Annuity pros and cons

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mule
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Annuity pros and cons

Post by mule » Thu Nov 12, 2015 7:46 pm

I have some money I would like to move but I don't want to invest in any more stocks at my age. I have one (Annuity) that I can add too and will not go below 3.5 interest rate and no fees required. The other thing I don't want to have to do be required to take money out when I reach that 70 mark. At that time will I have to just take out money (interest) that was earned or do I have to take out some of the principal money that I invested that has already been taxed?
Thanks

MN Finance
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Re: Annuity pros and cons

Post by MN Finance » Thu Nov 12, 2015 8:44 pm

Your post is rather confusing, though that's because financial matters are needlessly complex, not because of your shortcoming.

It would be helpful if you properly identify what you currently have. Then specifically state your question. My guess is that you're also looking for broader advice, so overall financial information may also be useful.

1. What company is the annuity with?
2. How is it invested?
3. Is it a"non-qualified"annuity or a retirement account?
4. Are new contributions liquid or locked up?
5. What/where is the money you want to add to it?
6. What is the rest of your portfolio like?

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mule
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Re: Annuity pros and cons

Post by mule » Thu Nov 12, 2015 9:16 pm

Not sure all questions you asked for need to be answered. My question is what are the pros and cons of an Annuity Account with the info I gave. This Annuity was started with money that has been taxed and will add money to account with money that has been taxed. When I'm required to take money out of account will I have to just take money out that was earned or will I have to be required to take principal money out by IRS rules>
1>>it is retirement account
2>>contributions liquid yes
3>>money coming from CD
4>>receiving 3.5 on interest can't go lower.

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noyopacific
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Re: Annuity pros and cons

Post by noyopacific » Thu Nov 12, 2015 9:23 pm

mule wrote:I have one (annuity) that I can add too and will not go below 3.5 interest rate and no fees required.
"Will not go below 3.5%" sounds like some kind of variable annuity.
Most Bogleheads dislike variable annuities.
"no fees required" Sounds like you may have been misled somewhat. While there are probably no up front fees that need to be to disclosed, the issuer & any agent are likely taking a big bite, which will not be disclosed.

Most Bogleheads prefer fixed, Single Premium Immediate Annuities (SPIA's.) SPIA's are usually competitively-priced so there is much less room for issuers to extract excessive fees. Agents selling annuities don't care much for them because they are more or less a commodity and the commissions are usually lower. Agents can more easily sell variable annuities by promoting the expectation (a very thin hope) of better returns. It doesn't hurt them that at the same time, they collect much bigger commissions on variable annuities too.
https://www.bogleheads.org/wiki/Immediate_fixed_annuity

Your question about having to take money out sounds like you are asking about Minimum Required Distributions (RMD) from a tax-advantaged retirement account. This link may help.
https://www.bogleheads.org/wiki/Require ... uitization
The information contained herein, while not guaranteed by us, has been obtained from from sources which have not in the past proved particularly reliable.

MN Finance
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Re: Annuity pros and cons

Post by MN Finance » Thu Nov 12, 2015 9:26 pm

Well, the reason I asked for more information is because what you're saying doesn't make sense. You can share whatever you want but will probably get a bunch of unhelpful speculative answers.

So, again...

Is it a retirement account? Is it an IRA? You said yes, but the info you gave doesn't make it sound that way.

Since that isn't clear, I asked for the company (or title of the account, I guess).

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mule
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Re: Annuity pros and cons

Post by mule » Thu Nov 12, 2015 9:50 pm

I thought this was going to be an easy question but yes I didn't have all my ducks in a row. I did miss inform till I went an looked it up so sorry about that. Here is what it is. My goal is to try to get a better return if all possible. The money I add to what ever I decide to do with it will not have to be used for many years down the road but where ever I put this money I want it to be liquid.
Variable Annuity/ Nonpension Annuity

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BL
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Re: Annuity pros and cons

Post by BL » Thu Nov 12, 2015 9:52 pm

Get an in-force illustration that shows you guaranteed amounts in the future and other important information, so you can evaluate it carefully.

alex_686
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Re: Annuity pros and cons

Post by alex_686 » Thu Nov 12, 2015 10:12 pm

Generally speaking most Bogleheads are against annuities.

They tend to be expensive. You are paying a fee. It may be buried but you are being charged a fee.

They are complex. Annuities have special wrinkles in them. Each insurance company offers dozens of different types of annuities, each with their own wrinkles. It is almost impossible to comparison shop between them. Because each annuity is so different it is going to be hard to get good advice on this forum. Really, the only person who can really help you is going to be a salesperson at the annuity firm. Of course they have a vested interest.

That being said you may have lucked out in this case. I have not check the rates recently but 3.5% sounds high. If you struck your contract when rates were high and if you can add money at that rate you may be in a very good situation. You probably had to pay a high cost for this benefit - probably indirectly but it could have paid off.

Mind you, you are probably not as lucky as this guy who gets 60% a year from his annunity, but this could be a good deal.
http://ftalphaville.ft.com/2015/02/27/2 ... va-france/

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mule
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Re: Annuity pros and cons

Post by mule » Thu Nov 12, 2015 11:01 pm

Thanks for the info and I'm not a big fan of them either. This was started back in 2002 and may have gotten lucky I don't know. It has done fairly well over the years. My agent told me today that I can add to it and no fees to do so and it would be under the same contract with 3.5 interest. I will do some more checking to see. This is with Thrivent ad I'm sure it isn't a company many have dealt with but I have done well with the small amount I do have with them. I really don't want to do an annuity but thought I would ask you experts. Thanks for your time.

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Dale_G
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Re: Annuity pros and cons

Post by Dale_G » Thu Nov 12, 2015 11:20 pm

Mule, you are being stubborn about providing additional information - this may be typical of someone with a screen name of mule :) . I own(ed) annuities and am quite happy with the results. I did not have to take any money out at any time, but I did end up by annuitizing at age 75.

There are many flavors of annuities, some good and some bad, and usually a very large number of options. It is impossible for me or anyone else to answer your question without more details. We will be glad to provide some information and suggestions, but first we have to know exactly what annuity you own.

In general however, you are not required to take money out of an annuity at age 70. The details are are in the contract/prospectus. If you provide the "name" of the annuity, we may be able to help sort this out.

Dale
Volatility is my friend

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Mel Lindauer
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Re: Annuity pros and cons

Post by Mel Lindauer » Thu Nov 12, 2015 11:21 pm

To answer one of your questions: Any withdrawals are considered to be from earnings first and taxable at your ordinary income tax rates (that's one of the big downsides of annuities; there are no capital gains). Only after you've removed all of the earnings are future withdraws considered to be a non-taxable return of your investment.
Best Regards - Mel | | Semper Fi

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Re: Annuity pros and cons

Post by itstoomuch » Thu Nov 12, 2015 11:33 pm

I understood the questions because I have annuities with money from taxed (Roth, taxable deferred) and from pretax (tIRA). :annoyed
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: Annuity pros and cons

Post by MN Finance » Thu Nov 12, 2015 11:47 pm

itstoomuch wrote:I understood the questions because I have annuities with money from taxed (Roth, taxable deferred) and from pretax (tIRA). :annoyed
Everyone on the board knows about your annuities. If it's so clear, then why not offer an answer.

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Re: Annuity pros and cons

Post by MN Finance » Thu Nov 12, 2015 11:55 pm

mule wrote:I thought this was going to be an easy question but yes I didn't have all my ducks in a row. I did miss inform till I went an looked it up so sorry about that. Here is what it is. My goal is to try to get a better return if all possible. The money I add to what ever I decide to do with it will not have to be used for many years down the road but where ever I put this money I want it to be liquid.
Variable Annuity/ Nonpension Annuity
I hesitate to even continue asking questions, but you should know this isn't what we need. What company is this with? Ex: Allianze master dex 10, Voya Perferred Advantage Variable Annuity, etc, etc. AND, what year was it opened?

It's quite possible you can add to your account and indeed receive a nice 3.5% return with no fees. But, it's impossible to know unless you share more info. If you do, someone (not me at this point) will look up the prospectus and advise you.

At this point the answers to EVERY one of your questions (except maybe the RMD one) are still only answered by: 'it depends."

ThisTimeItsDifferent
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Re: Annuity pros and cons

Post by ThisTimeItsDifferent » Fri Nov 13, 2015 12:07 am

Mel Lindauer wrote:To answer one of your questions: Any withdrawals are considered to be from earnings first and taxable at your ordinary income tax rates (that's one of the big downsides of annuities; there are no capital gains). Only after you've removed all of the earnings are future withdraws considered to be a non-taxable return of your investment.
That's true if you take a regular withdrawal, right? If you annuitize it and take annuity payments, then (for a non-IRA annuity) payments are taxed pro rata based on the earnings to contributions ratio until all contributions have been withdrawn. After that, all payments are fully taxed as earnings.

If the OP has something like a USAA "flexible" annuity from years ago, then it may be worth keeping now.

I personally know someone with USAA "flexible" annuities from years ago, that have guaranteed (by USAA not the govt) minimum overall returns or earnings (or "balance increases") of 3 or 4.5%. They don't call it "variable" and it is not tied to the S&P 500 or anything else specific. Although new contributions might normally get only the current 1% return, since USAA guarantees a minimum overall return or earnings of 3 or 4.5% and they currently are returning that 3 or 4.5%, new contributions also get that 3 or 4.5% because any lower would cause the overall return to be less than the guaranteed 3 or 4.5%.

They may or may not use good annuity/mortality tables when determining annuitized payouts.

I did not and would not have made or recommended the original annuity purchase, but that point is moot.

What I do not know, is if one chooses to annuitize it, does the balance continue (less payouts) to grow or not?

I would not think so. I would think that the balance at the time of that annuitization decision only calculates the annuity payments (based on life, life certain 10, life certain 15, etc) and it just pays out for that period, including to a beneficiary if the owner passes away before the certain 10 or 15 year if chosen.

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Re: Annuity pros and cons

Post by alex_686 » Fri Nov 13, 2015 12:23 am

MN Finance wrote:I hesitate to even continue asking questions, but you should know this isn't what we need. What company is this with? Ex: Allianze master dex 10, Voya Perferred Advantage Variable Annuity, etc, etc. AND, what year was it opened?
Mule has already answered your question - Thrivent in 2002. You may know it better as Lutheran Brotherhood or Aid Association for Lutherans - they merged about 10 years ago. They are member owned which is a plus.

They are headquartered in Minneapolis, MN Finance :happy

It sounds like a fixed annuity, which is also probably a plus.

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Re: Annuity pros and cons

Post by itstoomuch » Fri Nov 13, 2015 1:13 am

MN Finance wrote:
itstoomuch wrote:I understood the questions because I have annuities with money from taxed (Roth, taxable deferred) and from pretax (tIRA). :annoyed
Everyone on the board knows about your annuities. If it's so clear, then why not offer an answer.
That good that you know . I wrote a detail reply but apparently lost it.
I avoid giving pros and cons when it comes to relationships and money. I will give anecdotes on why we did do a path.
I also avoid giving +/- , if I do not own the product what ever that may be.
I try to give enough information on why I did a certain path rather than say something +/-. Context matters. Often the question involves insufficient information so an answer either needs to be vague or detailed enough to allow the questioner to analyze replies intelligently.
As always YMMV. :annoyed
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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mule
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Re: Annuity pros and cons

Post by mule » Fri Nov 13, 2015 8:56 am

Variable Annuity/ Nonpension Annuity>>>I did post this earlier and this is about all I know of the annuity. It is with Thrivent and I posted that earlier also. I don't really know any more then that so I can't give any more info I'm very sorry. Like I said I would like to move some money but not sure where. Thanks you.

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BL
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Re: Annuity pros and cons

Post by BL » Fri Nov 13, 2015 9:47 am

mule wrote:Variable Annuity/ Nonpension Annuity>>>I did post this earlier and this is about all I know of the annuity. It is with Thrivent and I posted that earlier also. I don't really know any more then that so I can't give any more info I'm very sorry. Like I said I would like to move some money but not sure where. Thanks you.
If you can't find the policy your agent or the company should be able to get that for you. You can't make a reasonably intelligent decision without getting more information and the illustration from the company.

I do know lots of people who use this company but don't have more than a minor connection myself. I may add that the company donates to community charities/churches rather than pay taxes due to their fraternal nature. You can sign up on their "make a difference" tab to direct company money (varying in amount) to any charity they have previously approved. This seems to be a new way of directing profits.

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mule
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Re: Annuity pros and cons

Post by mule » Fri Nov 13, 2015 2:46 pm

Thanks again and it's not like I don't want to give info but that is what I know. I will meet with him next week and get the details.

I would like to know what questions to ask him when I go see him. So what should I ask about this annuity and I will ask those questions and get back to you with answers. What do I ask?
Thanks

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Re: Annuity pros and cons

Post by itstoomuch » Fri Nov 13, 2015 3:11 pm

When we were looking and recently shown other annuities, there were minor differences but could be significant differences in later years. Two things that were in my lost post; 1 You absolutely need to Understand how they work (work in similar fashion but the nuances make it interesting); 2 You need to Remember how they work.

Failure to do, 1 and 2 is not the fault of the insurance company. It is your duty and responsibility because it is not only your money but your future income ( in our case, 30-40% of retirement income. Recent Minimally DS inheritance. Possibly later generations...paying forward.)

This type of deferred annuity allows you to transfer your risks to the annuity company for a known cost & without giving up the principal +/-gains.
Shop till you drop. Make the sales people work for their commission.
Read: Moshe Milevsky on SPIA' s & Longevity Income Annuities.
:sharebeer
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: Annuity pros and cons

Post by itstoomuch » Fri Nov 13, 2015 3:38 pm

mule wrote:Thanks again and it's not like I don't want to give info but that is what I know. I will meet with him next week and get the details.

I would like to know what questions to ask him when I go see him. So what should I ask about this annuity and I will ask those questions and get back to you with answers. What do I ask?
Thanks
Have him resell you again until you understand what you got. I attended multiple presentations from many sales/ advisors. :annoyed
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: Annuity pros and cons

Post by sdsailing » Fri Nov 13, 2015 3:49 pm

The answer is 6.

That is all.

alex_686
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Re: Annuity pros and cons

Post by alex_686 » Fri Nov 13, 2015 5:47 pm

mule wrote:Thanks again and it's not like I don't want to give info but that is what I know. I will meet with him next week and get the details.

I would like to know what questions to ask him when I go see him. So what should I ask about this annuity and I will ask those questions and get back to you with answers. What do I ask?
Thanks
Everybody wants to talk about what assets to buy or if the annuity is a good product. This really should be you last question.

You should always start at the start with your Investment Policy Statement (IPS). What are your goals, risk tolerance, current assets, special needs, and current income. This will allow you to calculate your required return. With your required return and risk now you can generate your Asset Allocation. (AA).

Now, and only now, can you start asking intelligent questions about your annuity.

Q: Where does this annuity fit into my AA. What are the expected returns and risks?

Q: What are the terms of comparable annuities today?

Q: Do I want to buy an immediate annuity when I retire? If I do, is using this annuity a cost effect way of doing it?

Q: What are the direct costs of owing this annuity?

Q:What are the indirect costs of owing this annuity? This ties into the risk question. Many annuities will underperform in a up market and underperform in a down market.

Q: What is the cost of exiting my policy now, both in terms of direct costs and taxes.

Q: Can I invest new funds? If so, under what terms.

Q: If I exited my annuity where should I invest my funds?

Q: What is the overall effect of the annuity on my AA? Risk and return are linked. Annuities can be considered expensive because risk and return are linked and annuities have low risk. However, don’t look at your annuity in isolation. The answer might be to keep your annuity and load up on risk in other parts of your portfolio.

FYI, here is my guess on what will happen. You contract if a fixed annuity so it is a low risk government bond like asset. So, is this annuity better than a bond fund you can buy? You entered into this contract back in 2002 when interest rates where more favorable terms so I doubt that. If you can still add new funds at the old guaranteed rate this will be very attractive.

At this point I want to reference Itstoomuch. It is going to be the details of this particular contract that will make it right for you. Because annuities tend to be expensive to enter and unwind I would urge slow consideration. Getting your AA right is hard.

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Oicuryy
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Re: Annuity pros and cons

Post by Oicuryy » Fri Nov 13, 2015 9:09 pm

Hi mule,

As I read it, you own a flexible premium deferred variable annuity issued by Thrivent. You chose to invest in the fixed account only and not in any of the subaccounts of the variable account. The contract guarantees that the interest crediting rate on the fixed account will never be less than 3.5%.

The fixed account does not get charged the mortality and expense risk fee. The surrender charge period has passed and additional premiums (purchases) will not start a new surrender charge period.

The fixed account is part of the general account of the insurance company. So your are, in effect, a creditor of Thrivent and might have to take your place in line with other creditors if Thrivent goes bankrupt and no other insurance company steps up to take over your contract.

Earnings from variable annuities are taxed as ordinary income. But interest from any investment that pays interest is taxed as ordinary income. You have chosen only the investment option that earns interest and none of the options that earn dividends and capital gains. So you do not have to worry that your annuity would turn qualified dividends and capital gains into ordinary income.

Earnings are not taxed until you take them out of the annuity. The premiums used to purchase the annuity were made with after-tax money. So they will not be taxed again when you take them out of the annuity. The IRS considers withdrawals to come from earnings first and from premiums only after all earnings have been withdrawn. But annuity payments are considered to be part earnings and part premiums. You might have to pay a penalty if you take withdrawals before age 59.5. For details on the taxation of annuities see IRS Publication 575.

Your annuity is not a qualified annuity. So you do not have to start taking required minimum distributions at age 70. But your annuity does have an annuity start date. After that date you can no longer take withdrawals from the annuity. Instead the insurance company will begin making periodic payments to you. The amount of each payment will be determined by the insurance company based to the payout option you choose. You should ask your agent or Thrivent what your annuity start date is and what changes you can make to it.

Basically, you could consider this as a loan to Thrivent. You have to decide for yourself if a minimum interest rate of 3.5% is worth the risk of loaning money to Thrivent.

All of the above is just my guess about what you have based on the limited information you have provided. Please do not make any decisions based on what I wrote until you have verified all of it.

Finally, here are links to the prospectuses for Thrivent's variable annuities. Yours is probably one of them.

Thrivent Financial Flexible Premium Deferred Variable Annuity – Account I
Thrivent Financial Single Premium Immediate Variable Annuity – Account II
Thrivent Financial Variable Annuity Account A (Formerly AAL Variable Annuity)
Thrivent Financial Variable Annuity Account B (Formerly LB Variable Annuity)
Thrivent Life Insurance Company Variable Annuity (Formerly LBVIP Variable Annuity)

Ron
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Topic Author
mule
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Re: Annuity pros and cons

Post by mule » Mon Nov 16, 2015 8:48 am

Oicuryy>>>> thanks that was what I was looking for and I will meet with him this week. Thanks you.

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mule
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Re: Annuity pros and cons

Post by mule » Mon Nov 16, 2015 8:14 pm

Just wanted to update on the annuity I have purchased in 2012. It is a variable annuity and have a mixture of fund accounts. I can add to this account anytime and when I do there is no fees. If I would of added to this account in the first 10 years then I would have had to pay fees. I also can move my money to different funds and also not be charged a fee. It also has a death benefit with is account. In layman terms if I have 250,000 in the account and it drops to 150,000 if I die my spouse or beneficiary would get the 250,000.

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