Annuities are good for people who want a guaranteed annual income stream in retirement, but they do not want to do any management of the underlying investments that generate that income stream. Since I prefer to manage my investments, I wanted to see if a typical annuity would guarantee me a better income stream than I expect to be able to earn with my safe and conservative mutual funds.
The way an annuity works is you make a lump sum payment to the annuity provider (usually an insurance company) to start the annuity at some age before you retire, and the annuity provider will invest and hold your money until you reach age 65, at which time they will start paying you a guaranteed amount of money every year until you die. I made a spreadsheet to compare Annuity returns, expenses and residual (death) benefits versus a self directed account that I invest in a stable conservative mutual fund.
The main problem I have with Annuities is, what do they do with the money left over in your account when you die. I have not been able to figure out a clear death benefit payout value in my reading about annuities, so I need help from any of you who own an annuity to explain to me what your annuity guarantees to pay out to your heirs when you are gone.
My spreadsheet "annuity_calculator.xls" is available at the "Investment Training webpage" from www.ultimatestockfinder.com .
I estimate that a typical Annuity will pay at a guaranteed 4.5% rate. For a clear comparison, I input a 4.5% rate of return for my self directed investment even though I believe I can do better than that. My favorite stable mutual fund, PRGMX has an average annual return of 6% over the past 25 years. It was up 24 of those years, down only 1. I ran a "filter" search in "mutualfundevaluator.xls" and found two more funds PTTRX and PRWCX, that have average annual returns of greater than 8% over the past 25 years and are both up 23 and down only 2 years.
Please talk to me if you have an annuity to help me understand the costs and death benefit amount, so I can properly account for them in my spreadsheet.
Next Monthly Meeting 2nd Tuesday of every Month:
Tuesday, March 12, 2013 , 7:30 PM at my house.
Here are my Buys for March 2013:
Buy Company Buy
Date Bought Price Target Sell
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3/1 AAPL $435 $475
Here are my Sells for March 2013:
Sell Company Sell Buy Buy
Date Sold Price Price Date
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StockEvaluator.xls and Mutual FundEvaluator.xls are available at www.ultimatestockfinder.com
Remember to send me any other stocks or mutual funds that you would like to see added to the Evaluator spreadsheets, and "Reply All" with any other investing ideas, information or questions that you want to share.
Thanks,
John D.
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