.
For more education, read "Retirement Heist: How Companies Plunder and Profit from the Nest Eggs of American Workers" by Ellen Shultz. It's a mild, politically correct (after all she needs to keep her job as a WSJ reporter to fund her retirement) account of this sordid multi-decade Bankster, Republican and Democrat led theft of most (those with private pensions) American workers and later all workers who falsely believe in and depend on their IRAs and other retirement savings bankster theft enablement instruments.
Trading and investing is understanding about people, emotions and corruption of government, corporations, banks and people using propaganda, lies, mathematics and bankster logic working against you.
Last modified: 2012-05-13 16:05:34 by nuke_engineer
Great post Nuke.
I'd have titled it: What killed doing the right thing.
I almost never blog unless it's something that I think needs to be commented on, in which I would have to be very knowledgeable. Your post is an EXCELLENT
synopsis of what has EXACTLY taken place in the U.S. starting with Reagan the 'great communicator". I always thought, in my simple mind, that the idea
of 'investing' my money in an IRA or 401K was flawed. Told I couldn't touch it
until I was 59 1/2, pay taxes based on the maturity rate (30 years into the future) and paying yearly fees amounting to 3 or 4 percent...what could go wrong? and BAM the first baby boomers turned 65 in 2010 and...no money, banks insolvent, worst financial disaster in history, ZIRP. I truly believe the fix was in from the beginning. Thank GOD I never bought into the scam. BTW I once asked a planner if there was a financial instrument that would guarantee a 200% return on investment over 10 years. No such luck he says. "How about paying off my home"? I asked. "Why" says expert. "Don't do that. Give the priciple payments to me and I'll see to it you have money for your retirement"...Well at least I own my home. Thank you for the great thesis. Continue the good work
Last modified: 2012-05-13 17:22:24 by bdr
Long-term or lifetime annuities made a lot of sense when the insurance company was a mutual, and run only for the profit of members (and to pay employee salaries of course). Those were real safe, conservative insurance companies.
There is no way in hell i would invest in a lifetime annuity with a listed company however. By definition they are there to gauge every cent of profit out of you that they can, and they will run a much riskier book of assets to do it. This is pretty much incompatible with being around for a long time to ensure that you keep receiving your money in 30, 40, or 50 years time.
Annuity, schmooity...I'm going with some of that "home value" insurance instead.
Yep, the future looks bright!
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