My Variable Annuity [what do I have?]

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
LookingForward
Posts: 58
Joined: Fri Jul 01, 2016 9:27 am

My Variable Annuity [what do I have?]

Post by LookingForward »

I've read a bunch on this topic, and am completely lost. I like to think I'm reasonably intelligent, but I'm only recently starting to dive into finance, at 50, and there's a lot I just don't get yet. I appreciate any help.

My (no longer) financial advisor helped me put around $100K into a variable annuity with a 6% "Predictor Plus" rider, in 2007. Despite reading a number of articles here and other places, I have no idea what I actually have.

The current value is still under $115K, the "Highest Anniversary Value" is a tad over $120K, and the "Value (Income Base)" is a little over $170K.

How does one use a VA? When I retire at 65, what happens with the VA? Do I get yearly payments? How much? For how long?

Yearly fees are a little under $1400. The surrender penalty is currently $30.

I've read here that Vanguard offers what is likely a better VA that I can do a "1035 transfer" to? Is that the best (only) use of this money?
boglephreak
Posts: 441
Joined: Fri Apr 22, 2016 5:16 pm

Re: My Variable Annuity [what do I have?]

Post by boglephreak »

take this with a large grain of salt. i have been investigating my retiring mother's annuities (fixed and equity-indexed, not variable) and learned enough to be dangerous to her and others. however, i will try to answer some of your questions.
How does one use a VA? When I retire at 65, what happens with the VA? Do I get yearly payments? How much? For how long?
you should have the opportunity to "annuitize" the annuity, which means you surrender the money to the company and they pay you a certain amount each month/quarter/year for a certain time period. the usual options are a term (5, 10, 15, 20 years), your life or your life + spouse's life. the amount you get each period reduces as you increase the expected time period. when you annuitize, you lose control of the money and never get it back; your only right is to the defined payments.

you do not have to annuitize, you can just take the money out (minus the surrender penalty) and reinvest it (e.g., into a brokerage account, or if you want, into a better annuity such as at Vanguard). i dont know how your annuity is held, but keep in mind that if its in a tax advantaged account, you may be able to transfer the money to another tax advantaged account, if you do it correctly.

all of this should be laid out in the terms of the annuity contract, which you are entitled to review upon request. it may look daunting to read at first, but trudge on through it. people may tell you to get out of it as soon as possible, but that is not always the best decision.
I've read here that Vanguard offers what is likely a better VA that I can do a "1035 transfer" to? Is that the best (only) use of this money?
you should be able to take the money out and do whatever you want with it (subject to the terms of the annuity contract, including the marginal surrender penalty), but only you can determine what the best use of the money is. for one of my mother's annuities, i am taking the money out as soon as possible (its utter garbage); for one, i am leaving the money in for as long as possible (it has a guaranteed 3%); and for another i am going to exercise the rider (GLWB rider). each annuity is different.

edit:

here is an article talking about annuitizing.

http://www.annuityfyi.com/variable-annu ... e-annuity/

edit2:

i think the predictor plus is a GMIB and here is an article on dealing with such annuities/riders:

https://www.kitces.com/blog/strategies- ... ib-riders/
itstoomuch
Posts: 5343
Joined: Mon Dec 15, 2014 11:17 am
Location: midValley OR

Re: My Variable Annuity [what do I have?]

Post by itstoomuch »

See Vanguard's Secure Income, GLWB VA. Your annuity probably have an addition feature of a minimum income growth for N years, to the Income Acct, which is why this account is higher than the Actual Acct.

ALL retirement plans (ira, roth, 401k,, pensions, 457, etc) eventually convert into some type of life Income or annuity.

Essentially you have a Straddle. Google this and learn what the implications are vs a plain Stock/bond strategy.

Ymmv
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
kenner
Posts: 3128
Joined: Sat Mar 01, 2008 7:45 am

Re: My Variable Annuity [what do I have?]

Post by kenner »

LookingForward wrote:
My (no longer) financial advisor helped me put around $100K into a variable annuity with a 6% "Predictor Plus" rider, in 2007. Despite reading a number of articles here and other places, I have no idea what I actually have.

Variable annuities are notoriously complicated and difficult to understand, as well as expensive. Many people believe that is done intentionally by the companies to "lock in" the investor.

Here's what I'd recommend:

1) Read the prospectus, contract, and all other documents pertaining to your specific annuity. A representative of the company should provide this to you if you don't have these documents. It sounds like you may have a MetLife product. If you post information that identifies the specific annuity you currently have, we may be able find and read the prospectus on the web to offer more help.

"Digest" all you can from these documents, then call the variable annuities experts at Vanguard to discuss your situation. They will provide you with initial guidance free of charge. They also have a free tool where you can plug in the name of your current company and product - and the tool will show the comparative costs between your current product and a Vanguard alternative. VG has many low-cost investment portfolios where you can put your money (TSM, TBM, Balanced, etc.), The annual cost will likely be less than half what you are paying annually now.

If you cash out of your current annuity now without doing a 1035 exchange, you would incur an immediate tax liability on any earnings in your current annuity (this rule stays in effect until after you reach age 59.5).



The current value is still under $115K, the "Highest Anniversary Value" is a tad over $120K, and the "Value (Income Base)" is a little over $170K.

How does one use a VA? When I retire at 65, what happens with the VA? Do I get yearly payments? How much? For how long?

Advisors use VAs to make high commissions; buyers may use them to save for retirement and to defer icome taxes until later in life. The documents related to your current annuity should answer the other questions.

Yearly fees are a little under $1400. The surrender penalty is currently $30.

I've read here that Vanguard offers what is likely a better VA that I can do a "1035 transfer" to? Is that the best (only) use of this money?
To be determined. Make sure you understand all potential benefits under your current VA and compare it to what VG offers.
itstoomuch
Posts: 5343
Joined: Mon Dec 15, 2014 11:17 am
Location: midValley OR

Re: My Variable Annuity [what do I have?]

Post by itstoomuch »

We have 6 of something similar 2008-2012, Because:
Insurance to the Market. It mimics a 60/40 portfolio yield even though we are 100% equity. We have a floor to the Market which has a guarantee increase to the Income Acct. This means than if the Market falls in any one year of the annuity (anniversary to anniversary) the Income Acct increases by 5% (ours) and thus the ultimate monthly income will increase 5%. So in the case where you have a 25% Market decrease, Our Income Acct grows by 5% although the Actual Acct decreased by 25%. Then suppose the succeeding year, the Market increases by 10%, the Income Acct increases by 5%, and the Actual Acct increased by 10% but is still lower than two years prior. Your Income Acct is still greater than the Actual Acct. This is why your Income Acct is higher than your Actual (liquidation/death benefit/cashvalue) Acct. For people who just have a stock/bond portfolio and allocation, they will suffer whatever the Market. You will also take note that those people who have a good SS and/or Pension, their S/B allocation is typically more aggressive than those who have less SS and/or no to small pension. This type of annuity (GLWB) mimics a Tier 1, PER plan. It is the #1 reason why we bought this type of annuity and where wife has a small pension and me, none.

The Income Acct is what is used to calculate the yearly Income, when first taken. Thus the goal is maximize the Income Acct and Not the Actual acct. This is similar to many Public and Private pension plans where the retirement annual income is calculated as a percentage % from the last 3-5 years' income dollars, prior to retirement

The Actual Acct is where the fees are taken; the death benefit; the remainder if any. It is what the initial Income Acct is based; Your hope is that Actual Acct increases more that than the Income Acct and thereby has the Income Acct Rollup to Actual Acc. The Income Acct can Never-Ever, fall. If you care about this account more because you believe that you can do better than a 60/40 Vanguard blend AND you can bear a "sequence-of-events" and possible recovery, then this type of annuity or any annuity, at any time , is Not right for you.

more later.
Other considerations that we looked at are Income and Investment.

YUnderstandingMV
:beer
Last edited by itstoomuch on Fri Jul 01, 2016 4:42 pm, edited 1 time in total.
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
itstoomuch
Posts: 5343
Joined: Mon Dec 15, 2014 11:17 am
Location: midValley OR

Re: My Variable Annuity [what do I have?]

Post by itstoomuch »

OP: Ask me questions!!!
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
friar1610
Posts: 2328
Joined: Sat Nov 29, 2008 8:52 pm
Location: MA South Shore

Re: My Variable Annuity [what do I have?]

Post by friar1610 »

itstoomuch wrote:
ALL retirement plans (ira, roth, 401k,, pensions, 457, etc) eventually convert into some type of life Income or annuity.

Ymmv
Can you explain what you mean by his?
Friar1610 | 50-ish/50-ish - a satisficer, not a maximizer
itstoomuch
Posts: 5343
Joined: Mon Dec 15, 2014 11:17 am
Location: midValley OR

Re: My Variable Annuity [what do I have?]

Post by itstoomuch »

friar1610 wrote:
itstoomuch wrote:
ALL retirement plans (ira, roth, 401k,, pensions, 457, etc) eventually convert into some type of life Income or annuity.

Ymmv
Can you explain what you mean by his?
A Retirement account, is different from and Investment Acct or Savings Acct or Education Acct. Can you differentiate?
A Retirement Acct $$, is funds used from the period when you retire until your death. It is for the purpose of providing Income to which to live while in Retirement. This is different from Investment, Savings, or Education Accts. Many people do not understand this and confuse Retirement Investing/Saving to plain Investing/saving. You may Invest and/or Save for Retirement. You do not Retire for Investing or Saving.

Our Retirement account is now large enough to where Its future Income is 5%+ SWR and surpasses our immediate and perceived future needs. It is now large enough where we can leave a legacy and do more than discretionary activities. Our deferred annuities, probably like OP's, will give us a minimum of 5.5% at RMD (currently 5%, age 66/69).
It is now large enough where I can lose the entire Discretionary Acct by whatever means I may chose to lose it.

So by looking at the notes below, Can you discover which of 2 buckets are the most secure and which 2 buckets are most volatile? And why the 2 buckets are secure and the other 2 are volatile?

YcomprehensionMV
: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
itstoomuch
Posts: 5343
Joined: Mon Dec 15, 2014 11:17 am
Location: midValley OR

Re: My Variable Annuity [what do I have?]

Post by itstoomuch »

Googled, "Predictor Plus 6%"
WOW.
OP, when you understand what you have, you will be a proponent of GMIB/GLWB annuities.
Other commentors should google and read this:
http://www.businesswire.com/news/home/2 ... omponent-6

assumption: Unknown if this is the same annuity as OP's.

YMMV
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
Topic Author
LookingForward
Posts: 58
Joined: Fri Jul 01, 2016 9:27 am

Re: My Variable Annuity [what do I have?]

Post by LookingForward »

itstoomuch wrote:Googled, "Predictor Plus 6%"
WOW.
OP, when you understand what you have, you will be a proponent of GMIB/GLWB annuities.
Other commentors should google and read this:
http://www.businesswire.com/news/home/2 ... omponent-6

assumption: Unknown if this is the same annuity as OP's.
Is that a good WOW or a bad WOW? Please explain.

Yes, my annuity is from MetLife, American Forerunner.

This annuity is around 10% of our assets. I don't want it lying fallow if the money could be put to better use, but if it's a good backstop to catastrophe, I'm OK with it.
itstoomuch
Posts: 5343
Joined: Mon Dec 15, 2014 11:17 am
Location: midValley OR

Re: My Variable Annuity [what do I have?]

Post by itstoomuch »

at this time, it is unlikely that the Actual Acct will catch up to the Income Account. This means that you will have step-ups of 6% compounding until which time you begin taking Income but not annuitize. The closet Retirement vehicles would be Tier 1 PER plans or SS delayed to RMD, age 70. Your plan appears to read that you can delay taking Income until age 86 (wording of cite is unclear to me and this is my interpretation, which may be incorrect) :D

Thus, If your Income Acct is currently 170,000 and you are 50 yo, the Income Acct will increase 6% compounding so that the Income Acct will be (50) 170,000; (51) 180,200; ...(65) 304,444; (6570) 407,414.89. Since the allowed Income rate at time of first withdrawal is 6%, @65, on 304,444 is $18,267 annually, till you either stop or until you die, with a possible remainder to heirs. Regardless of Market or your amount in the Actual acct. :D

If you want to change annuities , you can form #1035 the Actual Acct or $115,000 minus the surrender $30 and take your chances on a lower fee'd annuity but with less benefits that begin at $115,000 and unknown value at age 65, and a withdrawal rate of ~3.5% on that amount (See Vanguard VA with Secure Income).

If you now know what a portion of your retirement income will be in any future year (read pension),,, How can you manage your other retirement money and your other spending money? Contrast that to a pure Index portfolio, You chose the allocation. :idea:

There are more nuances that have significant worth to you and heirs.. :moneybag

Now can you understand which of my 2 buckets is more secure than the other 2 buckets? And how I can manage the more volatile buckets to fit my needs. ????
Last edited by itstoomuch on Sat Jul 02, 2016 5:58 pm, edited 1 time in total.
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
itstoomuch
Posts: 5343
Joined: Mon Dec 15, 2014 11:17 am
Location: midValley OR

Re: My Variable Annuity [what do I have?]

Post by itstoomuch »

at this time, it is unlikely that the Actual Acct will catch up to the Income Account. This means that you will have step-ups of 6% compounding until which time you begin taking Income but not annuitize. The closet Retirement vehicles would be Tier 1 PER plans or SS delayed to RMD, age 70. Your plan appears to read that you can delay taking Income until age 86 (wording of cite is unclear to me and this is my interpretation, which may be incorrect) :D

Thus, If your Income Acct is currently 170,000 and you are 50 yo, the Income Acct will increase 6% compounding so that the Income Acct will be (50) 170,000; (51) 180,200; ...(65) 304,444; (6570) 407,414.89; (86) 773,895. Since the allowed Income rate at time of first withdrawal is 6%, @65, on 304,444 is $18,267 (single life) annually, till you either stop or until you die, with a possible remainder to heirs. Regardless of Market or your amount in the Actual acct. :D

If you want to change annuities , you can form #1035 the Actual Acct or $115,000 minus the surrender $30 and take your chances on a lower fee'd annuity but with less benefits that begin at $115,000 and unknown value at age 65, and a withdrawal rate of ~3.5% on that amount (See Vanguard VA with Secure Income).

If you now know what a portion of your retirement income will be in any future year (read pension),,, How can you manage your other retirement money and your other spending money? Contrast that to a pure Index portfolio, You chose the allocation. :idea:

There are more nuances that have significant worth to you and heirs.. :moneybag

Now can you understand which of my 2 buckets is more secure than the other 2 buckets? And how I can manage the more volatile buckets to fit my needs. ????

Disclaimer. You Need to see some advisors. and check my math. :oops:
YMMV
Last edited by itstoomuch on Sat Jul 02, 2016 4:28 pm, edited 1 time in total.
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
itstoomuch
Posts: 5343
Joined: Mon Dec 15, 2014 11:17 am
Location: midValley OR

Re: My Variable Annuity [what do I have?]

Post by itstoomuch »

A good WOW, if this is 10% of your retirement assets.
Contractually guaranteed in future amounts and future withdrawals. Contrast this to other retirement assets: SS, pensions, IRA/401k/Roth, Indexes and their allocations, or even current GMIB/GLWB contracts :?:

Congrats. :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
Topic Author
LookingForward
Posts: 58
Joined: Fri Jul 01, 2016 9:27 am

Re: My Variable Annuity [what do I have?]

Post by LookingForward »

Hello again!

I recently received a letter indicating that I've reached the 10 year anniversary of the variable annuity contract, and can now start drawing down the account if I wish.

I'd appreciate any thoughts or recommendations. I no longer trust the advisor who sold me the contract, but instead… trust a bunch of people I don't know on the internet? It doesn't sound that good when I say it out loud. :D

I've read a fair chunk of "How to Make Your Money Last", in which Jane Bryant Quinn states that variable annuities are almost always a wasted opportunity for a better investment, but from this very thread and other threads that "itstoomuch" and "nedsaid" have been involved in, perhaps this annuity purchased in 2007 isn't so terrible?

I'm currently 50, DW is 50, both working and making good money, hoping to retire at 60+ (depending on how our balances are at that point) and at 58 for DW. As I said previously, this annuity (current account value around $130K) represents about 10% of our retirement savings. The annuity was originally created using a rollover from an old 401K account. We're fairly unafraid of churn and don't mind risk at this point, but we are looking forward to what is hopefully a comfortable retirement.

One approach Quinn proposes is to immediately start drawing on the annuity, in the hope of living long enough to exhaust the account balance and make the insurance company continue to pay out.

Other choices that I see:
• Roll the entire account into a Vanguard variable annuity
• Roll the entire account into my Vanguard 401K — is that an option at this point?
• Roll the account into a taxable account
• Keep the VA, and start receiving annuity payments at some point — when?

What criteria should I be using to make this decision?

What criteria should I use when choosing either income payments as long as I live with a guaranteed period, vs. as long as I DW live with a guaranteed period?

Thanks for any input!


Here's the text of the letter, for reference.
When you purchased your American Forerunner P Class, you elected the optional Guaranteed Minimum Income Benefit Plus rider to help you protect and grow your future income. One of the benefits of this rider is that it allows you to turn your assets into predictable fixed income payments that will last as long as you live, regardless of market conditions. You now have the opportunity to evaluate your situation and i you like, to start taking lifetime income payments* under the GMIB Plus rider beginning on your next contract anniversary (mentioned above) or any contract anniversary through your 85th birthday.

Before you decide to begin taking lifetime income payments under the GMIB Plus rider, there are some things you should consider.

• Once you begin taking lifetime payments, you will no longer have a death benefit available on your annuity.
• You will no longer have access to your contract's account value to take additional withdrawals.
• Instead of taking lifetime income payments under the GMIB Plus rider, you can, at any time, turn your account value into income payments under the standard features of your variable annuity contract.
• You may also have the opportunity to select a feature called the guaranteed principle option (GPO) that was included in your GMIB writer. If available, the GPO can be exercised in lieu of receiving GMIB annuity payments. By exercising the GPO, an additional amount will be added to your Account Value that is intended to restore your original purchase payment Justin for any withdrawals you may have taken. On your contract anniversary, if your account value is less than the GPO value a letter will be sent to you informing you of your ability to exercise the GPO.

…stuff about contacting them for quotes and info…

* Under the GMIB Rider, you can choose between two income payment options that:
• Will last as long as you live, with a guaranteed period, which means that if you die before the end of the guaranteed period, your beneficiaries will receive payments for the remainder of the period; Or
• Will last as long as both you and another person live, with a guaranteed period. So that if both of you die before the end the guarantee., Your beneficiaries will receive payments for the remainder the period. If just one of you dies, the other will continue to receive payments for as long as he or she lives.
User avatar
nedsaid
Posts: 19249
Joined: Fri Nov 23, 2012 11:33 am

Re: My Variable Annuity [what do I have?]

Post by nedsaid »

LookingForward wrote:I've read a bunch on this topic, and am completely lost. I like to think I'm reasonably intelligent, but I'm only recently starting to dive into finance, at 50, and there's a lot I just don't get yet. I appreciate any help.

Nedsaid: Don't feel bad. These are complex products and not easy to understand.

My (no longer) financial advisor helped me put around $100K into a variable annuity with a 6% "Predictor Plus" rider, in 2007. Despite reading a number of articles here and other places, I have no idea what I actually have.

Nedsaid: Seeing that you bought this in 2007, I would give some thought before ditching this. Insurance companies were more generous with their principal and future income guarantees than they are now. What is available today is likely less generous.

The current value is still under $115K, the "Highest Anniversary Value" is a tad over $120K, and the "Value (Income Base)" is a little over $170K.

Nedsaid: This gives me pause, the account should have grown more than this but I don't know how you had the subaccounts invested.

How does one use a VA? When I retire at 65, what happens with the VA? Do I get yearly payments? How much? For how long?

Nedsaid: You can take a guaranteed percentage of your income base for the rest of your life. The payments continue even after your actual account balance is exhausted.

Yearly fees are a little under $1400. The surrender penalty is currently $30.

I've read here that Vanguard offers what is likely a better VA that I can do a "1035 transfer" to? Is that the best (only) use of this money?
A fool and his money are good for business.
User avatar
Oicuryy
Posts: 1959
Joined: Thu Feb 22, 2007 9:29 pm

Re: My Variable Annuity [what do I have?]

Post by Oicuryy »

(Note: I wrote the following before noticing that the opening post is a year old.)

The Predictor Plus rider is a guaranteed minimum income benefit (GMIB) rider. The rider guarantees you a predetermined monthly annuity payment amount when you begin receiving annuity payments. The payment is calculated by multiplying the Income Base by a payout factor. The Income Base increases 6% per year. The payout factors are in a table included with the rider. The payout factor depends on your age and the payout option you choose.

IMO, the GMIB is the only reason you might want to keep this annuity. If you do not still have the payout table that came with your rider, you should get a copy from the insurance company. At least ask them what the monthly payments would be now and in ten or fifteen years. Then you can decide if you want to spend $115k today to buy those payments.

Since this is a 401k rollover it is probably an IRA. If so and you decide not to buy the GMIB payments, you could do a direct trustee-to-trustee transfer of the $115k (less surrender fee) to an IRA of your choice. IMO, that is a better option than a 1035 exchange to another annuity.

Ron
Money is fungible | Abbreviations and Acronyms
itstoomuch
Posts: 5343
Joined: Mon Dec 15, 2014 11:17 am
Location: midValley OR

Re: My Variable Annuity [what do I have?]

Post by itstoomuch »

lookforward wrote:I've read a fair chunk of "How to Make Your Money Last", in which Jane Bryant Quinn states that variable annuities are almost always a wasted opportunity for a better investment, but from this very thread and other threads that "itstoomuch" and "nedsaid" have been involved in, perhaps this annuity purchased in 2007 isn't so terrible?
You need to look up the definitions of "Annuity" and "Investments" They are NOT the same. Never ever confuse the two.
A pension is an Annuity. SS is an Annuity. A IRA is becomes an Annuity at RMD or periodic withdrawals.
if the primary reason is Investing, then kill the annuity.
If the primary reason is Income and/or insurance (death benefit or market) then keep the annuity.

Attend some free luncheons.
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
itstoomuch
Posts: 5343
Joined: Mon Dec 15, 2014 11:17 am
Location: midValley OR

Re: My Variable Annuity [what do I have?]

Post by itstoomuch »

NEI
What is the initial contractual GMIB initial withdrawal rate for your age and holding period?

Example, Our FI GLWB annuity is 5years holding and age 70=6.5%; 10yrs holding + age75 =7.0% of Income Acct at last anniversary of first withdrawal
Example, Our VA GLWB annuity is 0 years holding + no minimum age (theoretical age 50 youngest purchase age) =5% of Income Acct at last anniversary of first withdrawal.
YMMV
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
itstoomuch
Posts: 5343
Joined: Mon Dec 15, 2014 11:17 am
Location: midValley OR

Re: My Variable Annuity [what do I have?]

Post by itstoomuch »

OP:
Based on your most recent update:
Using a TVM calculator, $100,000 beginning balance, at year 9 anniversary you have ~170,000$. Income Acct value; The contract seems to have an guarantee Income Acct escalator of 6% annual compounding.
Assumption: At year 10 anniversary, which you say is the last guaranteed stepup, the Income Account will have a guaranteed Income Acct value of ~179000$ and will stay that way unless the Liquidation (aka Actual, Value, CashValue Acct)Acct exceeds the Income Account (not probable).
Assumption: Your contract has a 10 year guarantee stepup period.
Unknown is what is the GMIB rate at first withdrawal?
Also Unknown is how taxation works for you?
YMMV
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
Silk McCue
Posts: 8912
Joined: Thu Feb 25, 2016 6:11 pm

Re: My Variable Annuity [what do I have?]

Post by Silk McCue »

Lookingforward,

I had a variable annuity I was sold in 2007 and based upon my circumstances finally bit the bullet and rolled it into my Vanguard IRA earlier this year. The non Cola'd guaranteed payments in 4 years were going to whither away with inflation with no real hope of growth. Based upon my overall financials I feel much better having done so. I did not use this service but was on the cusp of doing so. You may want to review their site and reach out to them for a thorough analysis. Their fee is $299.

http://www.annuityreview.com/new/annuityreview/
itstoomuch
Posts: 5343
Joined: Mon Dec 15, 2014 11:17 am
Location: midValley OR

Re: My Variable Annuity [what do I have?]

Post by itstoomuch »

OK, If Looking Forward
Do you realize that you give up this Annuity, you will give up 6% of 179000$ = $10,830 for life (single life, 6% withdrawal on Income Acct) with a possible remainder of Acct value to heirs. If the Market collapses in another blackswan, you will receive $10830 annually. This is the RMD equivalent on $296,000 at age 70. If you maintain the this withdrawal rate and if the AA in this annuity is static, you will exhaust the Acct Value portfolio in about 9-10 years (assuming ~3% fees), and in year 11 you will still receive $10,830 and will continue to do so till your passing.
YMMV
GL
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
User avatar
Bogle_Feet
Posts: 826
Joined: Tue Jan 14, 2014 5:56 pm

Re: My Variable Annuity [what do I have?]

Post by Bogle_Feet »

First and foremost this thread is from 2016, but for whomever might be trying to learn from this thread in the future, fixed income payments for life will leave you in POVERTY later in life. When you do the math you realize they are a bad deal even during the worst of times.
https://www.youtube.com/edit?o=U&video_id=QDUbQeZvJ9g
User avatar
Frugal Al
Posts: 1736
Joined: Fri May 28, 2010 10:09 am

Re: My Variable Annuity [what do I have?]

Post by Frugal Al »

Given the expenses and opportunity costs that have already been paid over the past 10 years, the small percent this represents of the OP's overall portfolio (10%), and the resultant value of the income base ($179k), which is only useful upon the eventual annuitization with Metlife, I'd keep the product as part of my fixed income portfolio. I generally loathe these products because of their high expenses, but much of it is now a sunk cost. Although no one has a crystal ball, it would seem anticipated non-guaranteed returns going forward, as well as low anticipated inflation, makes getting out of this product a marginal proposition at this time.

To the OP, if you purchased this product because of your high aversion to risk, I don't think it makes sense to convert or terminate it now.
smitcat
Posts: 13227
Joined: Mon Nov 07, 2016 9:51 am

Re: My Variable Annuity [what do I have?]

Post by smitcat »

Frugal Al wrote:Given the expenses and opportunity costs that have already been paid over the past 10 years, the small percent this represents of the OP's overall portfolio (10%), and the resultant value of the income base ($179k), which is only useful upon the eventual annuitization with Metlife, I'd keep the product as part of my fixed income portfolio. I generally loathe these products because of their high expenses, but much of it is now a sunk cost. Although no one has a crystal ball, it would seem anticipated non-guaranteed returns going forward, as well as low anticipated inflation, makes getting out of this product a marginal proposition at this time.

To the OP, if you purchased this product because of your high aversion to risk, I don't think it makes sense to convert or terminate it now.
Frugal Al - I generally agree with your assessment and we are faced with similar (not exactly) the same situation. Part of the problem also has to do with anticipated taxes and the way the annuity will feed that issue both now and in the future. This is where we are struggling further and have a bit more work to do estimating and simulating what the after tax benefit is both with and without the annuity.
User avatar
nedsaid
Posts: 19249
Joined: Fri Nov 23, 2012 11:33 am

Re: My Variable Annuity [what do I have?]

Post by nedsaid »

LookingForward wrote:I've read a fair chunk of "How to Make Your Money Last", in which Jane Bryant Quinn states that variable annuities are almost always a wasted opportunity for a better investment, but from this very thread and other threads that "itstoomuch" and "nedsaid" have been involved in, perhaps this annuity purchased in 2007 isn't so terrible?
It boils down to why you bought this in the first plan and also why you might continue to own this.

If you bought this as an investment, you bought a very expensive and terrible investment. Essentially, you invested $100,000 and now have $115,000 after 10 years. You should have done better than that and the heavy fees took away most of your return.

If you bought this to lock in a future income stream, a future pension, then this is worth considering. I have a small pension and a cash balance pension, most of my retirement is in workplace savings plans or Individual Retirement Accounts. So pretty much I am my own pension fund manager. To me, the idea of locking in a future income stream has a lot of appeal. Firing myself as pension fund manager also has some appeal.

What you did has appeal because of the sequence of returns problem. Think of the people who retired in 2008 only to see the financial crisis, the great recession, and the bear market hit all at once! Taking withdrawals from a diminished portfolio sounds like a severe case of heartburn to me. Stocks were down over 50%. My own portfolio was down about 35% but I was about 50 years old at the time. I was still contributing to retirement accounts and I had 15 years or so for the markets to recover.

This sequence of returns problem is precisely why the insurance companies came up with these products. There are still a lot of bad memories left over from the 2000-2002 and the 2008-2009 bear markets, which both saw drops of over 50% in the stock market. I don't soil my pants, but 2008-2009 was pretty scary. These really bad bear markets appear to have no bottom when you are living through them. Imagine how I would have felt if I was 65 years old and had just retired.

I want to make it clear that I don't work in the financial industry, my only work experience there was in the back office of a regional bank's brokerage operations for 2 1/2 years. I don't sell annuities or other financial products. I have done income tax preparation for many years.

How did I learn so much about these products? After switching careers, I was doing temp work and did not have access to a workplace savings plan for a few years. In those days, you could only put $2,000 a year into IRA's. So I started a Variable Annuity with no withdrawal penalties and that was in essence my 401k. A good friend of mine who I met at the bank went into the insurance business and I became a client. I also had financial reviews done and was pitched Variable Annuities for my IRA probably three times. I learned a lot from my friend and from analyzing the annuities.

Edit: My friend never pitched an annuity thought his successor agent did. I also was pitched a product that offered principal guarantees and an annuity option upon retirement by an Ameriprise advisor. I did not buy.

The particular annuity that I own has an annuity option when I retire or I can take money out whenever I feel like it. It does not have any principal guarantees or guaranteed minimum withdrawal benefits. It is a pretty plain vanilla product. The mortality and expense fee is 0.90% and I also pay the underlying expense ratios of the mutual funds. My all in expenses are probably 1.50% or less. I will likely annuitize the balance when I retire.

Edit: By the way, thanks for looking up my posts in other threads. I put a lot of thought and time into them and it is gratifying when people read them.
Last edited by nedsaid on Tue Jun 06, 2017 11:58 am, edited 1 time in total.
A fool and his money are good for business.
User avatar
Oicuryy
Posts: 1959
Joined: Thu Feb 22, 2007 9:29 pm

Re: My Variable Annuity [what do I have?]

Post by Oicuryy »

I think this is the prospectus for the OP's variable annuity.
https://www.sec.gov/Archives/edgar/data ... 85bpos.txt

If it is and if I'm reading it right the Income Base keeps increasing 6% per year until age 85.
The GMIB Plus I Income Base is calculated as described above, except that the annual increase rate is 6% per year through the Contract Anniversary on or following the Owner's 85th birthday and 0% thereafter.
This might be a pretty good value for longevity insurance. Imagine a 50-year-old couple who wants to spend $130k today to buy a stream of payments that begins in 25 years at age 75. Immediateannuities.com says they could get a monthly payment of $2000 from a joint life with 10 years certain annuity.

The Income Base of LookingForward's GMIB could be $768k in 25 years. We don't know what the monthly payment from the GMIB would be because we don't have the payout table. But if the payout rate is above 3.1% the GMIB payment would be more than the payment from a deferred income annuity purchased today.

The real question is whether LookingForward needs and/or wants a lifetime stream of fixed monthly payments sometime in the future. The GMIB is the most valuable part of this annuity and the GMIB is only valuable if it is annuitized. If that stream of payments is not worth $130k to LookingForward then he should surrender the annuity and transfer the proceeds to an IRA.

Ron
Money is fungible | Abbreviations and Acronyms
bighatnohorse
Posts: 541
Joined: Thu Oct 13, 2016 4:04 pm

Re: My Variable Annuity [what do I have?]

Post by bighatnohorse »

Thank you to "itstoomuch" for the information perspectives into the complexities of certain annuities.
I think that some of the annuity products sold in the 2007 - 2009 era were richly valuated - probably to the point of regret for some insurance companies.
itstoomuch
Posts: 5343
Joined: Mon Dec 15, 2014 11:17 am
Location: midValley OR

Re: My Variable Annuity [what do I have?]

Post by itstoomuch »

^ acknowledged :happy
In early 2008 when I was a FT caregiver to my Mom, I had "nothing to do" except watching CNBC and thinking if we would survive the Great Recession with just a few years more of human capital and rapidly falling retirement assets. I also started to look at why older bro (a risk manager at Big Bank, said that they tended to avoid options in their accounts) and why BIL (insurance co officer, actuary, cpa) said that the don't like VA and prefer SPIAs. Both relatives were even more scared than I was. They couldn't say so, but when you asked them a direct question they would turn white, and hedge the answer.

I spent months attending presentations, reading their literature. It became clear that the annuity cos, and our State's PER were making bad "option" plays. We conversely needed to protect whatever remaining assets for retirement INCOME and if possible grow our retirement income.

Warning, I have no idea if today's annuities are any good or if they are correct for you. YMMV. Do, do your due diligence

I am thinking about moving a GLWB (9th yr)VS to another GLWB VA that has a higher withdrawal rate initially, I expect to have a decreased life expectancy.
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
itstoomuch
Posts: 5343
Joined: Mon Dec 15, 2014 11:17 am
Location: midValley OR

Re: My Variable Annuity [what do I have?]

Post by itstoomuch »

bighatnohorse wrote:Thank you to "itstoomuch" for the information perspectives into the complexities of certain annuities.
I think that some of the annuity products sold in the 2007 - 2009 era were richly valuated - probably to the point of regret for some insurance companies.
I read their literature.
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
User avatar
HomerJ
Posts: 21246
Joined: Fri Jun 06, 2008 12:50 pm

Re: My Variable Annuity [what do I have?]

Post by HomerJ »

Oicuryy wrote:If it is and if I'm reading it right the Income Base keeps increasing 6% per year until age 85.
The "Income Base" is a completely worthless number by itself. As is the "guaranteed 6%" increase of it.

It looks really good on paper. Many people are fooled by it. The insurance salesman will stress it, over and over.
We don't know what the monthly payment from the GMIB would be because we don't have the payout table.
Ding! Ding! Ding!

Exactly. The payout number is the second piece of the puzzle. What normally happens is the insurance company "guarantees" your income base will grow by 6%, and then stiffs you on the payout.

You may invest $100,000 at 50, watch it "grow" to $320,000 by 70. And then get a payout of 5% on that money... or $16,000 a year.

But at 70, you might find you could buy an income stream of $16,000 for $200,000 (or a 8% payout). Which means your money really grew from $100,000 to $200,000. Not $320,000. So your "guaranteed" growth of 6% turns out to be 3.5% in reality.

It should be illegal for insurance companies to sell this product stressing the "guaranteed 6%"

Now, the OP may have a decent paying annuity. Some people have said that the insurance companies made some mistakes in 2006-2007 and sold some policies that do pay out decently. But you have to look at the numbers. ALL the numbers. The "Income Base" alone is meaningless.
The real question is whether LookingForward needs and/or wants a lifetime stream of fixed monthly payments sometime in the future. The GMIB is the most valuable part of this annuity and the GMIB is only valuable if it is annuitized. If that stream of payments is not worth $130k to LookingForward then he should surrender the annuity and transfer the proceeds to an IRA.
LookingForward could buy a SPIA (Single-premium Immediate Annuity) later if they want a lifetime stream of fixed monthly payments.

But yes, you are correct he should check the numbers.. That $100k would have grown a lot more if he hadn't put it in an annuity, but the damage is done. If the insurance company's payout schedule is high enough, it might be worth keeping. But doubtful.
bighatnohorse
Posts: 541
Joined: Thu Oct 13, 2016 4:04 pm

Re: My Variable Annuity [what do I have?]

Post by bighatnohorse »

itstoomuch wrote:
bighatnohorse wrote:Thank you to "itstoomuch" for the information perspectives into the complexities of certain annuities.
I think that some of the annuity products sold in the 2007 - 2009 era were richly valuated - probably to the point of regret for some insurance companies.
I read their literature.
Reading AND comprehending is to be admired.
In your link to kites.com the author notes Mark Cortazzo's "Annuity Review" http://www.annuityreview.com/new/annuityreview/

"Annuity Review", for those who have not read the article, is a third-party fee only annuity specialist and will " provide a more detailed understanding of the benefits and features available in your specific contract".

Before the air gets too hot, the OP might want to look into professional advice.
Thanks for the link.
itstoomuch
Posts: 5343
Joined: Mon Dec 15, 2014 11:17 am
Location: midValley OR

Re: My Variable Annuity [what do I have?]

Post by itstoomuch »

We all have a form of a Variable Annuity in our IRA/401k.
An extreme thread is viewtopic.php?f=1&t=220541
It's all of a matter of risk tolerance, and at our age it is a lot smaller than when it was at 40.

@HomerJ
there are some inaccuracies in your rebuttal.

comment
HomerJ wrote:LookingForward could buy a SPIA (Single-premium Immediate Annuity) later if they want a lifetime stream of fixed monthly payments.

But yes, you are correct he should check the numbers.. That $100k would have grown a lot more if he hadn't put it in an annuity, but the damage is done. If the insurance company's payout schedule is high enough, it might be worth keeping. But doubtful.
If a BH is a type of person who is near/at/in retirement mode, some periodic evaluations should be made in order that one is on a secure FundingRatio>1.1 :mrgreen: We 9 years ago, bought "real-life annuities" to protect our FR. We are in the 9th year of some of our d'GLWB VAs and I am looking at various scenarios and alternative options, including SPIAs, deferred SPIAs, or new GLWB annuities. IOW, the future is now upon me and spouse and we looking again into the crystal ball :confused . You should see how much we are paying the Wizard :oops: to tell us what we want to know :annoyed

notes: our deferred annuities represent ~50% of minimum base line living expense. The other annuities in SS and small pension make up the other 50%.
Our Discretionary Acct bucket, far outpaced VTI growth and could substitute the annuity bucket; We have enjoyed 8 year Bear Market which greatly enhanced our retirement. If a severe recession should befall us, going forward, our retirement Income would barely change. I designed a long straddle. I vowed that we would never experience another BlackSwan, having been through 2 of them at the worse times.

So tell us, how do you manage risk if you manage it all?

YMMV
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
User avatar
nedsaid
Posts: 19249
Joined: Fri Nov 23, 2012 11:33 am

Re: My Variable Annuity [what do I have?]

Post by nedsaid »

The Variable Annuities with a Guaranteed Minimum Withdrawal Benefit have a guaranteed withdrawal rate from the income base.

The income base is not a useless number. It is the number that the guaranteed withdrawal is based on. Let's say your income base is $200,000 and your policy value is $150,000 and your original investment was $100,000. The actual growth in the portfolio is $50,000 and the $150,000 policy value is where the withdrawals actually come from. The withdrawal rate is set in the contract and it depends on how old you are when the withdrawals begin. So let's say your withdrawal rate at age 65 is 5%. That means you can take $10,000 out a year for the rest of your life even after the actual policy value is exhausted.

In my example, it might take 16-17 years to exhaust the underlying portfolio. So after the portfolio is exhausted, the $10,000 withdrawals continue until you die. So essentially, the first 16-17 years, the withdrawals are coming out of your own money. After the underlying portfolio is exhausted the guaranteed payments come from the insurance company's money. So essentially, the insurance company is betting that the portfolio will last longer than you.

If you die before the portfolio is exhausted, the remainder goes to heirs. If you have a hardship and need to take more out in a year than what is guaranteed, you can but it will reduce the guaranteed payments in the future. So this is also an attempt to give the annuity owner maximum flexibility.

I looked at these products and passed. The fees were too high for me and I figured that I would do better if I invested on my own. I also figured that I would buy a Single Premium Immediate Annuity when I retired rather than buy one early. Essentially these products guarantee future income in retirement and put a put option on the stock market.
A fool and his money are good for business.
itstoomuch
Posts: 5343
Joined: Mon Dec 15, 2014 11:17 am
Location: midValley OR

Re: My Variable Annuity [what do I have?]

Post by itstoomuch »

Getting back to LookinForward.
My advice is; Understand all you can on what you want and need for retirement. The choice you make is yours alone and no one elses. :mrgreen:
YMMV. YMMV, and YMMV.
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
itstoomuch
Posts: 5343
Joined: Mon Dec 15, 2014 11:17 am
Location: midValley OR

Re: My Variable Annuity [what do I have?]

Post by itstoomuch »

Comment about something that HomerJ said:
LookingForward could buy a SPIA (Single-premium Immediate Annuity) later if they want a lifetime stream of fixed monthly payments.

But yes, you are correct he should check the numbers.. That $100k would have grown a lot more if he hadn't put it in an annuity, but the damage is done. If the insurance company's payout schedule is high enough, it might be worth keeping. But doubtful.
We initiated qualified withdrawals at the beginning of year 9 (8th anniversary) of one of the annuities, at age 69. and is $6450/a, JointLife + Refund.
Using Fidelity Annuity Calculator today's, SPIA, age 70, JLife + refund, using balance today's Acct Val of our GLWB = $7368/a
Conclusion is that we will be ahead today by $10/mn ($118/a) if we terminated current GLWB VA and begin an SPIA, JT+remainder.

Note: YMMV. FutureCasting is dangerous. No guarantees on the future unless specifically stated. Likewise, backtesting is equally dangerous.
Note: I knew that we had various options on GLWB contracts for which I pay a fee. But once I start an SPIA, all options terminate.
Note: My options are still open and should be investigated.
Know your notes. :oops: :mrgreen:
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
Topic Author
LookingForward
Posts: 58
Joined: Fri Jul 01, 2016 9:27 am

Re: My Variable Annuity [what do I have?]

Post by LookingForward »

Thank you all for your consideration and input.

I spoke with a fiduciary advisor, and their evaluation fit with the discussion here: while the annuity isn't terrible as far as annuities go, the money could probably be put to better use.

My plan is to move the money to my Vanguard IRA.

Thanks again!
Silk McCue
Posts: 8912
Joined: Thu Feb 25, 2016 6:11 pm

Re: My Variable Annuity [what do I have?]

Post by Silk McCue »

LookingForward wrote:Thank you all for your consideration and input.

I spoke with a fiduciary advisor, and their evaluation fit with the discussion here: while the annuity isn't terrible as far as annuities go, the money could probably be put to better use.

My plan is to move the money to my Vanguard IRA.

Thanks again!
I really think that it is possible that you MAY be better off keeping this in your circumstance. I believe your fiduciary advisor has an oinion but don't know their level of expertise. For $299 you can get Expert analysis performed as I and someone else referenced above. Two wrongs don't make a right in this case but spending $299 is chump change to the implications of getting this wrong.
Topic Author
LookingForward
Posts: 58
Joined: Fri Jul 01, 2016 9:27 am

Re: My Variable Annuity [what do I have?]

Post by LookingForward »

In your previous post you said
I did not use this service but was on the cusp of doing so.
Did you use the service after you sold your annuity? I'm confused.
Silk McCue
Posts: 8912
Joined: Thu Feb 25, 2016 6:11 pm

Re: My Variable Annuity [what do I have?]

Post by Silk McCue »

LookingForward wrote:In your previous post you said
I did not use this service but was on the cusp of doing so.
Did you use the service after you sold your annuity? I'm confused.
As stated - I did not use this service. The particular financial characteristics of my annuity were inferior to those you shared for yours.
Topic Author
LookingForward
Posts: 58
Joined: Fri Jul 01, 2016 9:27 am

Re: My Variable Annuity [what do I have?]

Post by LookingForward »

Apologies. I mis-read
you can get Expert analysis performed as I and someone else referenced above
Post Reply