Met life Modified Annunity Contract

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Wellsroad
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Met life Modified Annunity Contract

Post by Wellsroad »

I bought a Met life (MDA) around 13 years ago. The original term was 6% for 10 years. The contract now pays 3% indefinitely. I am about to retire and would like to consolidate my portfolio with Vanguard. 50% Wellington, 50% TRI. The MDA has appx. 350 thousand and Vanguard 1.8 million. My question is would you consolidate the portfolio or keep the MDA. I know that Met Life is a great company but I get worried about having so much money in a single company.
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Re: Met life Modified Annunity Contract

Post by friar1610 »

Wellsroad wrote:I bought a Met life (MDA) around 13 years ago. The original term was 6% for 10 years. The contract now pays 3% indefinitely. I am about to retire and would like to consolidate my portfolio with Vanguard. 50% Wellington, 50% TRI. The MDA has appx. 350 thousand and Vanguard 1.8 million. My question is would you consolidate the portfolio or keep the MDA. I know that Met Life is a great company but I get worried about having so much money in a single company.

I don't know anything about the annuity you have now. I have a Vanguard Variable Annuity. That means the investment portfolios available within the annuity are managed by Vanguard although the annuity contract is between me and the insurance company, Transamerica. I know that through their annuity desk Vanguard also offers access to other annuities. But they would not be "Vanguard" in the sense that annuities are insurance products and Vanguard is not an insurance company.

If you are happy with the annuity you only have a concern about the amount of money tied up in it, you might want to check with your state insurance regulator and find out to what level (dollar-wise) annuities are protected/guaranteed by you state. That might assuage your concerns.

If you were to transfer your annuity to another company, that would be a "1035 transfer." Check with Met Life and find out if there would be any costs to you in doing so. Also, call VG's annuity number and have them discuss what options they might have for you should you want to do a 1035 to them.
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Dale_G
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Re: Met life Modified Annunity Contract

Post by Dale_G »

If the annuity contract increases in value 3% per year after expenses I would keep it and consider it part of my bond holdings. I am assuming the policy has pretty standard terms for annuitizing. If the 3% is before expenses, that is a different matter and it depends on the expenses of the annuity.

The 3% return is greater than can be obtained with safe bond funds today. If interest rates increase to the point that a Vanguard Variable Annuity Total Bond sub-account pays better than 3% you could always do a 1035 exchange at that time.

I wouldn't be much worried about Met Life, but you can check to see what the limits are for your "state" guarantee.

3% guaranteed is pretty good these days - and may remain pretty good for at least the next 5 years.

Dale
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Re: Met life Modified Annunity Contract

Post by friar1610 »

Dale_G wrote:If the annuity contract increases in value 3% per year after expenses I would keep it and consider it part of my bond holdings. I am assuming the policy has pretty standard terms for annuitizing. If the 3% is before expenses, that is a different matter and it depends on the expenses of the annuity.

The 3% return is greater than can be obtained with safe bond funds today. If interest rates increase to the point that a Vanguard Variable Annuity Total Bond sub-account pays better than 3% you could always do a 1035 exchange at that time.

I wouldn't be much worried about Met Life, but you can check to see what the limits are for your "state" guarantee.

3% guaranteed is pretty good these days - and may remain pretty good for at least the next 5 years.

Dale

I would agree with your recommendation. In fact, I am considering a 1035 exchange of my VVA to one that pays a variable rate after the first year that is currently 3.4 %. (If they are paying 3.4% in this interest environment it is likely they will pay well in future environments as they have in the past.) Guaranteed to pay at least 1% a year and for the principal to never decrease. My VVA is currently in the annuity clone of Life Cycle Conservative Growth (40% S/60% B). But I think at this point in my life I'd like to lock in the value so that if the annuity passes to my wife (as I expect it will) she won't risk a potential lower value in the future when she'll annuitize it.
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Dale_G
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Re: Met life Modified Annunity Contract

Post by Dale_G »

I'd be interested in the name of the insurance contract/insurance company you are considering moving to.

Before you move you, you should check the guaranteed rate (on annuitization) of your Vanguard Annuity. About 4 years ago I annuitized two Vanguard Variable annuities for fixed terms of 10 and 23 years with a rate of 4%.

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Re: Met life Modified Annunity Contract

Post by powermega »

This sounds like a fixed deferred annuity. I would keep that annuity and consider it part of the bond portion of my overall allocation. 3% is a better return than you can get a bond fund right now. That 3% should be net of any expenses too. This policy could eventually be annuitized (turned into a SPIA) at some point in the future to provide a floor of income for you in retirement.
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Re: Met life Modified Annunity Contract

Post by mephistophles »

Wellsroad wrote:I bought a Met life (MDA) around 13 years ago. The original term was 6% for 10 years. The contract now pays 3% indefinitely. I am about to retire and would like to consolidate my portfolio with Vanguard. 50% Wellington, 50% TRI. The MDA has appx. 350 thousand and Vanguard 1.8 million. My question is would you consolidate the portfolio or keep the MDA. I know that Met Life is a great company but I get worried about having so much money in a single company.
Keep your annuity with Met. 3% fixed, guaranteed rate can't be beat by a new fixed product. At retirement you don't need the new risk of going into any variable annuity. Met Life is one of the largest insurance companies in the world, and safety would not be a concern of mine. If met goes under, probably the rest of America would be gone as well.
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Re: Met life Modified Annunity Contract

Post by Bogle_Feet »

Wellsroad wrote:I bought a Met life (MDA) around 13 years ago. The original term was 6% for 10 years. The contract now pays 3% indefinitely. I am about to retire and would like to consolidate my portfolio with Vanguard. 50% Wellington, 50% TRI. The MDA has appx. 350 thousand and Vanguard 1.8 million. My question is would you consolidate the portfolio or keep the MDA. I know that Met Life is a great company but I get worried about having so much money in a single company.
3% is weak. You'd do better with a low-risk mix of just 2 stock and bond index funds.
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Re: Met life Modified Annunity Contract

Post by naha66 »

Hey boglefeet (JoeyMarket) if you don't know the the terms of the annuity you have no business telling him what to do. Lets Wellsroad report back on the terms of annuity and some of the poster on this site that know annuities can give him suggestions. To make the blanket statement this annity is bad for him without knowing all the facts is irresponsible.
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Wellsroad
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Re: Met life Modified Annunity Contract

Post by Wellsroad »

I originally bought this annuity from Fidelity in 2002. 10 years at 6% per year. After the 10 year term expired Fidelity informed me Met Life was obligated by New York State Law to give 3% indefinitely.
Just wanted to thank everyone for their advice. I am not financially astute and do not know the various nuances of investing. This site has helped me greatly. This is my second post but I've been an avid fan for the past couple of years. Thanks again.
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Re: Met life Modified Annunity Contract

Post by mickroark »

Met Life being to big to fail is a false statement. No financial institution is to big to fail. I had an AIG annuity from Vanguard about 7 years ago when the government had to bail out AIG. The Vanguard salesman that sold me the annuity said AIG was to big to fail. My annnity was then sold to American General.
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Re: Met life Modified Annunity Contract

Post by friar1610 »

Dale_G wrote:I'd be interested in the name of the insurance contract/insurance company you are considering moving to.

Before you move you, you should check the guaranteed rate (on annuitization) of your Vanguard Annuity. About 4 years ago I annuitized two Vanguard Variable annuities for fixed terms of 10 and 23 years with a rate of 4%.

Dale
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I have compared a few scenarios (based on my life only, my life w/10 years period certain, wife's life only, wife w/10 years certain, etc.) If I annuitize the payments are marginally less than VG's. If it goes to my wife and she annuities the payments are marginally higher than VG's. Overall, a wash. Of course, if I were the keep the VG annuity and leave it invested as it is now, it has the potential (and probably the likelihood/i] over the long term of increasing in value, thus increasing the payments when someone finally annuitizes.
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informal guide
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Re: Met life Modified Annunity Contract

Post by informal guide »

I concur with other posters. As long as your guaranteed rate is 3%, consider that part of your bond portfolio - -the yield on Vanguard total bond market index today is still under 2% (and slightly lower in the Vanguard variable annuity), so your Met LIfe fixed deferred annuity is the best of both worlds, especially if it is not more than 20% or more of your fixed income allocation. You are guaranteed 3% per year - versus a long term expected return on the total bond portfolio of under 2%, coupled with stability of principal in the annuity, which is not present in a total bond market fund(subject to the claims paying ability of Met Life, one of the largest and among the stronger life insurance companies)

I also owned one of the Met Life after tax annuities sold by Fidelity in the early 2000's. Unfortunately, I did not live in NY state so when my guaranteed term at an attractive rate was up, my rate dropped to to the 1% or so level. Therefore I did a 1035 transfer to the Vanguard Variable Annuity, to avoid paying taxes on the accumulated gain, and split the money between the VVA high yield bond fund and the VVA REIT Index portfolio.

BTW, my VVA portfolio choices aren't supported by a number of Bogleheads, but they work for my personal situation, where I have a significant brokerage portfolio of individual stocks with huge embedded gains (and an accompanying capital gain liability if sold) but no REIT stocks. On the high yield bond portfolio, I am comfortable with the higher risk of high yield bonds for around 15% of my fixed income portfolio - -risks that some consider more equity like than fixed income like.

If you are older (especially over 75), healthy, and would prefer drawing down the annuity for spending, consider purchasing a Single Premium Deferred Annuity (SPDA), either from Met Life (your guaranteed rate might qualify you for an attractive annuitization versus simply buying on the market today) or through Vanguard's "shopping service" for SPDA's.
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Re: Met life Modified Annunity Contract

Post by friar1610 »

informal guide wrote: If you are older (especially over 75), healthy, and would prefer drawing down the annuity for spending, consider purchasing a Single Premium Deferred Annuity (SPDA), either from Met Life (your guaranteed rate might qualify you for an attractive annuitization versus simply buying on the market today) or through Vanguard's "shopping service" for SPDA's.
In the course of researching whether or not to transfer my VVA to the NMAA annuity (discussed in a couple of my previous posts in this thread) I called VG's annuity service. It's possible I didn't fully understand them, but what I thought they said was that the SPDA they were recommending charged a 2% up-front fee at the time of purchase. That is, whatever amount I transferred from the VVA would be decreased by 2% and the remaining 98% would go into the SPDA. I forget what term the they used but it sounds to me like it's pretty much a load. The rep I spoke with said this is pretty standard in the single premium annuity world. Such is not the case with the NMAA annuity. I don't believe I'm going to pursue the VG option (unless I decide to stick with my VVA) but I wonder if this is standard operating procedure for single premium annuities. Or perhaps I misunderstood the rep and need straightening out by the BH community?
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Re: Met life Modified Annunity Contract

Post by powermega »

Bogle_Feet wrote:
Wellsroad wrote:I bought a Met life (MDA) around 13 years ago. The original term was 6% for 10 years. The contract now pays 3% indefinitely. I am about to retire and would like to consolidate my portfolio with Vanguard. 50% Wellington, 50% TRI. The MDA has appx. 350 thousand and Vanguard 1.8 million. My question is would you consolidate the portfolio or keep the MDA. I know that Met Life is a great company but I get worried about having so much money in a single company.
3% is weak. You'd do better with a low-risk mix of just 2 stock and bond index funds.
Bogle_Feet, your suggestion has some considerable flaws. First, you're comparing a guaranteed 3% return (zero volatility) investment against a basket of investments that has much more volatility and risk. Not a good comparison. The fact is you simply cannot find an investment that is guaranteed to return 3% like this with the liquidity this annuity has. Next, you provide a single chart to prove a point. Why the dates involved? Why not 10 years earlier? My point is that a single date like this can produce any kind of result you want. Cherry pick any date to make a point, but that doesn't make the argument valid. Third, you give no consideration to taxes. If the OP were to liquidate this annuity, he would have to realize $100s of thousands in income, which would be an extremely tax-inefficient decision, especially compared to a SPIA alternative where the OP could receive some of his basis (tax free) with every modal income from the SPIA.

Wellsroad, I forgot to mention this in my first response, but welcome to the board! I hope you find this site to be the wealth of information and wisdom I have found it to be.
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Re: Met life Modified Annunity Contract

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Friar, it is my understanding that the difference is that Vanguard discloses the 2% charge on SPIAs - -most other SPIA players incorporate a number higher than 2% into their payout calculations and often pay significant commissions to the salespeople (Vanguard Annuity reps are salaried, not earning commissions). The way to consider a SPIA is to compare the monthly or annual payouts for a given investment, as long as the investment and other features are the same and you are comfortable with the creditworthiness of the insurance company payor.
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Re: Met life Modified Annunity Contract

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powermega wrote:This sounds like a fixed deferred annuity. I would keep that annuity and consider it part of the bond portion of my overall allocation. 3% is a better return than you can get a bond fund right now. That 3% should be net of any expenses too. This policy could eventually be annuitized (turned into a SPIA) at some point in the future to provide a floor of income for you in retirement.
Megadittos here. I agree with powermega, 3% looks awfully good to me. The US Treasury 10 year bond is yielding about 1.7%. Looks sweet to me.
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Re: Met life Modified Annunity Contract

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informal guide wrote:Friar, it is my understanding that the difference is that Vanguard discloses the 2% charge on SPIAs - -most other SPIA players incorporate a number higher than 2% into their payout calculations and often pay significant commissions to the salespeople (Vanguard Annuity reps are salaried, not earning commissions). The way to consider a SPIA is to compare the monthly or annual payouts for a given investment, as long as the investment and other features are the same and you are comfortable with the creditworthiness of the insurance company payor.
IG,

Thank you; makes perfect sense.
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nedsaid
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Re: Met life Modified Annunity Contract

Post by nedsaid »

informal guide wrote:Friar, it is my understanding that the difference is that Vanguard discloses the 2% charge on SPIAs - -most other SPIA players incorporate a number higher than 2% into their payout calculations and often pay significant commissions to the salespeople (Vanguard Annuity reps are salaried, not earning commissions). The way to consider a SPIA is to compare the monthly or annual payouts for a given investment, as long as the investment and other features are the same and you are comfortable with the creditworthiness of the insurance company payor.
When I worked in the back office of a brokerage arm for a regional bank, I learned a lot about how all this works. The commissions for fixed annuities were 6% back in the 1990's. If you are paying 2% up front to compensate the Vanguard people, that should be figured into the comparisons. 2% is a good deal compared to 6%.

It might be that the commission structure is different now. My foggy memory recalls that the Variable Annuities had commissions of 8%.

I am certain there are folks on this forum who can speak to this.
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Re: Met life Modified Annunity Contract

Post by Dale_G »

Commissions are relatively low for most SPIAs, but as informal said, most sellers hide the commission by building it into a lower payout schedule. Assuming equal rating of the insurance companies what counts is the payout per $100K or whatever you shell out. Vanguard is just being upfront about the commission/transaction cost.

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Re: Met life Modified Annunity Contract

Post by Bogle_Feet »

naha66 wrote:Hey boglefeet (JoeyMarket) if you don't know the the terms of the annuity you have no business telling him what to do. Lets Wellsroad report back on the terms of annuity and some of the poster on this site that know annuities can give him suggestions. To make the blanket statement this annity is bad for him without knowing all the facts is irresponsible.
I don't have to know the terms. There are no insurance companies playing Santa Claus. Insurance companies are not stupid either. They all hire actuaries who make sure that the insurance company will come out the winner while they invest heavily in bonds. If Wellsroad does the same then he will be rewarded. You're sounding like an insurance salesman.
Commissions are relatively low for most SPIAs
Not with retail SPIA's. Typically 4%! That's "low" for annuities! But certainly not "low" in the grand scheme of things. That 4% comes in the form of lower payouts.
SPIA's leave you in poverty eventually....
https://www.youtube.com/watch?v=QDUbQeZvJ9g
If you still insist on a SPIA then go with Vanguard. No commissions = Less of a bad deal.
naha66
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Re: Met life Modified Annunity Contract

Post by naha66 »

Bogle_Feet wrote:
naha66 wrote:Hey boglefeet (JoeyMarket) if you don't know the the terms of the annuity you have no business telling him what to do. Lets Wellsroad report back on the terms of annuity and some of the poster on this site that know annuities can give him suggestions. To make the blanket statement this annity is bad for him without knowing all the facts is irresponsible.
I don't have to know the terms. There are no insurance companies playing Santa Claus. Insurance companies are not stupid either. They all hire actuaries who make sure that the insurance company will come out the winner while they invest heavily in bonds. If Wellsroad does the same then he will be rewarded. You're sounding like an insurance salesman.
Commissions are relatively low for most SPIAs
Not with retail SPIA's. Typically 4%! That's "low" for annuities! But certainly not "low" in the grand scheme of things. That 4% comes in the form of lower payouts.
SPIA's leave you in poverty eventually....
https://www.youtube.com/watch?v=QDUbQeZvJ9g
If you still insist on a SPIA then go with Vanguard. No commissions = Less of a bad deal.
That's got to be the most ignorant statement I'll heard on this forum.
I don't care what the terms are
, he bought annuity back in 2003 when interest rate were a lot higher.
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