Penn Mutual Variable Annuity III

I was recommended this annuity, but I'm not that familiar with variable
annuities. If you're guaranteed 7% no matter what remains of your
principal, how can you lose all your money? Wouldn't you eventually get
all your principal back? I know with inflation it would be worth less,
but can you really lose your entire principal with these types of
annuities? Any advice or comments on this particular annuity? Is this
one of the better ones? Does it all depend of which investment options
you choose within the annuity? I'm in NY. Any help would be much
appreciated!

Re: Penn Mutual Variable Annuity III

Download and read the prospectus




<> wrote in message
news:
>I was recommended this annuity, but I'm not that familiar with variable
> annuities. If you're guaranteed 7% no matter what remains of your
> principal, how can you lose all your money? Wouldn't you eventually get
> all your principal back? I know with inflation it would be worth less,
> but can you really lose your entire principal with these types of
> annuities? Any advice or comments on this particular annuity? Is this
> one of the better ones? Does it all depend of which investment options
> you choose within the annuity? I'm in NY. Any help would be much
> appreciated!
>

Re: Penn Mutual Variable Annuity III

Annuities like this are so complicated, who can tell for sure?

Re: Penn Mutual Variable Annuity III

I would compare it to Vanguard. What usually kills you with annunities are
the fees. Vanguard has the lowest fees.
<> wrote in message
news:
>I was recommended this annuity, but I'm not that familiar with variable
> annuities. If you're guaranteed 7% no matter what remains of your
> principal, how can you lose all your money? Wouldn't you eventually get
> all your principal back? I know with inflation it would be worth less,
> but can you really lose your entire principal with these types of
> annuities? Any advice or comments on this particular annuity? Is this
> one of the better ones? Does it all depend of which investment options
> you choose within the annuity? I'm in NY. Any help would be much
> appreciated!
>

Re: Penn Mutual Variable Annuity III

W. Wells wrote:
>
> I would compare it to Vanguard. What usually kills you with
> annunities are the fees. Vanguard has the lowest fees.

Vanguard Fidelity
Administrative fee 0.10% 0.05%
Mortality & Expense 0.25% 0.25%
Min fund expense ratio 0.14% 0.10%
---------------------
Lowest cost investment 0.49% 0.40%

The first two fees are the "wrapper" fees added on by the annuity, the
third is the usual expense ratio of the fund or funds that you invest in
with the annuity.




(p. 4, pdf p. 8)

> <> wrote in message
> news:
> >I was recommended this annuity, but I'm not that familiar with
> > variable annuities. If you're guaranteed 7% no matter what remains of
> > your principal, how can you lose all your money? Wouldn't you
> > eventually get all your principal back?

If this is the right contract, and if I'm reading it correctly:

(this shows a 7% Guaranteed Annual Withdrawal Percentage pn p. 5)

then the "Benefit Base" from which you take 7% is reduced each year by
the amount you withdraw (see "Effects of Withdrawals on Benefit Base" on
p. 6).

That would mean that the first year, you could withdraw 7%, the next
year you could withdraw 7% of the remaining 93% (leaving 93% of 93%),
the next year you could withdraw 7% of 93% of 93%, and so on.

Now if you keep withdrawing forever, you do get the original amount
back:
7% + 7% * 93% + 7% * 93%^2 + 7% * 93%^3 + ... =
7% * 1/(1 - 93%) = 7%/7% = 100%

but as you observe:
> > I know with inflation it would be worth less,
> > but can you really lose your entire principal with these types of
> > annuities?

You are getting a number of features not in the bare bones policies
quoted above (Vanguard, Fidelity), but also consider the expenses:

Annual fee: $40/year (unless the annuity is over $100K)
Admin fee : 0.15% (compared with 0.05% - 0.10% for Fidelity/Vanguard)
Mort. & expense: 1.25% (compared with 0.25% for Fidelity/Vanguard)

And you can't get out of the contract without paying a back end load
(contingent deferred sales charge) of 8% for the first four years(!); it
then declines over the next six years, until after 10 years, you can get
out without a fee.

Now realize that I'm assuming that this is the particular Penn. Mutual
contract you are looking at. They have others also called Penn. Mutual
Variable Annuity III, but none that I've seen with the 7% guaranteed
withdrawal rate. Also realize that I may not be reading the contract
correctly, and this is not legal or financial advice.

If the sales rep you are dealing with can't explain all of this to you
(exactly which policy it is, what the fees are and what they buy you,
how long it takes you to recover 100% of your investment with the 7%
withdrawal rate, and more), I would walk away. More generally, I would
walk away from any investment that I didn't fully understand.

--
Mark Freeland