Hot answers tagged

61 votes

Why would a life-insurance company agree to a 20-year guaranteed life annuity which is expected to pay out more than the principal?

The real money maker for insurance companies comes from investing free cash. Most insurance companies have a diversified portfolio of fixed income and equities. Maybe someone can provide a more ...
user avatar
  • 73.7k
31 votes

Why would a life-insurance company agree to a 20-year guaranteed life annuity which is expected to pay out more than the principal?

Why would a life insurance company agree to pay out a nominal amount that is higher than the principal given to them? As mentioned in other answers, the insurance company is assuming that they will ...
user avatar
  • 832
23 votes

$1.44 million in holdings: Help my non-retired, 80-year-old dad invest it

This is not the answer you were hoping for. I recommend that you stay out of it and let your parents do what they want with their money. They are obviously very good savers and very thrifty with ...
user avatar
21 votes

Why would a life-insurance company agree to a 20-year guaranteed life annuity which is expected to pay out more than the principal?

The insurance company is expecting to earn more money investing the initial buy in amount ($100k) than it pays out. You need to calculate what the equivalent rate of return is for that $100k. Unless ...
user avatar
  • 1,171
11 votes

Why would a life insurance exclude suicide for the first two years of policy duration only?

I believe that the insurance company wants to discourage people from making money by committing suicide. If the insurance company covered suicide for the whole term then a suicidal person with $10,000 ...
user avatar
  • 6,849
11 votes

Finance Test: How to solve for interest rate? (Annuities)

This is actually a geometric series and r can not be solved for manually (easily) as @base64 says. As one of the formulas on the Wikipedia page I provided a link to just above implies, the sum of the ...
user avatar
  • 786
10 votes

Retirement - Annuity or not?

You really should consider sitting down with an independent financial advisor to run the numbers for the various options and discuss what risks you're comfortable with and what your requirements/goals ...
user avatar
  • 31.8k
8 votes
Accepted

What is the difference between a perpetuity and an annuity?

In the academic sense, an annuity is payable annually for a term of years and a perpetuity is payable annually forever. An annuity has an end date and a perpetuity does not. Many commonly seen ...
user avatar
  • 4,839
8 votes

Young w/ pension plan: lump sum or annuity?

Using Excel's IRR function and the following cashflows: 10,000 today (age 28) -6,000 annually from age 65 to age 85 (life expectancy) Gives me an IRR of about 5.6% (which means that the 10,000 grows ...
user avatar
  • 114k
7 votes
Accepted

Retirement - Annuity or not?

Firstly, you should familiarise yourself with your options for your pension fund. They changed as of 6th April 2015 so it's all quite new. The Government's guidance on it is here. If you haven't ...
user avatar
7 votes
Accepted

What are the differences between an IRA and an annuity?

An IRA is a type of account. It can hold a variety of investments, including stocks, ETFs, or mutual funds. It has a tax favored status, and rules regarding how much you can invest each year. ...
user avatar
7 votes
Accepted

Should I withdraw from my annuity now to invest elsewhere?

Move it to a different investment. As you rightly said, annuities are good for the provider, and better for the person making the contract; but not for you. There is no need to pay 10% tax hit - you ...
user avatar
  • 37k
7 votes

What is the meaning of the Mega-Million's Cash Option - Avoiding lottery's winning taxes

Why is there a difference between the jackpot and the Cash Option - $374 million dollar difference. Taxes aside, suppose you were given a choice of $900 million today or $900 million over 30 years. ...
user avatar
  • 114k
6 votes

Pensions, annuities, and "retirement"

There are broadly two kinds of pension: final salary / defined benefit, and money purchase. The text you quote above, where it talks about "pension" it is referring to a final salary / defined ...
user avatar
  • 21.8k
6 votes
Accepted

Is National Pension Scheme(NPS) not a good investment?

The way the question is worded, it is slightly opinion based. Just to point out; Tax benefits - Upto 50000 INR is tax free when invested here. This is actually 200,000 INR under 80C. So if you ...
user avatar
  • 56.6k
6 votes

What is the best source of funding to pay off debt?

Thirty thousand in credit card debt is a "big elephant to eat" so to speak. But you do it by taking a bite at a time. One positive is that you do not want to borrow from your 401K. Doing so is a ...
user avatar
  • 74.9k
6 votes

Advice for opening an IRA as a newbie

First, a Roth is funded with post tax money. The Roth IRA deposit will not offset any tax obligation you might have. The IRA is not an investment, it's an account with a specific set of tax rules ...
user avatar
6 votes

Is this mixed annuity (part savings and part mutual fund) legitimate?

This sort of investment is legitimate. If it´s a good investment depends on your personal risk-appetite and investment horizon. You basically lower your risk but also lower your average returns ...
user avatar
  • 5,236
6 votes

Why would a life-insurance company agree to a 20-year guaranteed life annuity which is expected to pay out more than the principal?

Investing like professionals They are investing the money like a university endowment. When investing money for a very long time, there's a "gold standard" for how to go about it. The rule of thumb ...
user avatar
5 votes

Retirement - Annuity or not?

Your relatively young age and the current very low bond interest rates make annuities a very poor buy. And most of the other suggestions you have mentioned have very low diversification, which exposes ...
user avatar
  • 1,219
5 votes

Do I have to pay an advisor 3% to transfer a pot of £49,000 to another pension provider?

No, I do not. The advice is to take advice :-) but it is not required. Several "low cost" SIPPs allow an "Execution Only" transfer from some pensions (generally not occupational or defined benefits ...
user avatar
  • 251
5 votes

How can we determine how much income our savings could generate if we purchase an annuity?

Annuity calculation formulas can be found here. http://en.wikipedia.org/wiki/Annuity_(finance_theory). In addition, as suggested in the comments, there are many sites that have calculators. Having ...
user avatar
  • 1,185
5 votes

Why would a life insurance exclude suicide for the first two years of policy duration only?

As others have mentioned insurance is a highly regulated industry. There is a common rule called a contestability period, typically two years. Typically, if you pass within the contestability period ...
user avatar
  • 48.5k
5 votes

Young w/ pension plan: lump sum or annuity?

You could look at it in terms of break even. The annuity pays for itself in 20 months (after you retire) and everything after that is profit. However, that is over-simplifying things somewhat. We all ...
user avatar
  • 3,363
5 votes

How would the financial situation be, if a person not only lives quite long, but also has Alzheimer's disease?

There are two issues here. The first is that you may run out of money if you live past the age of 85 and the second is that there's the possibility of Alzheimer's disease in which case you're going ...
user avatar
  • 73.7k
5 votes

Can I get life insurance for myself that automatically converts to an inflation-adjusted life annuity for my wife if I die?

This is a logical question, but there seems to be little indication of such a product (an annuity purchased now that will cover the gap between your death and your wife's death). Ideally, it would ...
user avatar
  • 28.6k
4 votes

Solving for mortgage payment amount and its deduction on the total principal?

I would suggest that you review the course material, but this is what I was able to find: Unfortunately, mortgages are not as simple. With the exception of variable rate mortgages, all mortgages ...
user avatar
4 votes

Must an annuity provider payout a lump sum on an inherited annuity without charging fees?

It depends on the contact which set up the annuity, but this is almost certainly NOT something they are required to do -- and if they do it you're subject to their determination of what the balance ...
user avatar
  • 31.8k
4 votes

Fixed-Indexed Annuity Interest Calculation

Yes. The problem with this type of crediting has to do with the volatility of the S&P from month to month. Even in a year where the S&P is up a tremendous amount, say 20%, there will be months ...
user avatar
4 votes

Why is the estimated monthly income state-dependent on CNNMoney's annuity calculator?

Obviously you'd have to ask who wrote it to be 100% certain, but my guess is since an annuity pays for life, it will estimate the payments based on life expectancy, which varies from state to state (...
user avatar
  • 114k

Only top scored, non community-wiki answers of a minimum length are eligible