Parents variable annuity 1035 to vanguard

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Topic Author
willie838
Posts: 121
Joined: Thu Mar 20, 2014 1:37 am

Parents variable annuity 1035 to vanguard

Post by willie838 »

I've finally convinced my parents to move an annuity they bought in 1999 to vanguard from edward jones (it's been held and transferred by multiple companies).

Back story:

In 1999 after watching his coworkers make money hand over fist in the stock market, my parents threw 100k in at the crest of the wave crash. At that time my father was 47 and my mother was 44. They found a "financial advisor" locally who sold them on a variable annuity with a front load fee (i believe) :oops: . They held in strong during the dips and i finally took a really hard look at it about two years ago after gradually becoming more and more suspicious of the balance and vehicle. 100k was in the 160s when we started this review in mid 2015. Upon review i was furious. My parents, in their 60s were invested in 100% equity funds and they are winding in towards retirement.

I sat down with the advisor and them as i was unable to make heads or tails of their asset allocation, and could not locate a clear cut fee schedule for the individual funds in the annuity nor the annuity itself nor the advisors fee. Needless to say, what was to be a stern meeting turned pretty ugly pretty quickly when he pulled out a brochure for another annuity to sell them which i slid back across the desk at him.

He updated their asset allocation (top shelf advisory service lol fiduciary rule)and had them in i believe 60 stock, 37 percent bonds and 3 percent "assorted"- this broke down to 9 funds which i was still unable to find expense ratios.

I finally got them to agree to sit down and make a call to vanguard to review their annuity and see about doing a 1035 exchange.

---

The calls went great and the they have the full packet filled out about to file to turn over control of the annuity to vanguard (which is 1 POINT) cheaper per year compared to what they are holding. :annoyed :twisted:


-----

My question is regarding the optional riders.

1. Return of premium Death Benefit (MUST BE SELECTED AT START OF CONTRACT)
(0.2 expense ratio)
This locks in the base of the contract as a ceiling. Ex- The 100k investment would be locked in as the principal, so even if the market downturned to 50k value for the annuity then the premium of 100k would be distributed to the beneficiaries at time of death minus distributions.



2.Guaranteed Lifetime Withdrawal Benefit
"Secure Income Rider (optional, can be applied at any time 1.2 annual extra expense). How Secure Income
works

Purchasing the rider
You can add the Secure Income rider to a Vanguard Variable Annuity anytime until age 90. You'll pay an annual fee equal to 1.20% of your Total Withdrawal Base.††

Both nonqualified (after-tax) and qualified (pre-tax) assets can be invested in the Secure Income. You can transfer assets from an IRA or 401(k) to the Vanguard Variable Annuity, and then use the Secure Income rider to take withdrawals for the rest of your life, even if your original investment is depleted." (vanguard)

-
basically it would lock in a guaranteed % based upon age of annuitant until death
if they enact it at 65, it locks in 4% withdrawal even if that overdraws the account and continues until death, or, rest easy, you won't run out of money from this account.

--------------

I'm trying to help them decide which riders are best for them or if any are necessary.
-at time of hearing the guaranteed premium seemed like a good idea but, i'm not so sure now as my parents are joint owners and as my sister and i are the beneficiaries and are established adults, it might not be worth paying for. (would make more sense to me if we were children and he wanted to make sure we got the full chunk in case they both died).

second rider- the guaranteed income, it can be enacted at any point so i think locking it at any time before withdrawal seems silly. Ideally you'd like to hit the peak value of the contract and my hunch says that a serious correction is looming- that would still be market timing.

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i appreciate any help you guys can give to this. Thanks to this community and Mr Bogle for stopping the bleeding on their account after a mere $xx,xxx got beaten out of them. :| cheers :beer
pablolo
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Joined: Fri Jun 20, 2008 7:32 pm

Re: Parents variable annuity 1035 to vanguard

Post by pablolo »

I am not the OP,but I am curious to know if there are any variable annuities with an. Without the secure income rider glwb that have lower fees than vanguard?
pintail07
Posts: 380
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Re: Parents variable annuity 1035 to vanguard

Post by pintail07 »

Why move into another variable annuity? Look at simple CD type annuities with guaranteed rates, then after the term move to IA. I can't ever see a reason to be in a VA.
Topic Author
willie838
Posts: 121
Joined: Thu Mar 20, 2014 1:37 am

Re: Parents variable annuity 1035 to vanguard

Post by willie838 »

pintail07 wrote:Why move into another variable annuity? Look at simple CD type annuities with guaranteed rates, then after the term move to IA. I can't ever see a reason to be in a VA.

as they were already invested in it, i am very much unaware of options they have to move the money out of the annuity and tax costs associated with such a move as it has appreciated from the initial investment.

this idea actually struck me today before your response, and i will continue to push them towards working with a vanguard financial advisor as i find their fees super reasonable- and i also want to avoid being involved with their finances as much as possible. Money can be such an emotional topic for people that I do not want to mix family and money if at all avoidable----getting them out of this fee laden annuity was something that could not wait and had to be acted on as soon as possible.
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Dale_G
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Re: Parents variable annuity 1035 to vanguard

Post by Dale_G »

Just one item willie:
1. Return of premium Death Benefit (MUST BE SELECTED AT START OF CONTRACT) (0.2 expense ratio)
This locks in the base of the contract as a ceiling. Ex- The 100k investment would be locked in as the principal, so even if the market downturned to 50k value for the annuity then the premium of 100k would be distributed to the beneficiaries at time of death minus distributions.
I believe the minimum "locked in" would be equal to the total amount exchanged to Vanguard (via 1035 exchange) rather than the initial 100K invested in the earlier Annuity.

Dale
Volatility is my friend
Topic Author
willie838
Posts: 121
Joined: Thu Mar 20, 2014 1:37 am

Re: Parents variable annuity 1035 to vanguard

Post by willie838 »

Dale_G wrote:Just one item willie:
1. Return of premium Death Benefit (MUST BE SELECTED AT START OF CONTRACT) (0.2 expense ratio)
This locks in the base of the contract as a ceiling. Ex- The 100k investment would be locked in as the principal, so even if the market downturned to 50k value for the annuity then the premium of 100k would be distributed to the beneficiaries at time of death minus distributions.
I believe the minimum "locked in" would be equal to the total amount exchanged to Vanguard (via 1035 exchange) rather than the initial 100K invested in the earlier Annuity.

Dale
yes, i just used a number as an example

as of a few days ago it would be 180k.

But i'm not sure if it's worth paying for- the question still remains as to the opinions of board members of the value of the optional riders vs the cost of them- as well as the timing of adopting the second rider (secure income rider)
Topic Author
willie838
Posts: 121
Joined: Thu Mar 20, 2014 1:37 am

Re: Parents variable annuity 1035 to vanguard

Post by willie838 »

hate to bump but.....anybody?

trying to steer them towards Vanguards Personal Investment Services, luckily the Vanguard variable annuity does not have any surrender fees attached to it so it stays relatively mobile.
itstoomuch
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Location: midValley OR

Re: Parents variable annuity 1035 to vanguard

Post by itstoomuch »

Willie838, your parents need to thoroughly understand how annuities work for retirement purposes. You and other heirs need to understand how they work as beneficiaries. You need to understand as you are now taking on the role of a fiduciary.

The vanguard annuity specialist should be able to answer all your parents and your questions. :idea:

IMO. Death benefit (DB). If prior to annuitizing, the account value drops below purchase value, the beneficiary will receive the purchase amount less any withdrawals. If no death benefit option is not purchased, then in the same situation, the now lower account value will be paid to the heirs. It is a PUT option.

IMO, the GLWB option essentially creates a deferred SPIA, without annuitization. You are selling off risk in a Long Straddle option...The annuity company is buying risk.

As for the fees, IMO, you are buying various features that could add flexibility :wink: .
In our retirement buckets, the least fee bucket is the Discretionary with individual stocks, Indexes, and cash; I own all the risk :greedy . The annuity bucket is high fee'd but I hold relatively low risk and the annuity cos assuming some of the Market, longevity, and death risk :? . The Rental bucket, we accept risks in the cash flow, taxes, renter hazards, appreciation hopes, in exchange for great tax treatments and investment returns :mrgreen: .

Ymmv
Last edited by itstoomuch on Sat Feb 18, 2017 2:01 am, 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: Parents variable annuity 1035 to vanguard

Post by itstoomuch »

You need to investigate what is the guaranteed annuity rate in the current annuity. Rates established in 1999 maybe considerably higher than the 4% in Vanguard's GLWB and 2017 annuity guarantee.

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
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