Help, please... Variable Annuity to IRA or other

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Topic Author
ChrisM510
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Joined: Mon Feb 13, 2017 2:43 pm

Help, please... Variable Annuity to IRA or other

Post by ChrisM510 »

Hi...My name is Chris, I am 42, and I think I am a poor investor... (Everyone: Hi Chris)

I just finished reading The Bogleheads' Guide to Investing SE, and I have come to the conclusion that I have made a very poor and costly decisions that I would like to recover from as quickly as possible. (I am kinda having a minor panic attack over this.)

Over the past 5 years, I have rolled several previous 401K accounts over into a New York Life Variable Annuity totaling approx $61K. After learning the importance of keeping fees low, and investing in index funds, I have come to the realization that my money is in the wrong place for me (if you disagree, please tell me and why) and I need to move it over to something better, perhaps an IRA. I know next to nothing about investing, and have trusted the wrong people previously (how I got into this mess - a friend works for NYL, and convinced me that an annuity was the right course of action for me). Given the situation, I am thinking it might be best for me to just bite the bullet, eat the surrender charge, and move my money ASAP before they can siphon off any more of my earnings over time. Since this was 100% funded by 401K rollovers, I don't know what my options are.

I know it's generally bad form to ask a question before fully searching previous topics, but as I said, I am kinda having a panic attack now - a bit of a "I took the red pill" from Morpheus moment. I will be going back an searching more (I did a little bit already)...

Seriously, thank you in advance for anyone willing to lend me their advice!

Chris
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alec
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Re: Help, please... Variable Annuity to IRA or other

Post by alec »

You could start by calculating:

1. The yearly expenses you're currently paying to NWL with the current fund(s).
2. How much would the surrender charges would be?
3. The yearly expenses you'd be charged by Vanguard for similar funds.

Then how many years would it take #1 to equal #2+3. That would be the point when the total expenses would then start to be lower moving it from NWL.
"It is difficult to get a man to understand something, when his salary depends upon his not understanding it!" - Upton Sinclair
kenner
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Re: Help, please... Variable Annuity to IRA or other

Post by kenner »

ChrisM510 wrote: Over the past 5 years, I have rolled several previous 401K accounts over into a New York Life Variable Annuity totaling approx $61K. After learning the importance of keeping fees low, and investing in index funds, I have come to the realization that my money is in the wrong place for me (if you disagree, please tell me and why) and I need to move it over to something better, perhaps an IRA. I know next to nothing about investing, and have trusted the wrong people previously (how I got into this mess - a friend works for NYL, and convinced me that an annuity was the right course of action for me). Given the situation, I am thinking it might be best for me to just bite the bullet, eat the surrender charge, and move my money ASAP before they can siphon off any more of my earnings over time. Since this was 100% funded by 401K rollovers, I don't know what my options are.

I know it's generally bad form to ask a question before fully searching previous topics, but as I said, I am kinda having a panic attack now - a bit of a "I took the red pill" from Morpheus moment. I will be going back an searching more (I did a little bit already)...

Seriously, thank you in advance for anyone willing to lend me their advice!

Chris
Initial advice: Please relax as much as you can. Even if the Variable Annuity was not a good idea initially, we will try to assess your current options and provide the best guidance we can.

First step: can you fully identify the specific VA so we can determine specific terms such as surrender charges at various milestones, etc.? VAs that have the same or similar names sometimes have different policy provisions depending on the year issued.

The goal is the best solution for you, not necessarily the quickest.
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nedsaid
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Re: Help, please... Variable Annuity to IRA or other

Post by nedsaid »

ChrisM510 wrote:Hi...My name is Chris, I am 42, and I think I am a poor investor... (Everyone: Hi Chris)

I just finished reading The Bogleheads' Guide to Investing SE, and I have come to the conclusion that I have made a very poor and costly decisions that I would like to recover from as quickly as possible. (I am kinda having a minor panic attack over this.)

Over the past 5 years, I have rolled several previous 401K accounts over into a New York Life Variable Annuity totaling approx $61K. After learning the importance of keeping fees low, and investing in index funds, I have come to the realization that my money is in the wrong place for me (if you disagree, please tell me and why) and I need to move it over to something better, perhaps an IRA. I know next to nothing about investing, and have trusted the wrong people previously (how I got into this mess - a friend works for NYL, and convinced me that an annuity was the right course of action for me). Given the situation, I am thinking it might be best for me to just bite the bullet, eat the surrender charge, and move my money ASAP before they can siphon off any more of my earnings over time. Since this was 100% funded by 401K rollovers, I don't know what my options are.

I know it's generally bad form to ask a question before fully searching previous topics, but as I said, I am kinda having a panic attack now - a bit of a "I took the red pill" from Morpheus moment. I will be going back an searching more (I did a little bit already)...

Seriously, thank you in advance for anyone willing to lend me their advice!

Chris
Don't beat yourself up over this. We all had to learn the same way, through research and personal experience. Unfortunately, people who ought to know better in the financial services industry give less than optimal advice. It is scary how many times I have seen people get advice from advisors to roll their retirement monies into Variable Annuities. Well, you know better now and won't make the same mistake again.

The big three no-load mutual fund giants: Vanguard, Fidelity, T. Rowe Price are a good place to start. All three have brokerage arms. There are good reputable discount brokers out there like Charles Schwab. I would avoid Ameriprise, Edward Jones, and other such full-service brokerage firms. Also, don't mix insurance and investments.
A fool and his money are good for business.
retiredjg
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Re: Help, please... Variable Annuity to IRA or other

Post by retiredjg »

I don't know enough to help with your annuity problem, but there is no reason to panic. You may not have picked the world's best investment, but you did save money. That's the important part.

This is not a fatal flaw. Settle down and be happy that you saved in the first place. This will work out.
Topic Author
ChrisM510
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Joined: Mon Feb 13, 2017 2:43 pm

Re: Help, please... Variable Annuity to IRA or other

Post by ChrisM510 »

kenner wrote:
ChrisM510 wrote: Over the past 5 years, I have rolled several previous 401K accounts over into a New York Life Variable Annuity totaling approx $61K. After learning the importance of keeping fees low, and investing in index funds, I have come to the realization that my money is in the wrong place for me (if you disagree, please tell me and why) and I need to move it over to something better, perhaps an IRA. I know next to nothing about investing, and have trusted the wrong people previously (how I got into this mess - a friend works for NYL, and convinced me that an annuity was the right course of action for me). Given the situation, I am thinking it might be best for me to just bite the bullet, eat the surrender charge, and move my money ASAP before they can siphon off any more of my earnings over time. Since this was 100% funded by 401K rollovers, I don't know what my options are.

I know it's generally bad form to ask a question before fully searching previous topics, but as I said, I am kinda having a panic attack now - a bit of a "I took the red pill" from Morpheus moment. I will be going back an searching more (I did a little bit already)...

Seriously, thank you in advance for anyone willing to lend me their advice!

Chris
Initial advice: Please relax as much as you can. Even if the Variable Annuity was not a good idea initially, we will try to assess your current options and provide the best guidance we can.

First step: can you fully identify the specific VA so we can determine specific terms such as surrender charges at various milestones, etc.? VAs that have the same or similar names sometimes have different policy provisions depending on the year issued.

The goal is the best solution for you, not necessarily the quickest.
I am not sure what info to give... I have an VA inside of an IRA (best way I can describe it - not sure if it is the right way to say it). I got to pick what the allocations were:

15% Fidelity Contrafund
25% UIF U.S. Real Estate
15% DIP Tech Growth
20% VP MFS Utilities
25% MainStay VP SP 500
Topic Author
ChrisM510
Posts: 12
Joined: Mon Feb 13, 2017 2:43 pm

Re: Help, please... Variable Annuity to IRA or other

Post by ChrisM510 »

nedsaid wrote:
ChrisM510 wrote:Hi...My name is Chris, I am 42, and I think I am a poor investor... (Everyone: Hi Chris)

I just finished reading The Bogleheads' Guide to Investing SE, and I have come to the conclusion that I have made a very poor and costly decisions that I would like to recover from as quickly as possible. (I am kinda having a minor panic attack over this.)

Over the past 5 years, I have rolled several previous 401K accounts over into a New York Life Variable Annuity totaling approx $61K. After learning the importance of keeping fees low, and investing in index funds, I have come to the realization that my money is in the wrong place for me (if you disagree, please tell me and why) and I need to move it over to something better, perhaps an IRA. I know next to nothing about investing, and have trusted the wrong people previously (how I got into this mess - a friend works for NYL, and convinced me that an annuity was the right course of action for me). Given the situation, I am thinking it might be best for me to just bite the bullet, eat the surrender charge, and move my money ASAP before they can siphon off any more of my earnings over time. Since this was 100% funded by 401K rollovers, I don't know what my options are.

I know it's generally bad form to ask a question before fully searching previous topics, but as I said, I am kinda having a panic attack now - a bit of a "I took the red pill" from Morpheus moment. I will be going back an searching more (I did a little bit already)...

Seriously, thank you in advance for anyone willing to lend me their advice!

Chris
Don't beat yourself up over this. We all had to learn the same way, through research and personal experience. Unfortunately, people who ought to know better in the financial services industry give less than optimal advice. It is scary how many times I have seen people get advice from advisors to roll their retirement monies into Variable Annuities. Well, you know better now and won't make the same mistake again.

The big three no-load mutual fund giants: Vanguard, Fidelity, T. Rowe Price are a good place to start. All three have brokerage arms. There are good reputable discount brokers out there like Charles Schwab. I would avoid Ameriprise, Edward Jones, and other such full-service brokerage firms. Also, don't mix insurance and investments.
I have already opened a Vanguard account in preparation for this...but I committed to wait to read more, gather feedback (thanks everyone!), and just make sure I am not making a knee-jerk mistake. Everything is ready, I just have to pull the trigger on it.
Topic Author
ChrisM510
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Joined: Mon Feb 13, 2017 2:43 pm

Re: Help, please... Variable Annuity to IRA or other

Post by ChrisM510 »

retiredjg wrote:I don't know enough to help with your annuity problem, but there is no reason to panic. You may not have picked the world's best investment, but you did save money. That's the important part.

This is not a fatal flaw. Settle down and be happy that you saved in the first place. This will work out.
Thanks! This is a huge help!
Topic Author
ChrisM510
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Joined: Mon Feb 13, 2017 2:43 pm

Re: Help, please... Variable Annuity to IRA or other

Post by ChrisM510 »

alec wrote:You could start by calculating:

1. The yearly expenses you're currently paying to NWL with the current fund(s).
2. How much would the surrender charges would be?
3. The yearly expenses you'd be charged by Vanguard for similar funds.

Then how many years would it take #1 to equal #2+3. That would be the point when the total expenses would then start to be lower moving it from NWL.
Where they are really getting me (I think) isn't just in the outright management fees, but in the forced quarterly rebalancing. The transaction fees are where I fear I am getting burned the most, and they say in bold print in my policy that I cannot opt out of it (and of course, I am sure this "premium protection feature" doesn't come for free).
Topic Author
ChrisM510
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Re: Help, please... Variable Annuity to IRA or other

Post by ChrisM510 »

alec wrote:You could start by calculating:

1. The yearly expenses you're currently paying to NWL with the current fund(s).
2. How much would the surrender charges would be?
3. The yearly expenses you'd be charged by Vanguard for similar funds.

Then how many years would it take #1 to equal #2+3. That would be the point when the total expenses would then start to be lower moving it from NWL.
It looks like I will be paying 6% surrender on the initial investment ($26K), and 8% on the next lump I invested ($28K). The remainder of the $61K is what it grew by. If I understand the contract correctly, I can move 10%/year without penalty.
Topic Author
ChrisM510
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Joined: Mon Feb 13, 2017 2:43 pm

Re: Help, please... Variable Annuity to IRA or other

Post by ChrisM510 »

THANKS AGAIN EVERYONE FOR HELPING!!!!
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David Jay
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Re: Help, please... Variable Annuity to IRA or other

Post by David Jay »

ChrisM510 wrote:Hi...My name is Chris, I am 42, and I am a recovering poor investor... (Everyone: Hi Chris)
Fixed it for you! You used to be a poor investor, but you are in the right place to "move on".
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
retiredjg
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Re: Help, please... Variable Annuity to IRA or other

Post by retiredjg »

ChrisM510 wrote: I have an VA inside of an IRA ...
I'd like to point out something. What you have is a tax-deferred container (the variable annuity) inside a tax-deferred container. It's like wearing a raincoat in the house when it is raining outside.


Just out of curiosity, are you sure you are paying transaction fees for rebalancing? Do you see that reflected on your statements? How much are they each quarter?
Topic Author
ChrisM510
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Re: Help, please... Variable Annuity to IRA or other

Post by ChrisM510 »

David Jay wrote:
ChrisM510 wrote:Hi...My name is Chris, I am 42, and I am a recovering poor investor... (Everyone: Hi Chris)
Fixed it for you! You used to be a poor investor, but you are in the right place to "move on".
HA! Thanks!!! :)
Topic Author
ChrisM510
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Re: Help, please... Variable Annuity to IRA or other

Post by ChrisM510 »

retiredjg wrote:
ChrisM510 wrote: I have an VA inside of an IRA ...
I'd like to point out something. What you have is a tax-deferred container (the variable annuity) inside a tax-deferred container. It's like wearing a raincoat in the house when it is raining outside.


Just out of curiosity, are you sure you are paying transaction fees for rebalancing? Do you see that reflected on your statements? How much are they each quarter?
LOL - I remember seeing that same description in the Bogleheads book! :)

I assume I am, though I don't remember seeing anything from them on it.
retiredjg
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Re: Help, please... Variable Annuity to IRA or other

Post by retiredjg »

ChrisM510 wrote:
retiredjg wrote:
ChrisM510 wrote: I have an VA inside of an IRA ...
I'd like to point out something. What you have is a tax-deferred container (the variable annuity) inside a tax-deferred container. It's like wearing a raincoat in the house when it is raining outside.


Just out of curiosity, are you sure you are paying transaction fees for rebalancing? Do you see that reflected on your statements? How much are they each quarter?
LOL - I remember seeing that same description in the Bogleheads book! :)

I assume I am, though I don't remember seeing anything from them on it.
A friend has sent me a private message that says I have mis-characterized the VA inside the IRA concept. That in this case, IRA means Individual Retirement Annuity (not account). Meaning it is not one inside the other. At this point, I'm not following exactly the difference, but suffice it to say, my description may be incorrect.

Correct or not, the problem with VA is the fees you pay that are entirely unnecessary. Most annuities have fees upon fees which you already know. How that applies to your situation, I don't know.

You may not be paying transaction fees to rebalance. But if you are, that would be really bad. I would think that would have to be reflected on your statements.
Topic Author
ChrisM510
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Re: Help, please... Variable Annuity to IRA or other

Post by ChrisM510 »

retiredjg wrote:
ChrisM510 wrote:
retiredjg wrote:
ChrisM510 wrote: I have an VA inside of an IRA ...
I'd like to point out something. What you have is a tax-deferred container (the variable annuity) inside a tax-deferred container. It's like wearing a raincoat in the house when it is raining outside.


Just out of curiosity, are you sure you are paying transaction fees for rebalancing? Do you see that reflected on your statements? How much are they each quarter?
LOL - I remember seeing that same description in the Bogleheads book! :)

I assume I am, though I don't remember seeing anything from them on it.
A friend has sent me a private message that says I have mis-characterized the VA inside the IRA concept. That in this case, IRA means Individual Retirement Annuity (not account). Meaning it is not one inside the other. At this point, I'm not following exactly the difference, but suffice it to say, my description may be incorrect.

Correct or not, the problem with VA is the fees you pay that are entirely unnecessary. Most annuities have fees upon fees which you already know. How that applies to your situation, I don't know.

You may not be paying transaction fees to rebalance. But if you are, that would be really bad. I would think that would have to be reflected on your statements.
Well, my paperwork says IRA...I have always understood that as the traditional definition of IRA, but in any case, it was sold to me as the best protection for me, which is now laughable... I think my first indication that something wasn't right was when I kept seeing the market go up, but the best return I was seeing was 3-5%, which my agent kept telling me is really good... Ugh....
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Kenkat
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Re: Help, please... Variable Annuity to IRA or other

Post by Kenkat »

If the source of your funds were 401(k) accounts, you have a variable annuity inside an IRA and should be able to move this to a rollover IRA at Vanguard. It's very important that the account you set up at Vanguard is a rollover IRA account. Ofherwise it will be considered a taxable distribution.

I don't think you are being charged transaction fees for the quarterly rebalancing. Where you are paying fees is 1) the mutual fund looking accounts are typically higher cost versions of the retail funds with higher expenses and 2) variable annuities have a wrapper fee that you will see referred to as Admin fees, M+E (mortality and expense) fees or insurance fees. These can be 1-2% on top of the mutual fund fees you are paying, driving total fees to 2-3%.

6% surrender charge sounds high for money from 5 years ago but the 8% may be correct. They usually decline yearly until they disappear, but you may be better off just eating the surrender charges as you will save that in lower expenses at Vanguard pretty quickly.

A variable annuity inside an IRA is not a good setup. These are the types of transactions that led the Department of Labor's fiduciary ruling (currently on hold).
Topic Author
ChrisM510
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Re: Help, please... Variable Annuity to IRA or other

Post by ChrisM510 »

kenschmidt wrote:If the source of your funds were 401(k) accounts, you have a variable annuity inside an IRA and should be able to move this to a rollover IRA at Vanguard. It's very important that the account you set up at Vanguard is a rollover IRA account. Ofherwise it will be considered a taxable distribution.

I don't think you are being charged transaction fees for the quarterly rebalancing. Where you are paying fees is 1) the mutual fund looking accounts are typically higher cost versions of the retail funds with higher expenses and 2) variable annuities have a wrapper fee that you will see referred to as Admin fees, M+E (mortality and expense) fees or insurance fees. These can be 1-2% on top of the mutual fund fees you are paying, driving total fees to 2-3%.

6% surrender charge sounds high for money from 5 years ago but the 8% may be correct. They usually decline yearly until they disappear, but you may be better off just eating the surrender charges as you will save that in lower expenses at Vanguard pretty quickly.

A variable annuity inside an IRA is not a good setup. These are the types of transactions that led the Department of Labor's fiduciary ruling (currently on hold).
Thanks Ken!!! Yes, the 6% is correct, but my initial memories were wrong. When I went back, I started this in late 2013, not 2011. I came to the conclusion as well that I would make back what they are going to keep (which should be criminal, really) and then some than if I waited for the surrender charges to expire.
Topic Author
ChrisM510
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Re: Help, please... Variable Annuity to IRA or other

Post by ChrisM510 »

Thanks again everyone for helping me! I am really humbled by how everyone in this forum has helped out a perfect stranger with such professionalism and kindness!

I went ahead and pulled the trigger - I called Vanguard and made sure that my account was indeed a rollover account (Thanks again, Ken!), then I signed my transfer paperwork and mailed it off after lunch.

All that is left now is for me to get confirmation, park the money in a good index fund for 30 years or so, and relax... Oh, and wait for the eventual phone call from my current "adviser" asking WTH happened. I don't think he is going to want to hear what I have to say about that... ;)
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David Jay
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Re: Help, please... Variable Annuity to IRA or other

Post by David Jay »

Chris:

Looking forward to the future, some wise person here on BH said of alternative investments: "If you can't explain it to a 12 year old, you shouldn't buy it". I think this is great advice. If you can't evaluate a product (a typical annuity prospectus runs 70+ pages) you shouldn't invest in it.

Almost everyone here on BH is a recovering poor investor. We talk about our mistakes as "education tax" - and most of us have paid plenty. That is why we are glad to provide advice. Been there, done that!
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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