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KGW
06-22-09, 12:24 PM
How do annuities work? My mother has one that keeps paying her the same amount of money despite the fact that the value of the annuity has fallen ( it has gained some value back in this last, dying rally). She likes that regular money.

Are they simply taking a loss to keep people like her invested?

Thanks for any info.

Edit: I did find some basic info on the interwebs, ie, fixed, variable, effect of market conditions. Any other info is still welcome.

don
06-22-09, 01:14 PM
It's an insurance gamble that you will die before you're paid out more than they've profited from your up front money. Especially popular with high paid sports figures to protect themselves after their career is kaput and they blew most of their dough.

*T*
06-22-09, 01:19 PM
Time value of money (http://en.wikipedia.org/wiki/Time_value_of_money)

KGW
06-22-09, 02:05 PM
Thanks for the help, gents.

ThePythonicCow
06-22-09, 07:39 PM
It's an insurance gamble that you will die before you're paid out more than they've profited from your up front money. Especially popular with high paid sports figures to protect themselves after their career is kaput and they blew most of their dough.
It's an insurance gamble that the insurance company will go bankrupt or that you will die before you're paid out more than they've profited from your up front money.

In other words, beware the counter-party risk. These are not FDIC insured accounts.

The other risk is that annuities are over priced. Most people don't run actuarial tables (especially on themselves) and time-value-money calculations. So they end up paying more than the policy is worth.