Thanks for that info! Quite a while back I had been convinced by the members of this forum on this thread not to pursue the fixed indexed fund and instead go for a fixed rate annuity. But I did dump USAA all together and ended up going with canvas annuity, which is a subsidy area of Puritan life insurance and which does not itself have an A+ rating but, hey, stinky invested in them so I'm going to trust that between the insurance company in general and my state's guaranty, I at least won't lose my initial investment.I just saw a USAA FIA presentation and it reminded me of this thread. I have a few comments and questions from the presentation. First, they mentioned the 10.5% cap rate, but that is only for the first year and this might be why FIAs are really popular right now. But it is just a math trick. With higher interest rates, they have more interest payments to devote to their options strategy, but if rates drop in the future, so will the caps, and it could be drastic. But while they can change the cap rate, the buyer is stuck with the early withdrawal penalties for 7 years. In other words, you are stuck for 7 years, but they can change their terms annually. That's a lopsided proposition. A MYGA, on the other hand will pay 5 or 6% for the entire 7 years. As such it will probably beat the FIA unless interest rates rise again.According to the insurance agent, there are no fees associated with either account other than the usual early withdrawal fees, which I am not concerned about because I have other funds elsewhere. There is also a 10% of funds withdrawal allowed per year after year one for both accounts.
One question I had is on the comment that they have no fees or commissions. I don't know why they would be pestering people to buy these if they didn't have commissions. In fact, it is the 7-14% commissions on FIAs that contribute to their underperformance compared to MYGAs, but it is also what makes them very popular with sales agents. MYGAs and SPIAs typically have only a 1% commission. But if the FIAs at USAA don't have commissions, the performance should be comparable, but then why do they need the 7 year penalty?
Another thought, if they can lock in 6% MYGA rates for 7 years, then why not the FIA cap rates for 7 years. Assuming they are invested in the same underlying bonds, they should have the same amount of interest each year for options purchases. As such, they should therefore be able to lock the cap rate at 10.5% for 7 years too. But I don't know anyone who actually does this. Am I wrong?
Lastly, they failed to mention that the 100% S&P participation rate does not include dividends. A glaring omission that I assume was deliberate, since about half of the S&P's long term gains can be attributed to dividends.
Anyway, the info from the presentation just doesn't add up unless I am missing something. The one positive thing about the presentation is that they were clear that this is a fixed income strategy that compares with CD and bond returns and not the stock market, but then they went on to show how it could beat the stock market using hypothetical backtested numbers using the 10.5% cap rate over the past 7 years.
It was a pretty easy application, took a little while to get it funded because - get this! - Schwab sends the funds through the USPS. You would think in 2024 it could somehow be effected electronically but no!
But it's kind of fun to see my balance rise every day without the fear of it dropping below what I invested into the annuity.
Just my $.02.
Statistics: Posted by bellomom — Mon Aug 12, 2024 12:11 pm — Replies 71 — Views 7743