Variable Annuity - Time to Surrender ?

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FRIZ100
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Variable Annuity - Time to Surrender ?

Post by FRIZ100 » Sun Nov 19, 2017 12:04 am

Bogleheads - need some advice - ( Simplifying this post )

My 73 year old mother ( single and healthy ) recently retired. $40K annual gross income > Social Security and (2) Pensions which cover her living expenses. Budget is tight but manageable. The only savings she has is $45K in a Money Market for emergency use only. She also has (2) Variable Annuities Jackson Perspective II ( accumulated value $202K ) Her ex husband - ( not financially adept ) did the unthinkable and put a SEP and IRA into these annuities. These Annuities have an Auto Guard 5 benefit on them. The sub accounts are 100% S&P based stock mutual funds ( auto balancing ) ranging from Growth - Value - Income - Consumer Discretionary. The primary GOAL is insure the best outcome for my mother ( secondary is the Death Benefit ) -

Trying to determine:

#1 Should she remain in the Variable Annuity w/ Guaranteed Minimum Balance Benefit with total fee's of about ~2.6% this would allow for her to invest more aggressively - with possibility of step ups and a guaranteed minimum benefit ? ( note the accumulated value is now more than the GWB )

#2 Roll over these qualified Annuities into a Vanguard tIRA and look at some combination of Vanguard Target Retirement Income Fund & Stable Fund ?

#3 Look at annuitization options ?

Fund Expense Ratio's ~ .65% + 1.15% Annual Mortality and Expense Risk Charge + .15% Annual Administration Charge + Guaranteed Minimum Withdrawal Benefit ~.65%.

Jackson Perspective II Annuity #1 ( SEP )

Accumulated Value $108,880.42
Surrender Charge Amount: $0.00
Cash Surrender Value $108,789.97
Guaranteed Withdrawal Balance $106,686.00
Guaranteed Annual Withdrawal Amount $9,382.00

Jackson Perspective II Annuity #2 ( IRA )

Accumulated Value: $94,764.21
Surrender Charge Amount: $0.00
Cash Surrender Value. $94,684.60
Guaranteed Withdrawal Balance $93,901.00
Guaranteed Annual Withdrawal Amount $8,996.00
Last edited by FRIZ100 on Mon Nov 20, 2017 4:52 pm, edited 1 time in total.

FRIZ100
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Re: Variable Annuity - Time to Surrender ?

Post by FRIZ100 » Mon Nov 20, 2017 3:05 pm

Bump.. hoping someone could offer some suggestion for me .. thanks in advance

itstoomuch
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Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Mon Nov 20, 2017 3:10 pm

Have you been reading recent threads on GLWB VA and GLWB Fixed-Index annuities?
Ymmv
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

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Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Mon Nov 20, 2017 3:37 pm

I too dumped 50% of IRA s into these annuities 2008-2012. :oops:
I am glad I did dumped that much into this type of annuity when we did and would have done more if our FA and Regulatory practices allowed it. :moneybag :dollar
At this time and in the near 0-2 years, if either the Equity or Debt Markets have significant correction, I am going to have a greater Relative Income than a S/B portfolio' s Income.
YMomsMV :moneybag :greedy

We also have LTCi. It was expensive to us in 2002 at 52/55. Cheap to us in 2017 even with 4 increases and doubling+ . Mostly unaffordable to all but the wealthier of BH if purchase today, assuming such a insurance plan can be found today.
Everything is relative when it comes to Money and its Risk. :annoyed
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

FRIZ100
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Re: Variable Annuity - Time to Surrender ?

Post by FRIZ100 » Mon Nov 20, 2017 4:46 pm

itstoomuch wrote:
Mon Nov 20, 2017 3:10 pm
Have you been reading recent threads on GLWB VA and GLWB Fixed-Index annuities?
Ymmv
I haven't I will take a look

FRIZ100
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Re: Variable Annuity - Time to Surrender ?

Post by FRIZ100 » Mon Nov 20, 2017 4:50 pm

itstoomuch wrote:
Mon Nov 20, 2017 3:37 pm
I too dumped 50% of IRA s into these annuities 2008-2012. :oops:
I am glad I did dumped that much into this type of annuity when we did and would have done more if our FA and Regulatory practices allowed it. :moneybag :dollar
At this time and in the near 0-2 years, if either the Equity or Debt Markets have significant correction, I am going to have a greater Relative Income than a S/B portfolio' s Income.
YMomsMV :moneybag :greedy

We also have LTCi. It was expensive to us in 2002 at 52/55. Cheap to us in 2017 even with 4 increases and doubling+ . Mostly unaffordable to all but the wealthier of BH if purchase today, assuming such a insurance plan can be found today.
Everything is relative when it comes to Money and its Risk. :annoyed
Mom has a Long Term Healthcare Insurance Policy - through Prudential and it's quite good - she bought it 10-12 ago years before many of the Insurers left this market, hiked premiums and reduced benefits.

Tal-
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Re: Variable Annuity - Time to Surrender ?

Post by Tal- » Mon Nov 20, 2017 5:31 pm

I'm not an expert on this topic, but here are my thoughts:

I'm not a fan of annuities, but the previous mistake of buying may not necessarily mean that keeping them is a mistake today. To simplify the discussion, I find it helpful to ignore both the absurd expense ratio, offensively aggressive investments, assume zero liquidity as that decimates the GWLB, and assume a $0 balance at death. As such, I think the question at its core is:

Does she want $108,789.97, or does she want $9,382.00/year (8.5%) for life?

Again, to grossly oversimplify the discussion, if she needed income today to meet her needs, or were not open to investing it if withdrawn, I would probably stick with the annuity as 8.5% (9.5% on the other) does not feel unfair. Still, keeping the annuities has oodles of downsides (inflation, illiquidity, expenses, etc.), so I'd avoid if you can...

But, if she can make ends meet without this money (and it sounds like she can), and is open to an even modest investment allocation, I would liquidate at least one of these (the bigger one with the lower rate) and probably both. Though, do one in CY 2017 and one in early CY 2018 to manage taxes (if applicable)

Just my thoughts.
Debt is to personal finance as a knife is to cooking.

smitcat
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Re: Variable Annuity - Time to Surrender ?

Post by smitcat » Mon Nov 20, 2017 5:46 pm

itstoomuch wrote:
Mon Nov 20, 2017 3:37 pm
I too dumped 50% of IRA s into these annuities 2008-2012. :oops:
I am glad I did dumped that much into this type of annuity when we did and would have done more if our FA and Regulatory practices allowed it. :moneybag :dollar
At this time and in the near 0-2 years, if either the Equity or Debt Markets have significant correction, I am going to have a greater Relative Income than a S/B portfolio' s Income.
YMomsMV :moneybag :greedy

We also have LTCi. It was expensive to us in 2002 at 52/55. Cheap to us in 2017 even with 4 increases and doubling+ . Mostly unaffordable to all but the wealthier of BH if purchase today, assuming such a insurance plan can be found today.
Everything is relative when it comes to Money and its Risk. :annoyed
"At this time and in the near 0-2 years, if either the Equity or Debt Markets have significant correction, I am going to have a greater Relative Income than a S/B portfolio' s Income.
YMomsMV :moneybag :greedy "

What baseline returns for each and math did you utilize to confirm that your relative income will be higher if there is a correction? What amount of relative correction would be required for this to come out ahead? How did you adjust the incomes for each possibility to adjust for taxes that may be involved?

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Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Mon Nov 20, 2017 6:28 pm

^ That IS the question :oops: :annoyed :confused .
Buying or exiting a financial product is dependent on what the needs are the past time, current time, and future expectations.
I would guess, and probably guess correctly that Jackson would love OP' s mom to surrender the annuities.
Look at the numbers. If the GLWB Income withdrawals are started today, the likely scenario is that Jackson is contractually obligated to pay Mom even though the Actual Acct balance to goes th $ 0, depending on the Markets and Fund selection, in 8-12 years. At this time, in this GLWB annuity, Her SWR is unlimited. Because the near unlimited obligation ($9382/yr for life) Jackson has an life obligation of at least to age 87 (mom's life expectancy) and possibly longer. If Mom should pass earlier, Jackson has to honor the death benefit of remainder Actual Acct.

Can Mom beat this annuity by moving to a S/B allocation :?: ?
It is guess that has nothing to do with how much the advisor, annuity company makes or loses, or fees. It is Longevity Insurance, that even Vanguard recognizes and offers, although late to the market :confused
YMMV :dollar
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

FRIZ100
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Re: Variable Annuity - Time to Surrender ?

Post by FRIZ100 » Mon Nov 20, 2017 6:53 pm

Tal- wrote:
Mon Nov 20, 2017 5:31 pm
I'm not an expert on this topic, but here are my thoughts:

I'm not a fan of annuities, but the previous mistake of buying may not necessarily mean that keeping them is a mistake today. To simplify the discussion, I find it helpful to ignore both the absurd expense ratio, offensively aggressive investments, assume zero liquidity as that decimates the GWLB, and assume a $0 balance at death. As such, I think the question at its core is:

Does she want $108,789.97, or does she want $9,382.00/year (8.5%) for life?

Again, to grossly oversimplify the discussion, if she needed income today to meet her needs, or were not open to investing it if withdrawn, I would probably stick with the annuity as 8.5% (9.5% on the other) does not feel unfair. Still, keeping the annuities has oodles of downsides (inflation, illiquidity, expenses, etc.), so I'd avoid if you can...

But, if she can make ends meet without this money (and it sounds like she can), and is open to an even modest investment allocation, I would liquidate at least one of these (the bigger one with the lower rate) and probably both. Though, do one in CY 2017 and one in early CY 2018 to manage taxes (if applicable)

Just my thoughts.
Let me clarify....
She does not get the Guaranteed Annual Withdrawal Amount ( GAWA ) for LIFE - The GAWA reduces the Guaranteed Minimum Withdrawal Balance GMWB dollar for dollar as long as she does not withdraw more than the GAWA annually - if she does withdraw more than the GAWA - the GMWB would be adjusted negatively. If she chooses to stay in the Annuity she would only be withdrawing the GAWA annually and parking most of it in a Money Market after taxes. She needs to make some withdrawals anyway - there is a RMD requirement because these are IRA's within the Annuity Contract.

I completely agree with you comment "previous mistake of buying may not necessarily mean that keeping them is a mistake today." She is protected from losses w/ the Auto Guard 5 rider ( provides the GMWB w/ step up ) - that is a benefit that has been paid since the beginning of the contract and would allow for more much aggressive investing strategy. Even if the assets ( accumulated value ) fell 80% - the GMWB stays the same. I'm on the fence - aggressively invest w/ protection and high fee's or transfer them into a Vanguard IRA. The other options are to Annuitize - choices are numerous and I am currently exploring these as well.

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Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Mon Nov 20, 2017 6:56 pm

Smitcat,
Taxes are not material in OPs mom's case because the original funds are from taxed deferred IRA. She would be obligated to pay any tax, which may be $0. If Mom should outlive the Accumulation Acct value, she would still be obligated to pay taxes due on the annuity company's money which would be a good thing to do.
Taxes on pensions work similarly. Oregon's PER s tier1, have a $25billion claim on future taxpayers. Kinda depends on which side of the tax fence you are.
Ymmv
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

rrppve
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Re: Variable Annuity - Time to Surrender ?

Post by rrppve » Mon Nov 20, 2017 7:12 pm

I’d compare what the annual payments would be if she annuitized within the Jackson annuity versus rolling over into a new SPIA.

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Mel Lindauer
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Re: Variable Annuity - Time to Surrender ?

Post by Mel Lindauer » Mon Nov 20, 2017 7:18 pm

FRIZ100 wrote:
Sun Nov 19, 2017 12:04 am

Trying to determine:

#1 Should she remain in the Variable Annuity w/ Guaranteed Minimum Balance Benefit with total fee's of about ~2.6% this would allow for her to invest more aggressively - with possibility of step ups and a guaranteed minimum benefit ? ( note the accumulated value is now more than the GWB )

#2 Roll over these qualified Annuities into a Vanguard tIRA and look at some combination of Vanguard Target Retirement Income Fund & Stable Fund ?

#3 Look at annuitization options ?

Fund Expense Ratio's ~ .65% + 1.15% Annual Mortality and Expense Risk Charge + .15% Annual Administration Charge + Guaranteed Minimum Withdrawal Benefit ~.65%.
If it were my Mom, and her expenses were covered by a pension and SS, I'd recommend Option #2. Since this is tax-deferred money, there would be no tax consequences and her costs would be considerably lower while her investing options would be almost limitless.

FWIW, IMO, it should be illegal to sell someone a high-cost tax-deferred annuity inside an already tax-deferred product.
Best Regards - Mel | | Semper Fi

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Re: Variable Annuity - Time to Surrender ?

Post by smitcat » Mon Nov 20, 2017 7:51 pm

itstoomuch wrote:
Mon Nov 20, 2017 6:56 pm
Smitcat,
Taxes are not material in OPs mom's case because the original funds are from taxed deferred IRA. She would be obligated to pay any tax, which may be $0. If Mom should outlive the Accumulation Acct value, she would still be obligated to pay taxes due on the annuity company's money which would be a good thing to do.
Taxes on pensions work similarly. Oregon's PER s tier1, have a $25billion claim on future taxpayers. Kinda depends on which side of the tax fence you are.
Ymmv
Regarding the taxes- once you are in an annuity is it not impossible to do Roth conversions on those funds?

"At this time and in the near 0-2 years, if either the Equity or Debt Markets have significant correction, I am going to have a greater Relative Income than a S/B portfolio' s Income.
YMomsMV "

Can you help us understand these statement questions....
What baseline returns for each and math did you utilize to confirm that your relative income will be higher if there is a correction? What amount of relative correction would be required for this to come out ahead? How did you adjust the incomes for each possibility to adjust for taxes that may be involved?

itstoomuch
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Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Mon Nov 20, 2017 8:54 pm

OP wrote:Trying to determine:
read my signature line below.

I too am thinking about our deferred GLWB annuities.

We have 8 GLWB annuities: 6 in VA, 2 in Fixed Index. If I remember, 5 are in IRAs, 2 are in Roths, 1 is taxable. 2008-2012, laddered and in time and amounts.
We exercised, fiscal 2017, tax year 2016, 3 GLWB withdrawals from VA. In fiscal 2018, tax year 2017, we excerised 2 GLWB - FIa withdrawals to satisfy 2017 RMD. There is a tax quirk with GLWB's that gives us an additional benefit in RMD rules (see QLAC, GLWB deferred annuities are not QLACs but function nearly the same). I am unsure if I will make additional fiscal 2018 withdrawals but won't have to make that decision until end of fiscal Nov 2018.
We don't exactly need the annuity IRA Income but the Income from these GLWB IRA annuities was planned for back in 2008-2012. The Income is more than we need because of the Income Guarantees and Market performance. Accumulation Acct is more today than at time qualified withdrawal in 2016. I may get a Market Stepup (Nov 20, anniversary). We are trying to spend more money, at least I am :( :annoyed
The annuities allowed me to be more aggressive in remaining unprotected IRAs, Roths, taxable.
I am mulling the 9 year old IRA GLWBs (1 year remaining in the guarantee Income Account stepup) to new GLWB annuities; Garnering additional 10 years of Income guarantees to the Equity Market and RMD quirks.

It seems that you understand how these financial instruments work.
I have no solutions since we too are thinking about this, for me for the last 6 months.
My Discretionary IRA has increased 18% YTD as of Friday with target of 10%. I have been taking Income last week with withholding taxes :( :P .
YMMV :sharebeer

PS: I don't give recommendations or advice.
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

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Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Mon Nov 20, 2017 9:58 pm

smitcat wrote:What baseline returns for each and math did you utilize to confirm that your relative income will be higher if there is a correction? What amount of relative correction would be required for this to come out ahead?

It's complicated for me to explain. I suggest that you refer to Vanguard GLWB explanation. Some GLWB have an additional feature of guaranteed Income stepups for 1-2% additional fee when compared to Vanguard. The Guaranteed minimum stepups and rollups allow me to project reasonably 12 months from anniversary date. Our minimum GLWB stepup is 5% compounded (Current Vanguard does not have this feature). Recent threads have stated 7% simple stepups.
smitcat wrote:How did you adjust the incomes for each possibility to adjust for taxes that may be involved?
Most of our GLWB annuities are within IRA's. See above on baseline returns. The possibilities are reduced because of the GLWB and when we chose to exercise a GLWB withdrawal. In 2017, we took a GLWB Fixed Index annuity withdrawal to satisfy RMD. We will not take GLWB VA withdrawals that we took in 2016. My choices is determined by the laddering affect much like laddering of Bonds. We have No Bonds since the GLWB annuities function as well and with safety.
YMMV.
I attended dozens of presentations and asked questions. Anyone who think they want to investigate these products should at least start with Vanguard GLWB and progress to other GLWB offerings, even TransAmerica (provider of Vanguard's current GLWB annuity) have a variety of GLWB annuities.
YMMV
See Moshe Milevsky treatise on GLWB annuities, Sequence of Returns, echoed by Kitces and others.
Social Security Delay to age 70.5 yo; SS benefits PIA,
Life expectancy
YMMV
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

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Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Mon Nov 20, 2017 10:33 pm

smitcat wrote:Regarding the taxes- once you are in an annuity is it not impossible to do Roth conversions on those funds?
I don't know. Never investigated.
We converted IRA to Roths outside of annuities. And those Roths was used for a downpayment for a retirement home a couple of months ago.
We do have at least 1 annuity-Roth. They are not large and envisioned for Income and tax modifiers. At least one tax quirk in Roth GLWB annuities. The quirk(s) have confounded the IRS. Quirks are to the annuitant's benefit :moneybag . Your task for today is to discover it, should you accept the challenge. You already have enough information in this thread to ascertain the quirk(s). :P
YMMV :sharebeer
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

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Oicuryy
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Re: Variable Annuity - Time to Surrender ?

Post by Oicuryy » Tue Nov 21, 2017 12:55 am

Tough choice. Take a sure $200k in payments spread over the next several years with the possibility of an additional amount after the $200k has been received. Or take a sure $200k in a lump sum now with the possibility of earning gains or losses over the next several years.

Flip a coin. If you don't like the result, flip it again.

Ron
Money is fungible | Abbreviations and Acronyms

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Re: Variable Annuity - Time to Surrender ?

Post by smitcat » Tue Nov 21, 2017 8:31 am

itstoomuch wrote:
Mon Nov 20, 2017 9:58 pm
smitcat wrote:What baseline returns for each and math did you utilize to confirm that your relative income will be higher if there is a correction? What amount of relative correction would be required for this to come out ahead?

It's complicated for me to explain. I suggest that you refer to Vanguard GLWB explanation. Some GLWB have an additional feature of guaranteed Income stepups for 1-2% additional fee when compared to Vanguard. The Guaranteed minimum stepups and rollups allow me to project reasonably 12 months from anniversary date. Our minimum GLWB stepup is 5% compounded (Current Vanguard does not have this feature). Recent threads have stated 7% simple stepups.
smitcat wrote:How did you adjust the incomes for each possibility to adjust for taxes that may be involved?
Most of our GLWB annuities are within IRA's. See above on baseline returns. The possibilities are reduced because of the GLWB and when we chose to exercise a GLWB withdrawal. In 2017, we took a GLWB Fixed Index annuity withdrawal to satisfy RMD. We will not take GLWB VA withdrawals that we took in 2016. My choices is determined by the laddering affect much like laddering of Bonds. We have No Bonds since the GLWB annuities function as well and with safety.
YMMV.
I attended dozens of presentations and asked questions. Anyone who think they want to investigate these products should at least start with Vanguard GLWB and progress to other GLWB offerings, even TransAmerica (provider of Vanguard's current GLWB annuity) have a variety of GLWB annuities.
YMMV
See Moshe Milevsky treatise on GLWB annuities, Sequence of Returns, echoed by Kitces and others.
Social Security Delay to age 70.5 yo; SS benefits PIA,
Life expectancy
YMMV

"It's complicated for me to explain. I suggest that you refer to Vanguard GLWB explanation. Some GLWB have an additional feature of guaranteed Income stepups for 1-2% additional fee when compared to Vanguard. The Guaranteed minimum stepups and rollups allow me to project reasonably 12 months from anniversary date. Our minimum GLWB stepup is 5% compounded (Current Vanguard does not have this feature). Recent threads have stated 7% simple stepups."

For the funds that you put into the annuities way back in 2008 what are the factors that you used to determine what the withdrawal rate would be currently in a st/bnd portfolio?
And what is the equivalent withdrawal rate that you have now for the same funds now with the annuities?

I want to understand and solve for this line in your posts for potential informational value .....
"At this time and in the near 0-2 years, if either the Equity or Debt Markets have significant correction, I am going to have a greater Relative Income than a S/B portfolio' s Income."

And what amount of market correction would be needed (% drop or relative $$ loss of funds) would be required to make this statement accurate?

Thank you

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Re: Variable Annuity - Time to Surrender ?

Post by smitcat » Tue Nov 21, 2017 8:37 am

Mel Lindauer wrote:
Mon Nov 20, 2017 7:18 pm
FRIZ100 wrote:
Sun Nov 19, 2017 12:04 am

Trying to determine:

#1 Should she remain in the Variable Annuity w/ Guaranteed Minimum Balance Benefit with total fee's of about ~2.6% this would allow for her to invest more aggressively - with possibility of step ups and a guaranteed minimum benefit ? ( note the accumulated value is now more than the GWB )

#2 Roll over these qualified Annuities into a Vanguard tIRA and look at some combination of Vanguard Target Retirement Income Fund & Stable Fund ?

#3 Look at annuitization options ?

Fund Expense Ratio's ~ .65% + 1.15% Annual Mortality and Expense Risk Charge + .15% Annual Administration Charge + Guaranteed Minimum Withdrawal Benefit ~.65%.
If it were my Mom, and her expenses were covered by a pension and SS, I'd recommend Option #2. Since this is tax-deferred money, there would be no tax consequences and her costs would be considerably lower while her investing options would be almost limitless.

FWIW, IMO, it should be illegal to sell someone a high-cost tax-deferred annuity inside an already tax-deferred product.
Hello Mel,
We have been reading as many of your posts and contributions as we can - they are very helpful thank you for your efforts they make a big difference.
Can you please expand a little on this point that you made....
"FWIW, IMO, it should be illegal to sell someone a high-cost tax-deferred annuity inside an already tax-deferred product."

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Re: Variable Annuity - Time to Surrender ?

Post by bsteiner » Tue Nov 21, 2017 9:21 am

Mel Lindauer wrote:
Mon Nov 20, 2017 7:18 pm
... IMO, it should be illegal to sell someone a high-cost tax-deferred annuity inside an already tax-deferred product.
Is it worse in an IRA than in a taxable account?

In a taxable account, you get the benefit of tax deferral at the cost of converting your qualified dividends and capital gains to ordinary income and giving up the basis step-up at death. In an IRA, it's tax neutral.

In either case, you pay the fees (usually 2.5% or so, though only about 0.5% through Vanguard), you give up some flexibility, and you get some guarantees. If you expect stocks to earn 7% and bonds to earn 3% (I'm not predicting those returns, just using them as an example), a mix will earn around 5%. So if you pay 2.5% for the annuity, you're giving up half of your expected return. Over a long enough period, the guarantees become less significant.

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Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Tue Nov 21, 2017 11:26 am

smitcat wrote:
itstoomuch wrote:It's complicated for me to explain. I suggest that you refer to Vanguard GLWB explanation. Some GLWB have an additional feature of guaranteed Income stepups for 1-2% additional fee when compared to Vanguard. The Guaranteed minimum stepups and rollups allow me to project reasonably 12 months from anniversary date. Our minimum GLWB stepup is 5% compounded (Current Vanguard does not have this feature). Recent threads have stated 7% simple stepups.
For the funds that you put into the annuities way back in 2008 what are the factors that you used to determine what the withdrawal rate would be currently in a st/bnd portfolio?
1/ And what is the equivalent withdrawal rate that you have now for the same funds now with the annuities?

2/ I want to understand and solve for this line in your posts for potential informational value .....
"At this time and in the near 0-2 years, if either the Equity or Debt Markets have significant correction, I am going to have a greater Relative Income than a S/B portfolio' s Income."

3/ And what amount of market correction would be needed (% drop or relative $$ loss of funds) would be required to make this statement accurate?
1/ The original funds came from a 60/40 portfolio. Some held as far back as 1990.
Contractually, the GLWB withdrawal rate can be as high as 5% of Income Acct at most recent anniversary. For many BH who think in terms of Investment Value, ie 4% SWR, the capitalized rate of the Income Acct (4% swr) would be 25% higher than my Income Acct.
The Accummulation account (Actual/Liquidation) is stuffed with All Equity MF weighted towards Midcap but with Large and Small Caps to varying degrees between the 6 VAs. No foreign. No Bonds or Balance Funds. Design of these older GLWB's favored the annuitant to game the product since the Income Acct had a guarantee growth feature; thus it behoved the annuitant to get as much juice out of the MF early in the ownership. Even in a 80/20 efficient frontier would be better than a conservative portfolio in these VA's. One of the reasons for me seeing so many presentations was that this was an opportunity, "too good to be true." And as I later discovered, many annuitants discovered the same to the horror of the annuity companies. Merrill- Lynch sold a lot of these, their brokers saw a good deal for their clients who were high-net worth. I unfortunately was then Low-net worth, and unworthy of their products :P .
So, 5% compounding, guarantee to the Income Acct growth stepups. Rollups of Income Acct if he Accumulation meets the 5% threshold + 3.5% fees, 5% GWLB maximum withdrawal rate on Income Acct at last anniversary and then set for remainder. Resettable for 10 years. Suspendable Income withdrawals which initials reset clock.
Approximate Illustration of what we have, normalized to 100, Nov 2008. Minimum Income Acct value by 2018 is 5% annual increases, compounding= $162,000. Withdrawal rate at end of 10th year =$8144. This is equivalent to a 4% SWR on a hypothetical "Actual" BH account of ~$215,460, and the BH would shoulder 100% of the risk in getting to this amount. My risk was the Put fee of 1.15% with total fees of 3.5% annually and largely immaterial to the Income Acct.
more later. off to BK for coffee :annoyed :mrgreen:
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

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Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Tue Nov 21, 2017 2:54 pm

1/ more
Based on a guaranteed withdrawal, after 10 years since purchase, Income of $8144 for life with remainder to heirs, with a $0 balance in the Accumulation/Actual/Liquidation Acct, the guaranteed BH 4% swr on equivalent ~$215,460
or an compounded growth of ~ 8.5%,
, with virtually no risk, regardless of funds selection whether Protected Income to a high risk and anything in between.
Do you get it?
And it is the reason why I post on Annuity threads.
Ymmv
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

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Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Tue Nov 21, 2017 3:18 pm

2/ in any Market rise or fall or in steady state, the BH' s philosophy is to manage risk by asset allocation. A good idea.
BUT the BH assumes 100% of the decision and subsequent portfolio and ultimately there is an impact to their INCOME.
For a 3.5% total fee, 1.15% GWLB with 10 year Income Guarantee Rider "option" , I bought Income Insurance, and the the annuity company sold a lifetime Income. It is highly probable that the are not making as much money as many may think.
More succinctly, in a correction in 0-2 year's, at current age 67/70, in whatever BH portfolio DIY, your Income would rise or fall? OR will you wait it out until Markets recover? OR reallocate on RBDs :?: ?
Mine will rise 5% minimally per year, per uninitiated GLWB. And stay stable for initiated GLWB annuities. :moneybag
Got it?
Ymmv
Last edited by itstoomuch on Tue Nov 21, 2017 5:02 pm, edited 1 time in total.
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

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Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Tue Nov 21, 2017 3:32 pm

3/ What Market drop affects?
Our GLWB income is protected on any drop. The Accumulation Acct can be -99% in the first year, and my future 10 year GWLB income would still be $8144/a. I protected by downside risk but I limited some of my upside by the 3.5% fee.
I bought a PER tier 1, pension plan
Got it?
Ymmv :sharebeer
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

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Re: Variable Annuity - Time to Surrender ?

Post by smitcat » Tue Nov 21, 2017 7:36 pm

itstoomuch wrote:
Tue Nov 21, 2017 3:32 pm
3/ What Market drop affects?
Our GLWB income is protected on any drop. The Accumulation Acct can be -99% in the first year, and my future 10 year GWLB income would still be $8144/a. I protected by downside risk but I limited some of my upside by the 3.5% fee.
I bought a PER tier 1, pension plan
Got it?
Ymmv :sharebeer
No - you did not answer but that is not surprising.
I was hoping that you might.

Whatever makes you happy!!!

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Re: Variable Annuity - Time to Surrender ?

Post by Mel Lindauer » Tue Nov 21, 2017 7:44 pm

bsteiner wrote:
Tue Nov 21, 2017 9:21 am
Mel Lindauer wrote:
Mon Nov 20, 2017 7:18 pm
... IMO, it should be illegal to sell someone a high-cost tax-deferred annuity inside an already tax-deferred product.
Is it worse in an IRA than in a taxable account?

In a taxable account, you get the benefit of tax deferral at the cost of converting your qualified dividends and capital gains to ordinary income and giving up the basis step-up at death. In an IRA, it's tax neutral.

In either case, you pay the fees (usually 2.5% or so, though only about 0.5% through Vanguard), you give up some flexibility, and you get some guarantees. If you expect stocks to earn 7% and bonds to earn 3% (I'm not predicting those returns, just using them as an example), a mix will earn around 5%. So if you pay 2.5% for the annuity, you're giving up half of your expected return. Over a long enough period, the guarantees become less significant.
Good presentation of the variables.

While annuities in a taxable account do offer tax-deferral (at a high cost), one can invest in lower-cost, tax-efficient index funds and minimize taxes while retaining the stepped-up cost basis and more favorable capital gains tax treatment. And, if one needs bonds in their taxable account, there are munis (tax-free) and Savings Bonds (tax-deferred).

IMO, there's simply no reason to pay more to put a high-cost, tax-deferred annuity inside an already tax-deferred retirement plan.
Best Regards - Mel | | Semper Fi

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Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Tue Nov 21, 2017 9:11 pm

smitcat wrote:
Tue Nov 21, 2017 7:36 pm
itstoomuch wrote:
Tue Nov 21, 2017 3:32 pm
3/ What Market drop affects?
Our GLWB income is protected on any drop. The Accumulation Acct can be -99% in the first year, and my future 10 year GWLB income would still be $8144/a. I protected by downside risk but I limited some of my upside by the 3.5% fee.
I bought a PER tier 1, pension plan
Got it?
Ymmv :sharebeer
No - you did not answer but that is not surprising.
I was hoping that you might.

Whatever makes you happy!!!
I will try to reword my answer.
But to be sure what are you asking, can you reword your question.
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

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Re: Variable Annuity - Time to Surrender ?

Post by smitcat » Wed Nov 22, 2017 9:33 am

"Approximate Illustration of what we have, normalized to 100, Nov 2008. Minimum Income Acct value by 2018 is 5% annual increases, compounding= $162,000. Withdrawal rate at end of 10th year =$8144. This is equivalent to a 4% SWR on a hypothetical "Actual" BH account of ~$215,460,"

I think what you are saying is that your hypothetical $100K would have grown to $162 K between 2008 and 10 years later.
Then you can pull $8144 yearly for a calculated 5% on that 162k at age 70 and above.
That would be 5% flat at age 70 with no colas after that mark correct? so that is not really what Bogles compare to when they say that 4% adjusted each year for inflation is a safe bet at a certain age (usually 65 or less).

You also say that your 'discretionary' account went up 18% in one year, this past year alone. So had you 'left' the funds in your Stk/bond portfolio like in your statement for the full 10 years what would the equivalent $100K from 2008 be worth currently?


IMHO - you say you do not give advice or recommendations but in my humble opinion these are recommendations.....

"At this time and in the near 0-2 years, if either the Equity or Debt Markets have significant correction, I am going to have a greater Relative Income than a S/B portfolio' s Income.'

And when you say , see my sig line as a solution/answer to a question from other Bogles...

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Re: Variable Annuity - Time to Surrender ?

Post by smitcat » Wed Nov 22, 2017 9:46 am

Mel Lindauer wrote:
Tue Nov 21, 2017 7:44 pm
bsteiner wrote:
Tue Nov 21, 2017 9:21 am
Mel Lindauer wrote:
Mon Nov 20, 2017 7:18 pm
... IMO, it should be illegal to sell someone a high-cost tax-deferred annuity inside an already tax-deferred product.
Is it worse in an IRA than in a taxable account?

In a taxable account, you get the benefit of tax deferral at the cost of converting your qualified dividends and capital gains to ordinary income and giving up the basis step-up at death. In an IRA, it's tax neutral.

In either case, you pay the fees (usually 2.5% or so, though only about 0.5% through Vanguard), you give up some flexibility, and you get some guarantees. If you expect stocks to earn 7% and bonds to earn 3% (I'm not predicting those returns, just using them as an example), a mix will earn around 5%. So if you pay 2.5% for the annuity, you're giving up half of your expected return. Over a long enough period, the guarantees become less significant.
Good presentation of the variables.

While annuities in a taxable account do offer tax-deferral (at a high cost), one can invest in lower-cost, tax-efficient index funds and minimize taxes while retaining the stepped-up cost basis and more favorable capital gains tax treatment. And, if one needs bonds in their taxable account, there are munis (tax-free) and Savings Bonds (tax-deferred).

IMO, there's simply no reason to pay more to put a high-cost, tax-deferred annuity inside an already tax-deferred retirement plan.
Thank you - this has value for us.

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Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Wed Nov 22, 2017 11:30 am

I think smitcat, your specific questions can be adequately answered in Vanguard's pages here: https://investor.vanguard.com/annuity/
and on tap #2: https://investor.vanguard.com/annuity/w ... an-annuity
specifically, In Big bold letters, Right up front, at the top, (sorry Arlo, I had to word this preface in your style in honor of Thanksgiving and your 52(?) anniversary of Alice's) :beer
What are annuities?
Annuities are a type of investment account typically used for retirement savings or to generate regular income payments in retirement. Annuities are insurance contracts, and the issuing insurance company provides some type of guarantee on your investment.*
.

Personally, I would not characterize annuities as an investment, although there act as an investment where they can lose money or make money (option pricing). I see annuities as an Insurance Product that offers certain benefits and features that has a premium in cost based on time and intrinsic value. So to answer 3/
For the funds that you put into the annuities way back in 2008 what are the factors that you used to determine what the withdrawal rate would be currently in a st/bnd portfolio?
1/ And what is the equivalent withdrawal rate that you have now for the same funds now with the annuities?

2/ I want to understand and solve for this line in your posts for potential informational value .....
"At this time and in the near 0-2 years, if either the Equity or Debt Markets have significant correction, I am going to have a greater Relative Income than a S/B portfolio' s Income."

3/ And what amount of market correction would be needed (% drop or relative $$ loss of funds) would be required to make this statement accurate?

Reply/: Market correction? Then in 2008, if I had been paying attention to the Markets, I think, maybe, perhaps, -20%. Your question is a behavioral question and can only be answered not so much with a number but by behavior and expectations and disappointments. Investments and Insurance are behavorial products more so than anything real. JMO. reference Bill Bernstein, Against the Gods, All that Glitters. Reference, Michael Philips, 7 Laws of Money. reference. J Bogle where he says to control your emotions.
Reply/: I never thought of our IRA's as purely investments. I thought of the IRA's as a way to be the base, method, vehicle, foundation, or what ever words you chose, to generate retirement Income. In 2008, the "market correction" was bad enough and from the personal contacts, to where our future retirement (verge of forced retirement in a stressed company, 58/61, caring for 3 seniors 90+yo, and BIL who was SN). So to what are the "factor used to determine what the withdrawal rate would be currently in a st/bd portfolio?" ans: My state's PER used then 4%. My actuary BIL, also CPA, and corporate officer, said that 4% was reasonable. My FA said that 4% is industry standard. We were 60/40 since the beginning of time, mostly in Bogle's flagship funds. It wasn't so much as the lost decade of IRA investing, -40% from peak, but the realization that We had entered the dreaded vortex of "sequence of returns" that at the time looked dire and entirely frightening (PhD older bro, professional economist at BigBank was positively pale and closed mouth on the economic situation). [There is more family history that gets too involved but did have influence on my decision of annuity purchase]

To go further beyond your question in 3/. Income from annuity purchases are exceeding original GWLB, they were guaranteed minimums. The Accumulation Acct has done ~2/3 as well as SP500 or approximates a 60/40 Index portfolio, net all expenses.
Side info: today only about 10% of our retirement assets are directly exposed to the S/B Markets, our Discretionary Acct. In 2008, our direct exposure to the S/B Markets was 100% (SS and pension is not direct exposure). Our retirement Income is now being satisfied by SS+small pension, and GLWB annuities. We have acquired a rental thru inheritance which generates enough income to equal annuity income. I am contemplating in terminating the annuities because their original purpose was 1) Insurance to the Market; 2) Income, in that order. Both conditions are no longer needed in the foreseeable future.

YMMV
Define your retirement; Are your looking for Investments? or Are you looking for Income?
Last edited by itstoomuch on Wed Nov 22, 2017 10:09 pm, edited 3 times in total.
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

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Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Wed Nov 22, 2017 11:42 am

Many BH see and understand annuities and specifically VA's, GLWB VA and GLWB FixedIndex as investment products that have to be purchased.
I don''t. They are Insurance products. I use them as Insurance and willingly and knowingly pay the premium for that insurance. I bought Insurance, I did not per se, invest.
If you view the annuity fee as excesssive fee for direct investing, I would agree with you, it is fee for direct investing that you don't need.
YMMV
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

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Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Wed Nov 22, 2017 12:17 pm

More:
I looked around, in 2008 and I saw my best friends and neighbors with PERs tier 1, Federal pensions, Union pensions, and were doing OK with newer cars and were planning to defer SS to FRA if already retired, or defer to 70 (my brother and sisters). I saw that their Income was more predictable. I saw that as long as we had a Market based retirement as the other Income source beyond SS and small pension, our Income would be would variable and tied to a SWR. I asked, how can I separate SWR, Market dependency from retirement Income. ... I needed some of what they got- a pension, and it came as a mimicked PER Tier1, GLWB VA annuity. At the time Investopedia said that the Insurance Industry modeled GLWB annuities after State's pensions and to TIAA annuities. We were not public employees nor educators and thus did not have access to these fabulous retirement plans.
The annuity fees was the cost of entry. To us, at that time, an acceptable fee because the perceived value in a purchase pension plan was enormously valuable.

Many BH who have adequate pensions, ( a lot of federals and state and other public employees BHers) may not additional guaranteed Incomes.
YMMV

smitcat, do you have an "adequate" pension in addition to IRA/401k/SS?
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

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Re: Variable Annuity - Time to Surrender ?

Post by smitcat » Wed Nov 22, 2017 1:40 pm

Sig line....

"Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo"

It does not make a lot of sense that you would be bound by a 25% tax rate given the types of income streams that you have and the size of the portfolio.
When MFJ I would hope that just about anyone could pull in some sizable income each year (maybe $100K+) staying below 25% with typical taxed income streams but with ones that tend to be favorable for taxes it is very confusing.

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Re: Variable Annuity - Time to Surrender ?

Post by smitcat » Wed Nov 22, 2017 1:48 pm

itstoomuch wrote:
Wed Nov 22, 2017 12:17 pm
More:
I looked around, in 2008 and I saw my best friends and neighbors with PERs tier 1, Federal pensions, Union pensions, and were doing OK with newer cars and were planning to defer SS to FRA if already retired, or defer to 70 (my brother and sisters). I saw that their Income was more predictable. I saw that as long as we had a Market based retirement as the other Income source beyond SS and small pension, our Income would be would variable and tied to a SWR. I asked, how can I separate SWR, Market dependency from retirement Income. ... I needed some of what they got- a pension, and it came as a mimicked PER Tier1, GLWB VA annuity. At the time Investopedia said that the Insurance Industry modeled GLWB annuities after State's pensions and to TIAA annuities. We were not public employees nor educators and thus did not have access to these fabulous retirement plans.
The annuity fees was the cost of entry. To us, at that time, an acceptable fee because the perceived value in a purchase pension plan was enormously valuable.

Many BH who have adequate pensions, ( a lot of federals and state and other public employees BHers) may not additional guaranteed Incomes.
YMMV

smitcat, do you have an "adequate" pension in addition to IRA/401k/SS?
We will only have available and use SS when we likely reach 70. Waiting to 70 will allow us to convert Roth's as best we can until we receive the SS.

This is the statement that threw me off....
"At this time and in the near 0-2 years, if either the Equity or Debt Markets have significant correction, I am going to have a greater Relative Income than a S/B portfolio' s Income.'
I see now that it was not a direct comparison of incomes as it originally appeared to be.
Thank you for your help - I am moving on now to figure out other possibilities

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Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Wed Nov 22, 2017 2:19 pm

OP:
You now have more information about what we have than what you have offered for your Mother's financial condition and need for the annuities.

I have the same quandary as you. Choices 1,2,3 are available us. We don't need the Income from any of our GLWB annuities. Where I am pulling GLWB income is likewise going into checking acct s with 0.01% interest. The only reason why I am pulling Income is to refinance our recent retirement home purchase at @4.75%, 30 yr, 40% down to something better. We couldn't show "past and current income" to support a conforming loan 3.5% or better loan. We are fairly frugal. We have the assets but it's all IRA s, and each additional $1 taken is 25cents to taxes.

Two annuities hit anniversary earlier this month. They are all equity MF, tilt to mid cap. 11% Accumulation Acct Nov-Nov, net 3.5% fees. Income Acct rolled up 11% to match Accumulation Acct.

If you can answer my question, you will have your answer.
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

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Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Thu Nov 23, 2017 2:08 pm

smitcat wrote:
Wed Nov 22, 2017 1:40 pm
Sig line....

"Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo"

It does not make a lot of sense that you would be bound by a 25% tax rate given the types of income streams that you have and the size of the portfolio.
When MFJ I would hope that just about anyone could pull in some sizable income each year (maybe $100K+) staying below 25% with typical taxed income streams but with ones that tend to be favorable for taxes it is very confusing.
tax rate 25% =15% federal + 9% state because of medical expenses. In 2018, we will be close or into 25% federal marginal. By 2019, we plan to move to a no income tax state. I not so much as bound by the taxes as bounded by my behavior in not wanting to be taxed on money that we don't need to take :annoyed :moneybag .
Income Value of GWLB annuities, @4% withdrawal rate ~750k today.
Income on Income Value: from just the GLWB annuities, have a weighted GLWB Income withdrawal average of ~5.75% Lifetime. Income Value is increasing by contract by the minimum 5% :greedy .

Can you see why, these older GLWB contracts are so valuable? And why owners need to thoroughly understand them :dollar .
We are into the 10th and final year of the GLWB Income stepup guarantee on some of the annuities. My question is the same as OP's and/or investigate current offerings with a much reduced benefit compared to what we current own.
YMMV :sharebeer
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

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Re: Variable Annuity - Time to Surrender ?

Post by smitcat » Fri Nov 24, 2017 8:22 am

"tax rate 25% =15% federal + 9% state because of medical expenses."
Understood - I thought that most people referred just to the Fed rate when they posted and are working against the tax issues.
Thar Fed rate is what many of the posts I have been reading here utilize for the tracking, planning and potential changes to their future plans.

"We are into the 10th and final year of the GLWB Income stepup guarantee on some of the annuities. My question is the same as OP's and/or investigate current offerings with a much reduced benefit compared to what we current own".
Why the questions about the potential choices you are referring to in post #1 then? From your description here it sounds like it would be foolish to consider changing anything from what you have.

As far as anyone looking into new annuities now and/or exchanges of annuities now they (me) are stuck with what is offered today and just like most financial decisions we cannot use the rates/terms/specifics of the past offerings.

I was reading further on annuities when I ran across another post of yours from last month or so that helped sum up my thoughts on what I have read so far....

"So the annuities have done OK and not complaining because it is insurance (my put). I surely would have done much better had I stayed in the 60/40 or my trading style. Often, really everytime the Market hits a new milestone, I look at my increasing VA valuations; But I really want the Market to tank so that the VAs will really pay off, Income wise; One of these day's .
So, First Foundationers, talk all you want, the near term is already set. The mid term outlook is murky. The Longterm is scary. Pray for Hari Seldon
gotta go now to kill some gophers, pick some rocks, and plant some seed. "

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Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Fri Nov 24, 2017 12:14 pm

^
smitcat wrote:Why the questions about the potential choices you are referring to in post #1 then? From your description here it sounds like it would be foolish to consider changing anything from what you have.
We no longer "need" the GLWB Income. LIke OP, My wife's GLWB Income is going into savings account :? . It is RMD that we really don't need. My GLWB Income would go into my Discretionary Trading Acct :oops: :( :P . Both withdrawals could have better Invested in a low-cost balanced funds. I am greedy.

We no longer "need" the Portfolio Insurance feature or the Less Worry benefit. Although the thought of having Portfolio Insurance is attractive even at the 3.5% fee. Our largest GLWB VA anniversary statement was received over this week. It is all Equity, 12% net gain fiscal 2017. Since purchase Nov 2008-Nov 2017, the annuity has done 8.5%, compounding gains, 9.% CAGR; Using PortfolioVisualizer, a blend of 40% Total Stock Market, 20% Global, 40% Intermediate Bond, would come close to my portfolio risk and portfolio returns. Newer Annuities are not as attractive as Older annuities. But even current GLWB features may be of benefit for near and current retirees, especially if one believes in JBogle's expectations of future real equity growth of 4-6%(?).

We are now beginning the final year (10th year) of the 5% Guaranteed Income Stepup.

So, I/we give up the Portfolio Insurance and go back into DIY portfolio and assume all risks in a DIY and save 3.5% ?
Do we keep what we have and keep the Portfolio Insurance, All equity portfolio, the GLWB Income and lose the the 5% guarantee steps?
Or do I/We move to a Vanguard GLWB VA with 2.5% fees but with a blended-balanced portfolio with lower expected returns and keep the Insurance?

We would be in the 25% federal bracket if we took all the allowable annuities' GLWB Income. Moshe Milvesky recommends that holders take GLWB as soon as possible. Analogous to taking SS early.

YMMV
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

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Re: Variable Annuity - Time to Surrender ?

Post by nedsaid » Fri Nov 24, 2017 12:22 pm

Mel Lindauer wrote:
Tue Nov 21, 2017 7:44 pm
bsteiner wrote:
Tue Nov 21, 2017 9:21 am
Mel Lindauer wrote:
Mon Nov 20, 2017 7:18 pm
... IMO, it should be illegal to sell someone a high-cost tax-deferred annuity inside an already tax-deferred product.
Is it worse in an IRA than in a taxable account?

In a taxable account, you get the benefit of tax deferral at the cost of converting your qualified dividends and capital gains to ordinary income and giving up the basis step-up at death. In an IRA, it's tax neutral.

In either case, you pay the fees (usually 2.5% or so, though only about 0.5% through Vanguard), you give up some flexibility, and you get some guarantees. If you expect stocks to earn 7% and bonds to earn 3% (I'm not predicting those returns, just using them as an example), a mix will earn around 5%. So if you pay 2.5% for the annuity, you're giving up half of your expected return. Over a long enough period, the guarantees become less significant.
Good presentation of the variables.

While annuities in a taxable account do offer tax-deferral (at a high cost), one can invest in lower-cost, tax-efficient index funds and minimize taxes while retaining the stepped-up cost basis and more favorable capital gains tax treatment. And, if one needs bonds in their taxable account, there are munis (tax-free) and Savings Bonds (tax-deferred).

IMO, there's simply no reason to pay more to put a high-cost, tax-deferred annuity inside an already tax-deferred retirement plan.
Mel, the only possible reason for buying an annuity within an IRA would be for principal and/or future income guarantees. I have analyzed several of these on the forum and my conclusion is that the fees were very high for what amounted to marginal guarantees. I personally have chosen to pass on these products. In many cases, these are down right rip-offs. Advisors place Variable Annuities within IRA accounts because Variable Annuities pay higher commissions to the advisor than do even loaded mutual funds. In most all cases, this is advisor malpractice.

I have advised those who have older such annuities to work the math before cashing these in. Before the 2008-2009 financial crisis, the insurance companies were probably too generous with the guarantees and since then have cut them back. In these cases, I would advise that holders of these older annuities consider first the guarantees and secondarily the expenses. I have seen Dr. Moshe Milevsky write favorably on the guarantees on some of the older annuities. The problem is, these products are very complex and difficult for a layman to analyze and thus determine whether he or she got a good deal or not. You almost need to be an actuary. It isn't easy to get an unbiased opinion.

My advice for investors being presented with these products today would be to just say no. These products are a nightmare of high fees and complexity. Complexity most often is there to confuse clients and not to provide a benefit to the client. People are wanting to lock in future income and guarantee a future pension. There are other ways to do this, BobK aka Bobcat2 has ideas on how to do this, he has excellent threads. Also DFA has new Target Date funds that do this using TIPS. But this is another discussion.
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Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Fri Nov 24, 2017 1:01 pm

^ very good, nedsaid.

At the time, 2008, as the financial world was collapsing around all of us, these annuities were, to us, unbelievably generous. Which was why I did extensive due diligence and now able to go into great explanatory detail for our GLWB annuities and experience.

We are in the final contract year. I already know 95% of the annuities' information for Nov 2018, because of the contract and guarantees. What is unknown is what the Market is going to do in 2018? We also have other big financial decisions to make in the remaining 2017 and into 2018.
Ymmv
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

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Re: Variable Annuity - Time to Surrender ?

Post by nedsaid » Fri Nov 24, 2017 1:14 pm

itstoomuch wrote:
Fri Nov 24, 2017 1:01 pm
^ very good, nedsaid.

At the time, 2008, as the financial world was collapsing around all of us, these annuities were, to us, unbelievably generous. Which was why I did extensive due diligence and now able to go into great explanatory detail for our GLWB annuities and experience.

We are in the final contract year. I already know 95% of the annuities' information for Nov 2018, because of the contract and guarantees. What is unknown is what the Market is going to do in 2018? We also have other big financial decisions to make in the remaining 2017 and into 2018.
Ymmv
I have found myself saying this a lot recently, "I don't live in the land of 'always' or 'never'".

These products have appeal because people want a pension and want to lock in future income as much as 10 years ahead of time.

One big complication is how much income can I lock in today vs. waiting 10 years and locking it in then? A lot depends upon the direction of interest rates. If interest rates increase a lot over 10 years, locking in future income today will be a very bad deal indeed. If interest rates stay the same or fall, the interest guarantees might look pretty good.

Another factor is whether an investor could do better by investing on their own and bypassing all the expensive fees. Pretty much these products are an expensive put on the stock market. You give up much of the upside in exchange for protecting the downside.

The answer to the question of locking future income in today vs. locking it in 10 years from now is unknowable. We just don't know what interest rates will do.

The second question of whether an investor would do better investing on their own vs. taking the very expensive put option on the market is also unknowable. Odds are very good, that the investor would do better investing on their own and bypassing the guarantees and the fees. The 3-4% annual fee drag is a lot to overcome.

It boils down to what an investor is willing to pay for the future income guarantees. For me the price is too high but that is just me.
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Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Fri Nov 24, 2017 1:41 pm

Our taxes, smitcat. Your analysis of our retirement structure in sig line, indicates a higher Fed tax.
Because of the current structure of our IRA s (annuities IRA and Discretionary IRA s), rentals, we will be unavoidably 25% federal in 3 years when I make RMD age, regardless of Market. We have been able to modify taxes, by health deductions. Using health and medical deduction is not my preferred solution to manage taxes :annoyed :( :annoyed .
Ymmv
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

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Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Fri Nov 24, 2017 1:48 pm

Nedsaid.
You are correct. In 2008, I was positively scared.
Today, I am less scared because of what we have in retirement income.

Sidenote: 2 optimum times to buy GLWB annuities. Market low. Or at Market High. :wink:
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

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Re: Variable Annuity - Time to Surrender ?

Post by nedsaid » Fri Nov 24, 2017 1:55 pm

itstoomuch wrote:
Fri Nov 24, 2017 1:48 pm
Nedsaid.
You are correct. In 2008, I was positively scared.
Today, I am less scared because of what we have in retirement income.

Sidenote: 2 optimum times to buy GLWB annuities. Market low. Or at Market High. :wink:
It seems like your biggest problem is potentially being in the 25% tax bracket. That is hardly life in hell. It means that your retirement planning has worked. Maybe you should do some charitable giving and maybe you should go do something fun. Anyways, congratulations.
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Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Fri Nov 24, 2017 3:38 pm

^ sorta worked.
I was expecting a major correction in the Markets, making the Put in the GLWB valuable. Instead the Market has been stupendous and I only got 50-66% of this the run up because of the Put fee and guarantee fees. :annoyed still got another 12 months :twisted:
Ymmv.
Off to Freddy for a new Kindle. :mrgreen:
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

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Re: Variable Annuity - Time to Surrender ?

Post by nedsaid » Fri Nov 24, 2017 4:04 pm

itstoomuch wrote:
Fri Nov 24, 2017 3:38 pm
^ sorta worked.
I was expecting a major correction in the Markets, making the Put in the GLWB valuable. Instead the Market has been stupendous and I only got 50-66% of this the run up because of the Put fee and guarantee fees. :annoyed still got another 12 months :twisted:
Ymmv.
Off to Freddy for a new Kindle. :mrgreen:
This is an excellent illustration of what I have been trying to say. There are trade-offs in purchasing these kind of products. In 2008-2009, you were scared and wanted the guarantees. Now that the markets have recovered rather nicely, one can see what you gave up in order to get the downside protection.
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Re: Variable Annuity - Time to Surrender ?

Post by bsteiner » Fri Nov 24, 2017 4:42 pm

nedsaid wrote:
Fri Nov 24, 2017 1:14 pm
.. The 3-4% annual fee drag is a lot to overcome.
...
That's a large portion of your expected return to pay for the privilege of turning your qualified dividends and capital gains into ordinary income.

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Re: Variable Annuity - Time to Surrender ?

Post by Mel Lindauer » Fri Nov 24, 2017 6:25 pm

bsteiner wrote:
Fri Nov 24, 2017 4:42 pm
nedsaid wrote:
Fri Nov 24, 2017 1:14 pm
.. The 3-4% annual fee drag is a lot to overcome.
...
That's a large portion of your expected return to pay for the privilege of turning your qualified dividends and capital gains into ordinary income.
Both quoted statements are so true.

It's really simple; normally you'd want to avoid annuities other than a Single Premium Immediate Annuity except in extremely rare situations (legal protection, for example).
Best Regards - Mel | | Semper Fi

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Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Fri Nov 24, 2017 7:31 pm

nedsaid wrote:
Fri Nov 24, 2017 4:04 pm
itstoomuch wrote:
Fri Nov 24, 2017 3:38 pm
^ sorta worked.
I was expecting a major correction in the Markets, making the Put in the GLWB valuable. Instead the Market has been stupendous and I only got 50-66% of this the run up because of the Put fee and guarantee fees. :annoyed still got another 12 months :twisted:
Ymmv.
Off to Freddy for a new Kindle. :mrgreen:
This is an excellent illustration of what I have been trying to say. There are trade-offs in purchasing these kind of products. In 2008-2009, you were scared and wanted the guarantees. Now that the markets have recovered rather nicely, one can see what you gave up in order to get the downside protection.
I gave up nothing. Remember, I bought this for the #1/ FUTURE insurance with #2/ Income secondary and #3/ Investment purposes.. We still had a like amount in remaining IRA/Roth/+Discretionary that are all equity. The annuities functioned as quality, high yielding bond as income #2 side; and done fairly well as an investment #3, secured by the good graces of TARP :P . I had moved converted balanced funds in IRA to All equity in the Annuities. Today, even in Vanguard's annuities, you cannot do all equity annuities, only reduced total returns as in balanced funds. Thus even with Vanguard low fees, the buyer has lower yields in the funds allowed.

Ours was a derisking move, not a reduction in volatility.
Rev90517; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax 25%. Early SS. FundRatio (FR) >1.1 67/70yo

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