Vanguard Variable Annuity

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FBN2014
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Vanguard Variable Annuity

Post by FBN2014 »

Any thoughts on Vanguard's VA? Any one own this? Looks like a good choice for those who need guaranteed lifetime income and are concerned with market losses with their lifetime income rider.
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Taylor Larimore
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Re: Vanguard Variable Annuity

Post by Taylor Larimore »

FBN2014 wrote:Any thoughts on Vanguard's VA? Any one own this? Looks like a good choice for those who need guaranteed lifetime income and are concerned with market losses with their lifetime income rider.
FBN2014:

The Vanguard annuity with the life income rider is complex, difficult to analyze and may be pricey. The concept is good.

I think you should also consider a simple Single Premium Immediate Annuity (SPIA) at http://www.immediateannuities.com. These annuities are easy to understand and their premiums are very competitive because of competition.

I own two SPIAs and no longer worry about bear markets or running out of money.

Best wishes.
Taylor
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FBN2014
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Re: Vanguard Variable Annuity

Post by FBN2014 »

Taylor,
The reason I am interested in the VA (also looking at SPIAs) is due to the liquidity of the VA vs SPIA and the death benefit options, i.e. SPIA income ends at annuitants death vs a death benefit with the VA for the remaining accumulation value in the account. VA also has the ability to turn off the income if desired.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain
chessmannextmove
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Re: Vanguard Variable Annuity

Post by chessmannextmove »

FBN2014 wrote:Any thoughts on Vanguard's VA? Any one own this? Looks like a good choice for those who need guaranteed lifetime income and are concerned with market losses with their lifetime income rider.
Vanguard does have a basis step up feature which can be useful if markets have prolonged down years.

If you want a variable annuity, check out fidelity. They have very low cost variable annuity options.

In my opinion almost all annuities stink. Especially fixed annuities. (That is, unless you live till you're 102.)
Last edited by chessmannextmove on Sat May 09, 2015 5:38 pm, edited 1 time in total.
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Taylor Larimore
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Re: Vanguard Variable Annuity

Post by Taylor Larimore »

FBN2014 wrote:Taylor,
The reason I am interested in the VA (also looking at SPIAs) is due to the liquidity of the VA vs SPIA and the death benefit options, i.e. SPIA income ends at annuitants death vs a death benefit with the VA for the remaining accumulation value in the account. VA also has the ability to turn off the income if desired.
FBN:

I understand your interest in an annuity with lots of options. The problem is that the insurance company must increase the basic premium plus an extra (wrong guess) cushion for each option. Also, when a policy is different from its competitors, the insurance company can charge more.

When I checked with Vanguard at the time we bought our annuities 10 years ago, Vanguard was not competitive in price. Compare premiums and needed benefits (primarily the guaranteed life income)--then make your decision.

Best wishes.
Taylor
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Re: Vanguard Variable Annuity

Post by adamthesmythe »

I have heard that the Vanguard variable annuities are not the worst variable annuities out there.

However- you should evaluate buying an SPIA with some of your funds and investing the remainder (in index funds, of course). By buying straight SPIA without riders you get the maximum payment, allowing you to invest less for a certain income and still have money left over.
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SPIAs

Post by Taylor Larimore »

In my opinion almost all annuities stink. Especially fixed annuities.
chessmannextmove:

This may be true of most annuities. However, Single Premium Fixed Annuities (SPIAs) provide the highest guaranteed lifetime income of any investment.

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: Vanguard Variable Annuity

Post by mindboggling »

I've owned one (non-qualified) for about 15 years. I bought it while I was working full time (retired now) because I wanted more tax-deferred space. I was already maxing out my IRA and 401k. As annuities go, it's expenses are low but they are still higher than all my other Vanguard accounts. I have mixed feeling about it but I've had it a long time. If I withdraw funds, the taxable gains and dividends come out first before the principal is returned. I haven't decided what to do with it or when. As annuities go, it's not bad, I guess.

Steve
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Re: Vanguard Variable Annuity

Post by kommisarrex »

Here's how I understand it, fees aside. And yes, the Vanguard with GLWB VA has high fees (average if 1.86% per vanguard).

A 65yr old male with a $1,000,000 SPIA gets 5.86% for life with 20years guaranteed or $1,172,000 total (immediateannuities.com).

With the Vanguard VA with GLWB, a 65yr old male can withdraw up to 5% per year. So, $50k vs $59k. If you die in year two, your heirs get what's left in your account. whatever dollar amount you start with, it can never go lower to base your payments off of--it gets "locked in". When you die, your heirs get whatever is left in your account. Could be higher, could be lower. Worst case scenario is pretty low, but the upside is not capped like with a SPIA. Basically, I think it's a choice between locking in the downside and limiting your upside (SPIA) vs. risking more downside for more of an upside (VA). No free lunch, right?

I am very suspicious of these types of products, but I think it could be appropriate in some circumstances. I'm just not sure which ones.
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Re: Vanguard Variable Annuity

Post by FBN2014 »

mindboggling,
You may want to consider this scenario if have no income need coming from the annuity and you want to pass it on to heirs. You could exchange it for a SPIA and use a portion of the income to pay the premium for life insurance. The other portion would be used to pay any income taxes owed from the SPIA payout. This way you are converting a taxable account (to your heirs) to tax free. I did this strategy 7 years ago for my dad (now deceased). The estate saved about 260K in income taxes that the beneficiaries would have had to pay upon his death.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain
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Re: Vanguard Variable Annuity

Post by dhodson »

FBN2014 wrote:mindboggling,
You may want to consider this scenario if have no income need coming from the annuity and you want to pass it on to heirs. You could exchange it for a SPIA and use a portion of the income to pay the premium for life insurance. The other portion would be used to pay any income taxes owed from the SPIA payout. This way you are converting a taxable account (to your heirs) to tax free. I did this strategy 7 years ago for my dad (now deceased). The estate saved about 260K in income taxes that the beneficiaries would have had to pay upon his death.
Estate didnt save any estate taxes with life insurance. The only way life insurance saves estate taxes is if its in an ILIT. Anything inside an irrevocable trust isnt part of the estate. Stocks in a taxable account get a step up basis at death so there goes the income advantage as well.
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Re: Vanguard Variable Annuity

Post by bsteiner »

FBN2014 wrote:mindboggling,
You may want to consider this scenario if have no income need coming from the annuity and you want to pass it on to heirs. You could exchange it for a SPIA and use a portion of the income to pay the premium for life insurance. The other portion would be used to pay any income taxes owed from the SPIA payout. This way you are converting a taxable account (to your heirs) to tax free. I did this strategy 7 years ago for my dad (now deceased). The estate saved about 260K in income taxes that the beneficiaries would have had to pay upon his death.
If you buy both a life insurance policy and an annuity, isn't that like betting on both teams in the same game?
dhodson wrote:... Estate didn't save any estate taxes with life insurance. The only way life insurance saves estate taxes is if its in an ILIT. ....
The trust doesn't have to invest in life insurance. It could invest in other assets. If the insured lives to life expectancy, chances are the trust will have more money if it invests in other assets.
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Re: Vanguard Variable Annuity

Post by Dale_G »

I don't want to sidetrack the thread, but:
mindboggling wrote:I've owned one (non-qualified) for about 15 years. I bought it while I was working full time (retired now) because I wanted more tax-deferred space. I was already maxing out my IRA and 401k. As annuities go, it's expenses are low but they are still higher than all my other Vanguard accounts. I have mixed feeling about it but I've had it a long time. If I withdraw funds, the taxable gains and dividends come out first before the principal is returned. I haven't decided what to do with it or when. As annuities go, it's not bad, I guess.
Steve
FBN2014 wrote:mindboggling,
You may want to consider this scenario if have no income need coming from the annuity and you want to pass it on to heirs. You could exchange it for a SPIA and use a portion of the income to pay the premium for life insurance. The other portion would be used to pay any income taxes owed from the SPIA payout. This way you are converting a taxable account (to your heirs) to tax free. I did this strategy 7 years ago for my dad (now deceased). The estate saved about 260K in income taxes that the beneficiaries would have had to pay upon his death.
FBN2014's suggestion is confusing and does not take into account the particular contract that mindboggling owns. I don't know where the tax savings occurs, because taxes on the VA are not payable on the death of the annuitant.

mindboggling, take a careful look at your VA contract. In particular look at the annuity tables and the annuity options you have available.

Since you have an older VA, you may find that the guaranteed rate on annuitization is much higher than what you could obtain with a currently available SPIA. There is no sense in exchanging a VA with a 4% guaranteed return on annuitization (actual return, not some "return" that includes getting your own money back) for an SPIA with a 2% actual return (again not counting getting your own money back).

If you annuitize, your payments will be comprised of both earnings and a return of capital, and therefor only partly taxable. The "earnings first" rule only applies if you make "partial surrenders".

Also look carefully at the annuitization options. My older Vanguard VA permitted "partial annuitization" using any of the annuitization options. I could have, for instance annuitized 20% of the contract for a fixed period of 5 years and let the balance ride until glory land was at hand. It was ok to do multiple annuitizations if that was advantageous.

In fact I fully annuitized two contracts. One for 10 years and the other for 23 years. Before annuitizing, I added another hunk of money, effectively buying longer term CDs at a 4% rate.

It is all in the details,

Dale
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Re: Vanguard Variable Annuity

Post by FBN2014 »

My apologies as I misspoke. The estate would not have had to pay any estate or income taxes but income taxes would need to be paid on the accumulated gains thereby reducing the net amount to the beneficiaries of the annuities. It is true that the value of the annuities would be included in the decedent's estate but the value of the estate was under the federal threshold. The life insurance policy was put in an ILIT because at the time the federal estate tax threshold was much lower than it is today. I hope that clarifies things. The bottom line is that annuities are great as a tax deferred vehicle as are traditional IRAs or 401Ks but eventually someone will be paying the taxes. The strategy I employed was a way to have the cake and eat it too - tax deferral and then tax free distribution, and it worked just as designed.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain
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Re: Vanguard Variable Annuity

Post by itstoomuch »

Like TL, we looked at Fido and Vanguard. I forget if these companies had GLWB annuities in 2008, and I was looking for high featured GLWB annuities.
Eventually bought 6, dVA with GWLB features in Income Acct step-up guarantee and the income withdrawal with remainder (not annuitized) . These annuities serve as insurance/risk buckets, income buckets (laddered in amounts and time), and investment buckets.

If I wanted a high featured annuity, it would not be Vanguard. They are in the investment business not the insurance business. Likewise, I would not go to an annuity company for investments. :beer
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo
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Re: Vanguard Variable Annuity

Post by gd »

I bought my financially-illiterate and disinterested spouse one years ago, and neither know nor care how it compares with everything else as an investment. The point was to tax-shelter some cash years ago and mostly to diversify late-life financial assets. The plan has always been that if I disappear all she needs is instructions on which annuity payout to activate at the appropriate time, she contacts the known Vanguard rep for assistance if needed, and the check shows up until she dies. No financial decisions beyond her skills and knowledge, no con men targeting old ladies, minimal market vulnerability. Risk and diversification should go beyond market prices. For our circumstances, I have never second-guessed it no matter how many times I see them bashed here.
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Re: Vanguard Variable Annuity

Post by dhodson »

gd wrote:I bought my financially-illiterate and disinterested spouse one years ago, and neither know nor care how it compares with everything else as an investment. The point was to tax-shelter some cash years ago and mostly to diversify late-life financial assets. The plan has always been that if I disappear all she needs is instructions on which annuity payout to activate at the appropriate time, she contacts the known Vanguard rep for assistance if needed, and the check shows up until she dies. No financial decisions beyond her skills and knowledge, no con men targeting old ladies, minimal market vulnerability. Risk and diversification should go beyond market prices. For our circumstances, I have never second-guessed it no matter how many times I see them bashed here.
Glad you are happy with that purchase but Id be careful about that plan. While the payout from old annuities if annuitized seem more reasonable at the moment, if the interest rate environment was to change (to be much higher) by the time this option was taken then that would greatly decrease the purchasing power. The insurance company isnt going to tell you that instead of annuitizing your old contract, newer SPIAs payout more. Additionally if the spouse isnt in great health at that time, then annuitizing is going to leave a lot of money on the table. The bottom line is that these are NOT set it and forget it products. Unfortunately if the spouse is savy enough to look for advice, they are going to have to get it from an insurance agent if you dont provide that ahead of time.
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Re: Vanguard Variable Annuity

Post by dhodson »

FBN2014 wrote:My apologies as I misspoke. The estate would not have had to pay any estate or income taxes but income taxes would need to be paid on the accumulated gains thereby reducing the net amount to the beneficiaries of the annuities. It is true that the value of the annuities would be included in the decedent's estate but the value of the estate was under the federal threshold. The life insurance policy was put in an ILIT because at the time the federal estate tax threshold was much lower than it is today. I hope that clarifies things. The bottom line is that annuities are great as a tax deferred vehicle as are traditional IRAs or 401Ks but eventually someone will be paying the taxes. The strategy I employed was a way to have the cake and eat it too - tax deferral and then tax free distribution, and it worked just as designed.

The portion of the SPIA used to pay the insurance was taxed at income rates. Only the death benefit is income tax free (or also estate tax free if that applies and its within an ILIT). Thus you did not have cake and eat it too.
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Re: Vanguard Variable Annuity

Post by FBN2014 »

dhodson wrote:
FBN2014 wrote:My apologies as I misspoke. The estate would not have had to pay any estate or income taxes but income taxes would need to be paid on the accumulated gains thereby reducing the net amount to the beneficiaries of the annuities. It is true that the value of the annuities would be included in the decedent's estate but the value of the estate was under the federal threshold. The life insurance policy was put in an ILIT because at the time the federal estate tax threshold was much lower than it is today. I hope that clarifies things. The bottom line is that annuities are great as a tax deferred vehicle as are traditional IRAs or 401Ks but eventually someone will be paying the taxes. The strategy I employed was a way to have the cake and eat it too - tax deferral and then tax free distribution, and it worked just as designed.

The portion of the SPIA used to pay the insurance was taxed at income rates. Only the death benefit is income tax free (or also estate tax free if that applies and its within an ILIT). Thus you did not have cake and eat it too.
You are correct a portion of the SPIA payout was taxable however the plan was designed so that the insurance premium was less than the SPIA payout. That difference was used to pay the current income taxes due on that portion of the SPIA payout that was taxable.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain
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Re: Vanguard Variable Annuity

Post by Broken Man 1999 »

I bought a Vanguard annuity with some of the proceeds of my accident settlement. My 401k plan couldn't be used any longer, and even a Roth IRA couldn't be used to shelter over $5000-$6000 a year at the time (double those figures to include wife).

One problem for disabled people who have money to invest is you have fewer opportunities to invest in tax-deferred accounts. TIRAs aren't available as the income isn't earned income. Roth IRAs are available if spouse is employed, but the limits are low. I Bonds and EE Bonds have low limits on purchase amounts.

While it is true the taxation of the annuity income won't be the greatest, I paid no tax on the sum used to start the annuity to begin with. So the taxes that will be due on the annuity's income stream won't bother me.

As much as the tax-deferred growth is welcome; I also wanted the protection an annuity would give to my funds. I might be overly concerned about keeping our retirement assets as secure as possible, but when you know you have zero human capital, you can get over-protective. At any rate the annuity funds have grown nicely, and they are there if we need them, just like any other portfolio holding we have.

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Re: Vanguard Variable Annuity

Post by LadyGeek »

This thread is now in the Personal Finance (Not Investing) forum (annuities).
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Re: Vanguard Variable Annuity

Post by Rajsx »

We too are looking into an immediate/deferred longevity annuity,, although I do have a variable annuity with Vanguard which has been invested in Total Bond Index.
To be honest I do not know what to do with the Variable annuity.
One year about more than 10 yrs back, after contributing to our IRAs we had some money left to save, and for better or worse I put into a vanguard variable annuity instead of the taxable investment account, to get up my bonds to my desired asset allocation.

I just retired at age 58 but I do have health problems like Diabetes & Hypertension, not making me a good candidate for a life annuity ( I guess ). I am looking into a no rider immediate or a deferred annuity till age 70 for my wife who is in good health at age 54. The present interest rates is the biggest deterrent though.

But with no earned income coming in from next year, my tax deferred contributions would be none, which urges me to get the annuity.

I am still in a cat on the wall situation about the annuity, really cannot decide which way to go. I am just learning from the posts on this & several other annuity threads on the forum as I go.

I learned from above post I can transfer my variable annuity towards the immediate/deferred annuity & that is music to my ears.

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Re: Vanguard Variable Annuity

Post by jimishooch »

I use this VA to defer,

it's my own 401k so to speak. I don't have the income rider attached. it's set to automatic: funds withdrawn from personal general account monthly and invested in my chosen portfolios, rebalance annually.

no RMDs ever...utilizing another tool at my disposal.

thx
jim
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Re: Vanguard Variable Annuity

Post by HomerJ »

Rajsx wrote:But with no earned income coming in from next year, my tax deferred contributions would be none, which urges me to get the annuity.
There are plenty of tax-efficient funds that one can use in a taxable account. Municipal Bonds can be tax-free, even in a taxable account.. I-bonds can be tax-deferred for 30 years. The plain old Total Stock Market Index Fund is very tax-efficient.

Say you have $100,000 in Total Stock Market Index Fund... Capital Gains is zero, Dividend income is 2%...

So you get $2000 in dividend income, and you owe 15% on that, or $300... That's 0.3% tax bite... plus a 0.06% fee from the fund itself...

Costs you 0.36% a year to hold Total Stock Market Index Fund in a taxable account...

But too many people, worried about taxes, will get sold an annuity where the fees are 2%-3%.... Even Vanguard variable annuities are in the 0.50% range...

Why pay 2% in fees (or even 0.50%) to protect yourself from 0.30% in taxes?
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Re: Vanguard Variable Annuity

Post by FBN2014 »

HomerJ wrote:
Rajsx wrote:But with no earned income coming in from next year, my tax deferred contributions would be none, which urges me to get the annuity.
There are plenty of tax-efficient funds that one can use in a taxable account. Municipal Bonds can be tax-free, even in a taxable account.. I-bonds can be tax-deferred for 30 years. The plain old Total Stock Market Index Fund is very tax-efficient.

Say you have $100,000 in Total Stock Market Index Fund... Capital Gains is zero, Dividend income is 2%...

So you get $2000 in dividend income, and you owe 15% on that, or $300... That's 0.3% tax bite... plus a 0.06% fee from the fund itself...

Costs you 0.36% a year to hold Total Stock Market Index Fund in a taxable account...

But too many people, worried about taxes, will get sold an annuity where the fees are 2%-3%.... Even Vanguard variable annuities are in the 0.50% range...

Why pay 2% in fees (or even 0.50%) to protect yourself from 0.30% in taxes?
I think most people buying these are not so much concerned with the tax deferral aspect but want to be in the market and have an income rider that guarantees a future income stream even if their account went south like 2008-2009.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain
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Re: Vanguard Variable Annuity

Post by FBN2014 »

What allocation would you use for the Vanguard VA for someone in 62 years old who wants some income from it? Here are the choices:

https://personal.vanguard.com/us/funds/ ... ble/bytype
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Re: Vanguard Variable Annuity

Post by littlebird »

FBN2014 wrote:What allocation would you use for the Vanguard VA for someone in 62 years old who wants some income from it? Here are the choices:

https://personal.vanguard.com/us/funds/ ... ble/bytype
Those are the choices you can make before you annuitize, when it's pretty much like having a Vanguard mutual fund and you're accumulating tax-deferred funds in it. You DON'T take money out at that time; if you do all withdrawals are considered to be from income first and fully taxable. Plus you're paying a higher ER than with a mutual fund. When you want to withdraw money from your annuity, you "annuitize" it or part of it At that point it's like a debt owed to you; you have no control over how it's invested. You get the amount shown in the annuity table per $1000 annuitized.
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Re: Vanguard Variable Annuity

Post by FBN2014 »

littlebird wrote:
FBN2014 wrote:What allocation would you use for the Vanguard VA for someone in 62 years old who wants some income from it? Here are the choices:

https://personal.vanguard.com/us/funds/ ... ble/bytype
Those are the choices you can make before you annuitize, when it's pretty much like having a Vanguard mutual fund and you're accumulating tax-deferred funds in it. You DON'T take money out at that time; if you do all withdrawals are considered to be from income first and fully taxable. Plus you're paying a higher ER than with a mutual fund. When you want to withdraw money from your annuity, you "annuitize" it or part of it At that point it's like a debt owed to you; you have no control over how it's invested. You get the amount shown in the annuity table per $1000 annuitized.
No plans to annuitize. I only want to figure out a good allocation for the money within the Vanguard Variable Annuity and then withdraw 3-4% per year going forward. That scenario should give me some growth and allow me to use a portion of that growth for income needs going forward. The annuity would be funded via a 1035 tax free exchange from another variable annuity that I own which I no longer like since the fund choices aren't so great and the fees are too high for my liking. So bogleheads what funds thsat are in the Vanguard VA should I use?
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain
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