Pacific Life is one of the oldest annuity and life insurance firms in the United States, with a 150-year history. Pacific Life has $171 billion in assets, according to their financial analysis from 2019. Pacific Life now offers quick annuities in addition to fixed and variable annuities. If you’re unsure about how an annuity might fit into your retirement income strategy, talk to a financial advisor.
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Fitch, Moody’s, Standard & Poor’s (S&P), and A.M. Best are the four primary companies that rate the financial strength of life insurance companies like Pacific Life. Pacific Life achieved high ratings from each, with A.M. Best giving it an A+ (outstanding) rating, Fitch and S&P each giving it an AA- (very strong) rating, and Moody’s giving it an A1 rating (good).
What is an annuity Pacific Life?
An annuity is a long-term investment that pays you a consistent monthly income for the rest of your life. Consider an immediate annuity if you want your income to start right away or within a year. It’s the most basic and straightforward sort of annuity available. And you’ll know exactly how much money you’ll make right away.
How is Pacific Life Rated?
NerdWallet gave it a 4.5-star rating. In J.D. Power’s customer satisfaction assessment for life insurance, it received an average rating. Provides a diverse selection of life insurance coverage.
Are life insurance annuities a good investment?
In retirement, annuities can provide a steady income stream, but if you die too young, you may not get your money’s worth. When compared to mutual funds and other investments, annuities can have hefty fees. You can tailor an annuity to meet your specific needs, but you’ll almost always have to pay more or accept a lesser monthly income.
Why should I stay away from annuities?
Scott Hanson, co-CEO of Allworth, warns retirees about one of the most popular – but oversold – insurance products.
It’s critical to educate yourself about what you’re purchasing and why you’re buying it when it comes to your finances.
This is because some popular investment items may be appropriate for some people, but they are often inappropriate for the majority of those who are tempted to buy them.
Annuities are one of the most oversold investing options available. Annuities are unusually complicated contracts between you and an insurance company in which you pay a big sum of money in exchange for a regular payment. These payments could be made for the rest of your life or for a set period of time.
Annuities come in a variety of shapes and sizes. Variable annuity returns may be based on the performance of a specific mutual fund; indexed annuity returns are based on a specific index (such as the S&P 500); and fixed annuity returns are based on a certain interest rate.
While an annuity may be a good investment for some people, because they often earn a large fee for the salesman, it is important to identify the primary objective of the person suggesting the annuity.
All else being equal, we rarely recommend an annuity at Allworth Financial. The following are four explanations for this.
The fees for variable annuities can be extremely high
The recurrent fees are one of the most significant disadvantages of variable annuities. These are used to cover the risks and costs of safeguarding your funds. An annuity charge, for example, could be around 1.25 percent of the amount you’ve invested.
However, when compared to variable annuities, both indexed and fixed annuities may have cheaper basic fees. However, whether you choose an indexed or fixed annuity, you’ll almost certainly be pressured to add extra “riders” or “customized improvements” (such as death benefits or long-term care).
Aside from fees, surrender charges are one of the most costly components of annuities. When you remove money in excess of your normal payout, you will be charged a surrender fee. (Even if you’re in desperate need of cash.)
The amount of a surrender charge decreases the longer you hold the annuity, but let’s say you have an emergency in “year three” and need to take an additional $10,000. The surrender cost could be as high as 5% of the withdrawal amount, implying that you’ll have to spend $500 only to reclaim your own money.
As a reminder, a $500 penalty isn’t the only thing that’s costly; the $500 deduction also affects the principle of your annuity account.
The returns on annuities don’t always match those received from the market
People buy indexed annuities in the hopes of getting interest returns that “mirror” those of a stock index. You’d imagine that if that specific index performed well in a given year, the annuity’s returns would likewise perform well.
But this isn’t always the case. This is due to a little thing called a “participation rate,” which is used by many insurance firms. That is, they “limit” your returns so that your investment can only rise by 80% of the fund’s growth, for example.
Breaking free of an immediate annuity could be impossible
An instant annuity, the most basic sort of annuity, is a long-term investment plan in which you make a lump-sum deposit and it begins giving you a guaranteed revenue stream right away (monthly, quarterly, or annually). These payments could last a few years or for the rest of your life, depending on your agreement.
The fact that once you acquire an immediate annuity, you’re not just trapped with it, but your payments can’t be passed on to a beneficiary, so the money stops coming the day you die is a huge disadvantage.
Some insurers may allow you to switch your immediate annuity to a different type of annuity, but even if they do, you’ll almost definitely be charged with a slew of fees and taxes.
Annuities typically pay the seller high commissions
As previously indicated, buying an annuity usually entails paying a large commission to the seller on top of your investment. In other words, you won’t be able to send a commission check to the annuity salesperson; instead, the money will be deducted from your deposit.
What is the cost of these commissions? They can range from 6% to 8%, or even more. That means that if you buy an annuity for $200,000 and the commission is 7%, only $186,000 of your money is invested for you (before any extra expenses).
Aside from the commissions, fees, and inflexibility (high surrender charges), annuities have a ‘plus’ reason to avoid: they have complicated tax status. For instance, the money you earn from a deferred annuity is treated as ordinary income and is taxed accordingly (rather than at the lower, much more tax-friendly long-term capital gains rate).
With that in mind, if you still want to buy an annuity, make sure you only engage with a fiduciary advisor that operates in your best interests 100 percent of the time (as all our advisors do). This will assist you in avoiding potential conflicts of interest. Because there are advisors who only wear their fiduciary hat on occasion,
Can you lose your money in an annuity?
Variable annuities and index-linked annuities both have the potential to lose money to their owners. An instant annuity, fixed annuity, fixed index annuity, deferred income annuity, long-term care annuity, or Medicaid annuity, on the other hand, cannot lose money.
Who should not buy an annuity?
If your Social Security or pension benefits cover all of your normal costs, you’re in poor health, or you’re looking for a high-risk investment, you shouldn’t buy an annuity.
Is Pacific Life a stable company?
Pacific Life has received great marks from various industry rating experts in addition to its strong NAIC grade.
Pacific Life has an A+ (Superior) financial stability rating from AM Best, indicating that it can be counted on for prompt payment and attention to claims. J.D. Power gives Pacific Life an above-average score of 776 out of 1000 for customer satisfaction. Despite the fact that companies like State Farm and Nationwide score higher, Pacific Life outperforms industry heavyweights like MetLife, Prudential, and Guardian Life.
How long has pacific life been in business?
Over 150 Years of Stability and Strength We’ve been focused on our consumers since 1868, doing what’s right for them and improving our products and services to fit their demands. We’re proud of our more than 150 years of service and are actively planning for the next 150 years.
Does Suze Orman like annuities?
Suze: Index annuities aren’t my cup of tea. These insurance-backed financial instruments are typically kept for a specified period of time and pay out based on the performance of an index such as the S&P 500.
What is better than an annuity for retirement?
IRAs are investment vehicles that are funded by mutual funds, equities, and bonds. Annuities are retirement savings plans that are either investment-based or insurance-based.
IRAs can have more upside growth potential than most annuities, but they normally do not provide the same level of protection against stock market losses as most annuities.
The only feature of annuities that IRAs lack is the ability to transform retirement savings into a guaranteed income stream that cannot be outlived.
The IRS sets annual limits on contributions to IRAs and Roth IRAs. For example, in 2020, a person under the age of 50 can contribute up to $6,000 per year, whereas someone above the age of 50 can contribute up to $7,000 per year. There are no restrictions on how much money can be put into a nonqualified deferred annuity each year.
With IRAs, withdrawals must be made by the age of 72 to meet the IRS’s required minimum distributions. With a nonqualified deferred annuity, there are no restrictions on when you can take money out of the account.
Withdrawals from annuities and most IRAs are taxed as ordinary income and, if taken before the age of 59.5, are subject to early withdrawal penalties. The Roth IRA or Roth IRA Annuity is an exception.
Does Dave Ramsey like annuities?
Annuities are burdened by a slew of expenses that eat into your investment return and keep your money locked up. If you want to get your hands on the money you’ve put into an annuity, you’ll have to pay a fee. This is why annuities are not something we endorse.
Remember that annuities are essentially an insurance product in which you transfer the risk of outliving your retirement savings to an insurance provider. And it comes at a high cost.
Here are some of the fees and charges you’ll find associated to an annuity if you’re curious:
- Surrender charges: If you’re not paying attention, this can get you in a lot of trouble. Most insurance firms impose a limit on how much you can withdraw in the first few years after purchasing an annuity, known as the surrender charge “The term of surrender charge.” Any money taken out in excess of that amount will be subject to a fee, which can be rather costly. That’s on top of the 10% tax penalty if you withdraw your money before reaching the age of 59 1/2!
- Commissions: One of the reasons why insurance salesmen enjoy pitching annuities to people is that they can earn large commissions—up to 10% in some cases! Those commissions are sometimes charged individually, and sometimes the surrender charges we just discussed cover the fee. Make sure you inquire how much of a cut they get when you’re listening to an annuity sales pitch.
- Charges for insurance: These could appear as a bill “Risk charge for mortality and expense.” These fees cover the risk that the insurance company assumes when you buy an annuity, and they normally amount to 1.25 percent of your account balance per year. 3
- Fees for investment management are exactly what they sound like. Managing mutual funds is expensive, and these fees pay those expenses.
- Rider fees: Some annuities allow you to add extra features to your annuity, such as long-term care insurance and future income guarantees. Riders are optional supplementary features that aren’t free. There is a charge for those riders as well.
