🔺 r/personalfinanceubiffmaniac·34 days ago
Examples of Annuity Traps
A friend asked me to review an annuity illustration/proposal and it was so bad that I wanted to share some of the details with the group as things to watch out for. This comes from a company often discussed in this sub but my point is on a generic level and I don't want to bash any certain company. I also personally feel that there are good annuities out there that can be integral to a retirement plan. So, my friend comes away from this meeting with the understanding that he turns over his life savings of almost $400k and he will receive 80k/year for as long as he lives. He is 63 now and this would start in two years. He also understands that he has the ability to withdraw from his cash basis, but doesn't really understand this part. He is excited. The illustration shows premium paid-in of 370k and withdrawals of 80k starting in 3 years and going for 12 years (15 years total). At that time, the balance is depleted and a life annuity of 24k/year continues. What this means wasn't explained to him to a point where it made sense. He believed 80k/year "forever". Deceptive illustration: The 15 year illustration was modelled on years 1996-2010. Returns in excess of 30% annually created a…