Should we keep this variable annuity?

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ljr
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Should we keep this variable annuity?

Post by ljr » Thu Jan 04, 2018 9:26 am

In an earlier thread where I sought advice about the Fidelity Advisory Service vs Vanguard's similar service, I mentioned that we have a variable annuity that I am not sure we should keep. A member suggested that if I gave the details on that annuity, members could look it up and give more specific feedback about its costs/benefits.

The annuity was purchased with retirement funds. It was a Metlife product, which is now Brighthouse. It is called an MLI Variable Annuity Class VA. It was bought in March 2011 so we are nearly to the point (7 years) where there is no surrender fee should we want to get out of it. It includes a death benefit feature, covers both my husband and me (I believe) though it is in his name and purchased with his retirement funds, and has a Guaranteed Minimum Income Benefit Plus III, which is an automatic annual step up in value of 5%. It is invested in the MetLife Asset Allocation 60 Portfolio and SSGA Growth and Income ETF Portfolio. Balance is around $450,000.

The idea was to create a sort of pension to supplement social security for my husband and me. However, the projected payment on this (about $2500 a month) will not adjust with inflation. I believe that even if we don't annuitize, we can take a certain amount out of the balance every year while keeping the protections of the product.

I've read that these products are expensive and not worth it--but what is the alternative that would be better? It does offer insurance against a market crash, etc. (As long as the insurance company survives.) We are in our mid-sixties, so we are not far away from needing the money. I am still working full time, my husband is semi-retired. When we asked the Fidelity rep we work with what he thought of the annuity (we are not signed up for FAS though he has tried to get us to sign up) he said he thought it was reasonable to keep it. He didn't try to get us to switch to a Fidelity product, so I thought maybe it was a valid opinion that the annuity has value that might be worth the cost.

A member kindly posted a link to a site where I could see what an immediate annuity bought with these funds would pay out--which appears to be around $1500 a month. But I think you can get one that will adjust for inflation. So that makes it a better choice? I'm so confused.

technovelist
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Re: Should we keep this variable annuity?

Post by technovelist » Thu Jan 04, 2018 9:33 am

These products are REALLY complicated.

If I were in your position I would look for a fee-only financial advisor who specializes in analyzing them for current holders.
In theory, theory and practice are identical. In practice, they often differ.

ljr
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Re: Should we keep this variable annuity?

Post by ljr » Thu Jan 04, 2018 9:39 am

Thanks--I read about a service that will do that (analyze a variable annuity) for about $200--that was awhile ago though. I have investigated fee-only planners before--hard to evaluate them and I bet hard to find one that is expert in this topic or would take on a client for just this purpose. But I will start googling to see if I can find one.

Silk McCue
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Re: Should we keep this variable annuity?

Post by Silk McCue » Thu Jan 04, 2018 10:21 am

Annuitygator.com provides analysis on a wide range of annuities. I do not find a review for your specific annuity. However, if you utilize this link which shows all annuities that they have reviewed, with links to the reviews, you can scroll to the bottom and request that they review yours. They state the following:
Have an Annuity You'd Like to See Reviewed?
No problem, our team of highly trained annuity geeks can jump to it! Just complete this quick form to let us know and we'll do our best to get it online as soon as possible.
This may be a good first step before paying a fee only advisor as they may not have any detailed knowledge of your variable annuity. Please provide feedback on the process if you decide to do so as it would be of benefit to others in the future.

https://www.annuitygator.com/annuity-reviews/

KSActuary
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Re: Should we keep this variable annuity?

Post by KSActuary » Thu Jan 04, 2018 10:50 am

Mid-sixties and covers both so the internal rate of return on the annuity is around 5% with a $2,500 flat payment over 30 years. The last survivor may live past 95 but that's what insurance companies insure against - out living your supposed mortality.

You did not state the original deposit but you also have an enhanced death benefit which you would lose if you dump the annuity within your husband's IRA. That may be an important benefit to you.

You will most likely never annuitize the product in the strictest sense but, rather, remove money under the withdrawal feature until the fake money account runs dry, then you annuitize under the contract.

Yes, Brighthouse will make money off you. The person who made the real money was the broker but that is water under the bridge, so to speak.

It is really difficult to further analyze the situation. As to whether there is something better, insuring one's self against mortality is almost impossible. You could dump the annuity and re-consider a single premium joint annuity later in life or consider a deferred annuity that you purchase now but it begins much later in life. Insurance is a profitable business, most of the time. Given that interest rates may be rising, it may be cheaper over the long run to purchase an annuity later but time will tell on that issue.

senex
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Re: Should we keep this variable annuity?

Post by senex » Thu Jan 04, 2018 10:51 am

When I've helped family members with their annuities, I've found that
(a) they are too complicated to understand
(b) they have very high fees (the documents are so complicated it's hard to tell how high)
(c) they are sometimes pitched as "tax advantaged," but the taxes in reality can be way higher than a regular index mutual fund (this depends a lot on your exact circumstances, how aggressively you withdraw, etc).


I haven't reviewed your particular annuity. But I personally flee from complexity, fees, and tax complexity.

Your alternative is to invest the money in simple low-fee mutual funds like Vanguard's total stock market and total bond index. You could do a 50/50 split or any reasonable ratio. You collect the income/dividends and sell some of your shares each year if you need more income. What you lose (from what I understood of your description) is a life insurance benefit and a crash protection feature.

You can replace the life insurance benefit with a term policy -- it will be simple, easy to understand, and cheaper (the term quote may sound like a lot, but it is almost certainly cheaper than the hidden fees the Annuity is extracting to fund the insurance). Or, it's very possible you don't need life insurance (if you have a decent nest egg and no dependents, you often don't need life insurance).

The crash protection is harder to replace -- though, if you read their fine print, you may find that the crash protection is not very valuable (I've seen "protections" that only protect against certain declines on long timelines). Again, complexity is your enemy -- if you can't understand the feature, it is probably overpriced and not that useful. If you have enough assets, and a reasonable blend of cash / bonds / stocks, most bogleheads would say you should just ride out the market and not pay for weird, confusing "insurance."

ljr
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Re: Should we keep this variable annuity?

Post by ljr » Thu Jan 04, 2018 4:56 pm

Thanks very much for the suggestion. I am requesting the review from annuitygator, and will report back. Also scheduled a phone call with them which they offer.

I got online and found the latest information on our annuity. I will detail it here, in case anyone has any further comments to offer:

It’s now called Brighthouse Variable Annuity Class VA

Initial purchase: $347,652

Contract gain: $112,035

Death benefit: $459,688

Free withdrawal amount: $34,765

Guaranteed minimum death benefit: $416,057

Highest anniversary value: $416,057

Guaranteed minimum income benefit: 5%

Annual increase amount: $465,887

Value (income base): $483,719

Investment option: Option A--Asset Allocation Portfolio (Brighthouse asset allocation 40 portfolio, annual operating expenses: Class A shares 0.63%, Class B shares 0.88%

Step-up of 5% every year on anniversary, 3/28

Guarantee Principal Option Election WIndow: 3/29/2021--4/27/2021
(I think this means that is when we can annuitize? Fine print states: Value (Income base): the GMIB can only be exercised on a contract anniversary after you have owned the contract for 10 years or more or 10 years or more from a “step up” under the GMIB Plus rider AND may not be exercised after the contract anniversary immediately after you are 90. The income base is not a cash value and will be used to determine your annuity income benefit under the GMIB rider.

Max annual amount to qualify for $4$ (whatever that means): $23,294

Remaining amount to qualify for $4$: $23,294

As for life insurance outside of this product, my husband has a term policy for $100,000 that lasts for seven more years, till age 70. His medical history would make buying term insurance now unlikely. We have approximately $500,000+ in home equity (NYC coop apartment) and a few hundred thousand dollars of additional taxable and IRA funds. But this represents the biggest chunk of the retirement funds. And we have no dependents--just one adult child who is doing quite well.

Thanks very much for any opinions or input!

ljr
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Re: Should we keep this variable annuity?

Post by ljr » Thu Jan 04, 2018 5:53 pm

Also--here is a business I found that purports to provide an objective review of an existing annuity. I wonder if I can trust their objectivity. Cost is $300.

http://annuityreview.com/new/annuityreview/

Has anyone heard of them? By the way, they explain why it's hard to find a fee-only financial advisor who really understands these products. Basically, they are extremely complex and fee-only planners generally don't sell them.

Silk McCue
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Re: Should we keep this variable annuity?

Post by Silk McCue » Thu Jan 04, 2018 6:38 pm

ljr wrote:
Thu Jan 04, 2018 5:53 pm
Also--here is a business I found that purports to provide an objective review of an existing annuity. I wonder if I can trust their objectivity. Cost is $300.

http://annuityreview.com/new/annuityreview/

Has anyone heard of them? By the way, they explain why it's hard to find a fee-only financial advisor who really understands these products. Basically, they are extremely complex and fee-only planners generally don't sell them.
I spoke with them in late 2016 when I was trying to decide what to do with a John Hancock VA. I found them to be professional. Give them a call to discuss what you are wanting to do and see if they impress you. I ultimately did not use them as my VA decision became clear cut to me and I closed it out to Vanguard and added it to my other IRA funds.

You may get the answer you are looking for with annuitygator. If their analysis is insufficient I wouldn’t hesitate to pay the $300 fee in order to be fully confident on the right decision to make.

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David Jay
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Re: Should we keep this variable annuity?

Post by David Jay » Thu Jan 04, 2018 6:53 pm

Want is the surrender value? That is the only number that matters. How much can you take out?

I am guessing it will be $416,067. If so, from 2011 - 2018 your portfolio gains have been $68,415 or 19.6% which is an annualized 2.6%
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

itstoomuch
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Re: Should we keep this variable annuity?

Post by itstoomuch » Thu Jan 04, 2018 7:02 pm

Depends.
I got 6 of these from Metlife, 2008-2012.
See signature notes below.
Do you Know Why you chose GLWB annuities?
Are these conditions still met?
Do any of the alternatives choices look attractive as an alternative. And do you know their Risks and Costs? I am always re-evaluating alternative of choices.

Since you live in NYC, you may want to review why MetLife spun off the Personal Insurance & Annuity of their business.
See, if you can understand Vanguard's GLWB offering. Keep in mind that they do not have the 5% guaranteed increasing Income rider and thus have a lower annuity expense. Large brokerage firms sold a bunch of these GLWB annuities to their high net worth clients as a conservative floor to other investment income.

Concisely we bought synthetic PERs tier 1 plan with a 10 year limited inflation rider. IOW, we bought a personal pension plan with known costs.
We bought for #1: Market Insurance; #2: Income guarantee and predictability; #3: No need to annuitize; #4: Ancillary features, benefits and including tax glitches. I use the annuities as an insurance to our retirement; Just as I had used life insurance to my earning life. Our assets and immunity to the Markets is now such I don't need annuities as a synthetic pension. There are two optimum points in annuity purchase: One is at Market lows. the Other is at Market Highs. We bought our annuities at relatively Market lows.

Disclaimer: I have relatives in the risk management business (bank and insurance), corporate level. They don't particularily like variable loans (banks) VA's (insurance). Costs them too much and exposes them to unknown future risks and obligations which is the exact reasons what makes them attractive to some consumers.

Ask questions on this and ask the same questions to alternative choices.
good luck

PS: The last Metlife annuity Jan03, 2012, +17.46% for 2017.
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

ljr
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Re: Should we keep this variable annuity?

Post by ljr » Thu Jan 04, 2018 7:39 pm

Thank you--I'm afraid I don't understand a lot of your message, itstoomuch. I'm just not educated enough, especially re: the acronyms. It's all Greek to me, as they say. I have to learn more.

We bought to "create our own pension" since we don't have pensions, and we'd just gone through the recession, plus our jobs were shaky and our incomes were going down seemingly permanently, which they did. We sold our longtime residence and moved to a cheaper one--then I lost my job as I'd anticipated--then I got a new one, which I'd been afraid was not going to happen.

So that's why we bought the annuity--and why I am now reconsidering. It's almost 7 years later, I am still employed and back to my former salary as of a year ago. So I'm trying to evaluate whether keeping the annuity is a good idea.

My understanding is that we could cash out at the full market value on or after the 7th anniversary, March 28,2018. I think full market value today is $459,688. Until then there is a penalty of about $6000 to cash out, so of course we would wait a few months.

David Jay--the increase in value is stated as $112,035, not the $68,415 you estimated. I don't understand your estimate--is their figure inaccurate?

Thanks so much.

itstoomuch
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Re: Should we keep this variable annuity?

Post by itstoomuch » Thu Jan 04, 2018 8:45 pm

Our story is very similar.
We bought a pension.
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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David Jay
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Re: Should we keep this variable annuity?

Post by David Jay » Thu Jan 04, 2018 9:39 pm

ljr wrote:
Thu Jan 04, 2018 7:39 pm
My understanding is that we could cash out at the full market value on or after the 7th anniversary, March 28,2018.

I think full market value today is $459,688. Until then there is a penalty of about $6000 to cash out, so of course we would wait a few months.

David Jay--the increase in value is stated as $112,035, not the $68,415 you estimated. I don't understand your estimate--is their figure inaccurate?
I have never seen a variable annuity that allowed you to withdraw your "Income Base". Income Base is the value that they will use to calculate the annuitization (and on which they "guarantee" 5%). But it isn't real money, you can't take it out.

My sister just went through this. She thought she was getting a "guaranteed 6%" on her annuity, but it is only if you annuitize with them (so they can continue to use your money for the next ~30 years). She could not withdraw that amount. If she surrendered the policy then it was, similar to you, in the 2% range. This guaranteed percentage is currently the big con in annuities. Almost every buyer is lead to believe that their invested dollars are growing at the guaranteed rate and can be taken out including growth at the guaranteed rate.

Ask for "surrender value" as of March 28, 2018. I am confident that it is not the "Income Base". I am guessing that it is your "Anniversary Value" but you will have to ask the issuer to be sure.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

ljr
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Re: Should we keep this variable annuity?

Post by ljr » Thu Jan 04, 2018 11:04 pm

No, the $459,688 I mentioned is listed as the "value" not the "income base," which is higher. I still think that is the cash value, not the $416,057. But I will be looking into it for sure!

ljr
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Re: Should we keep this variable annuity?

Post by ljr » Thu Jan 04, 2018 11:12 pm

We do know the difference between the guaranteed step up "income base" and the actual "value" of the money--the statement says it grew by $112,035 from the initial investment of $347,652. That investment plus the increase does add up to the $459,688 value that I believe we can take out without penalty this March. I think I left that figure off of the list I posted about the annuity. It's the actual value right now.

The statements show both the step-up value and the actual value--so it's not that we have been misled about that. That has always been clear to us. It's the cost of the product, how much money we might be losing because of the cost, and the possible unknown fine print that concerns me--and whether we'd simply be better off putting the money someplace else now.

Also we don't have to annuitize to take money out of it--I'm also pretty sure about that. But when we do, the value will go down accordingly. So maybe it's different from the one you mentioned.

Thanks very much.

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David Jay
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Re: Should we keep this variable annuity?

Post by David Jay » Thu Jan 04, 2018 11:29 pm

From your 4:56 post:
ljr wrote:
Thu Jan 04, 2018 4:56 pm
Value (income base): $483,719
I will be very surprised if you get more than the "income base" when you surrender your policy. Come back and let us know the actual surrender value that you receive.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

ljr
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Re: Should we keep this variable annuity?

Post by ljr » Thu Jan 04, 2018 11:35 pm

Sorry I don't understand--the figure I listed as value and what we would get if we cash in is less than income base (the figure you quoted) and I know we will not get the income base. I never said we would get $483,710--I know that is the "fake" total. So...Not sure what your comment means. We would get $459,688 not the income base of $483,719--which is what you just suggested I said. Anyway, calling the company will quickly straighten that out.

itstoomuch
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Re: Should we keep this variable annuity?

Post by itstoomuch » Fri Jan 05, 2018 1:21 am

ljr wrote:It's the cost of the product, how much money we might be losing because of the cost, and the possible unknown fine print that concerns me--and whether we'd simply be better off putting the money someplace else now.
We are near to the point where we will need to be a decision to continue, make withdrawals, or change to something else. We are entering the 10th year of ownership on 3 of the MetLife's GLWB annuities. One annuity has 1 year remaining in the guaranteed 5% minimum stepup. Two annuities have 2 years of this guarantee remaining even though they were purchased in the same month-year, because I chose to take a Income withdrawal in 2016, thus 2017 was a bye year for the GLWB features but I did pay the fees for the feature. Just another quirk.

You are buying Insurance on a certain amount of funds with a future lifetime income with a determined death benefit all of which is administered in a profit making entity. You are not investing. If you tried to replicated the annuity's features in Indexes (MF) + make your own guarantee features, IMO, you couldn't do it easily. Do not confuse Insurance where you sell your risk and Investing where you buy risk.

-Would I buy a full featured GLWB VA with guaranteed stepups, today? Probably not because the guarantees are not as generous while the fees have slightly increased.
-Would I buy a GLWB VA annuity from Vanguard/Fidelity/other without the guaranteed stepups? Maybe because I see that the 1% Death Benefit as valuable against a Market fall and against my current health. Further, we are at a relative Market High, and the GLWB Income benefit locks in your Income at Market Highs. However, Vanguard/Fidelity/other's annuity underwriters have derisked their future obligations by offering only blended funds of 60/40 or less equity:bond ratio.
-Will I continue our policies? Depends. For the remaining life of the guarantees, Yes. Beyond the guarantee 5% minimum stepups? Don't know. I will be 68-69 then and I don't know if I will be a good mood for such analysis. We now longer need the guarantees and annuity income.
-We have a 5% withdrawal rights on the Income Account of the year of first withdraw. If I had $100,000 in the Income Acct, I have the rights (not obligation) to 5% of the first draw on the $100,000. What and how much is in the Accumulation Acct is immaterial for Income. How much is in the Accumulation Acct matters more for survivorship.
BH speak means, I would have $125,000 in Index funds. I have the right to withdrawal $5000/yr for life and any remainder in the to heirs; And should this account gets depleted I would need to make necessary withdrawal adjustments to have future continuing Income.

Yes, for most, this is complicated compared to Indexing. But I asked the question that everyone asks: Who bears the Risk and How much are you paying for that Risk? I pay 3.5% in fees in an all equity deferred annuity to transfer future Income risk and death benefit risk unto the Annuity-Insurance company. I also had a ~2% loss opportunity as of Jan 03, 2018 (+18% 2017 gains in a 70/0/30), in my Discretionary trading account, Dec 01, 2017 -Jan 02, 2018, when I went to 90% cash. I am comfortable for that 2% loss because it was the cost for the option of deRisking for 30 days. I could have been a big winner if the Equity Market fell in Dec 2017 and infact I am buying previously owned stock that is -20% since Dec 01, 2017.

Recommended readings: William Bernstein, who recommends some type of real life annuity as a portion of your retirement. Moshe Milevsky's treatise on GLWB annuities. Nobel Laureate R. Thayler on Behavior theory (see thread). Funded Ratio (viewtopic.php?f=2&t=205824). Sequence of Returns (viewtopic.php?f=1&t=236665).
Last edited by itstoomuch on Fri Jan 05, 2018 3:05 am, edited 2 times 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

inbox788
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Re: Should we keep this variable annuity?

Post by inbox788 » Fri Jan 05, 2018 2:52 am

ljr wrote:
Thu Jan 04, 2018 4:56 pm
Investment option: Option A--Asset Allocation Portfolio (Brighthouse asset allocation 40 portfolio, annual operating expenses: Class A shares 0.63%, Class B shares 0.88%
Without any real understanding of the product and not having all the necessary numbers to make a financial decision, my instinct is to get out sooner than later and use an alternative more cost efficient method to achieve same or similar desired outcomes.

Looks like they use an active fund of funds, 40(1/3 international)/60 AA. I wonder if the expenses shown are just for the Brighthouse managers or include the funds they use as well. You might well be paying active fund expenses twice.

https://eforms.metlife.com/wcm8/PDFFiles/750.pdf

I wondered what you bought with the anemic return these last 5-7 years in a booming market, and the best I can think of is insurance against a market drop (which didn't pay off).

https://www.metlife.com/assets/institut ... VA8277.pdf

Are you being assessed annual charges? (see page 16) rider charges? other hidden fees and charges you might not be aware of? It's a very complex product like whole life insurance/UL/VUL/etc. and it's unclear what you're buying featurewise and what the charges are, but there seem to be many ongoing ones in additional to the original commissions.

This article may seems to discuss a similar product and may be helpful:
https://www.kitces.com/blog/why-it-rare ... ase-study/

itstoomuch
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Re: Should we keep this variable annuity?

Post by itstoomuch » Fri Jan 05, 2018 3:38 am

OP,
I haven't decided what I/we will be doing with the VA's. Moving the funds from annuities to Indexes is an option that I am exploring.
I haven't found the right financial vehicle or not thinking thru the alternatives.
Again, we no longer need the future Annuity Income or Insurance.
Mostly I want to see a deep and long Market fall, so that I can justify the Insurance cost for stepped-up Income.
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

ljr
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Re: Should we keep this variable annuity?

Post by ljr » Fri Jan 05, 2018 9:07 am

Thank you everyone--the Kitces article is especially helpful--he explains it in a way I can actually understand and is especially illuminating. And I do think what we own is very similar, with similar costs, etc.

smitcat
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Re: Should we keep this variable annuity?

Post by smitcat » Fri Jan 05, 2018 9:16 am

ljr wrote:
Fri Jan 05, 2018 9:07 am
Thank you everyone--the Kitces article is especially helpful--he explains it in a way I can actually understand and is especially illuminating. And I do think what we own is very similar, with similar costs, etc.
Yes - agreed. That Kitces article is what helped us decide as well.

CJC000
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Re: Should we keep this variable annuity?

Post by CJC000 » Fri Jan 05, 2018 10:59 am

Your story is classic for greedy FA’s to prey on: recent market decline, job insecurity, and fear.
No expert here, but this is what I see:
Brighthouse AA 60 performance as of 11/30/17: 1yr=8%, 3yr=3.14%, 5yr=6.22%, 10yr=4.01%
SSGA ETF: 1yr=13.19%, 3yr=3.80%, 5yr=6.97%, 10yr=3.93% OK, not the best but you have a 5% guarantee…
Your annuity fees probably add up to something like this: Annuity=~1%, income rider=0.8%, death benefit=0.2%, funds fee=0.63 Total = >2.6% Look at the first few pages of your “Annuity Contract” and total up the fees, including all the riders you were sold, then add the fund fees. The contract is in that three inch thick pile of annuity papers your agent was required to give you and you probably never read. Even if you did, its impossible to understand.
Your 5% step up will expire in 10 yrs 2021. 10x5=50% of 347,652= $521,478. You can then receive 5%=~$26,074 or more for the rest of your life without annuitizing. That is the guarantee you paid for, any growth from your “investments” will increase that. After that any growth is not guaranteed and is dependent on the underlying investments. Once you start withdrawals, that will decrease the real value dollar for dollar but your annual income won’t change. Investment return of their crappy funds probably won’t keep up with the 5% withdrawal rate and high fees, but that’s OK if you just need the income and are long lived. The fees at that point don't matter, you have paid all the fees for the guarantee of 5% for the rest of your life, it's in the money.
You were knowledgeable in your purchase that you needed some form of a “pension” to provide income since you two don’t have one. That is what you bought, a form of pension insurance. This is guaranteed to provide 26-30K a year for life (no COLA). The death benefit is probably your initial investment or the actual value if higher, but check on that. I doubt this covers the spouse. These are not good products for legacy money, you may draw the actual value down to zero and not leave any for kids/grandkids if that matters
Your options are to keep it and enjoy the guaranteed income in 2021 for the rest of your life without market worry, exchange for another annuity with lower fees but probably far fewer benefits, or cash out, pay taxes on the gain, and invest in a boglehead manner. But then, are you OK with a 30% market decline?
Good reading material is Michael Kitces review on annuities and Annuity Slayer on YouTube: https://www.youtube.com/watch?v=QDUbQeZvJ9g
Please let us know what you decide...

smitcat
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Re: Should we keep this variable annuity?

Post by smitcat » Fri Jan 05, 2018 12:19 pm

CJC000 wrote:
Fri Jan 05, 2018 10:59 am
Your story is classic for greedy FA’s to prey on: recent market decline, job insecurity, and fear.
No expert here, but this is what I see:
Brighthouse AA 60 performance as of 11/30/17: 1yr=8%, 3yr=3.14%, 5yr=6.22%, 10yr=4.01%
SSGA ETF: 1yr=13.19%, 3yr=3.80%, 5yr=6.97%, 10yr=3.93% OK, not the best but you have a 5% guarantee…
Your annuity fees probably add up to something like this: Annuity=~1%, income rider=0.8%, death benefit=0.2%, funds fee=0.63 Total = >2.6% Look at the first few pages of your “Annuity Contract” and total up the fees, including all the riders you were sold, then add the fund fees. The contract is in that three inch thick pile of annuity papers your agent was required to give you and you probably never read. Even if you did, its impossible to understand.
Your 5% step up will expire in 10 yrs 2021. 10x5=50% of 347,652= $521,478. You can then receive 5%=~$26,074 or more for the rest of your life without annuitizing. That is the guarantee you paid for, any growth from your “investments” will increase that. After that any growth is not guaranteed and is dependent on the underlying investments. Once you start withdrawals, that will decrease the real value dollar for dollar but your annual income won’t change. Investment return of their crappy funds probably won’t keep up with the 5% withdrawal rate and high fees, but that’s OK if you just need the income and are long lived. The fees at that point don't matter, you have paid all the fees for the guarantee of 5% for the rest of your life, it's in the money.
You were knowledgeable in your purchase that you needed some form of a “pension” to provide income since you two don’t have one. That is what you bought, a form of pension insurance. This is guaranteed to provide 26-30K a year for life (no COLA). The death benefit is probably your initial investment or the actual value if higher, but check on that. I doubt this covers the spouse. These are not good products for legacy money, you may draw the actual value down to zero and not leave any for kids/grandkids if that matters
Your options are to keep it and enjoy the guaranteed income in 2021 for the rest of your life without market worry, exchange for another annuity with lower fees but probably far fewer benefits, or cash out, pay taxes on the gain, and invest in a boglehead manner. But then, are you OK with a 30% market decline?
Good reading material is Michael Kitces review on annuities and Annuity Slayer on YouTube: https://www.youtube.com/watch?v=QDUbQeZvJ9g
Please let us know what you decide...
Would you possibly tell us what you ended up doing with your annuities?

CJC000
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Re: Should we keep this variable annuity?

Post by CJC000 » Fri Jan 05, 2018 12:59 pm

We were sold four annuities from 2007-13 by our “friend” advisor totaling over $400K. Three of them were in IRA’s! I retired in 2014 and started looking more carefully into them and realized how misled and foolish I had been. I have a good pension so didn’t need to buy this kind of product at all. We ended up surrendering three of them and paid various large surrender fees just to get out. Comparing the huge fees of the annuity times the years left to surrender for free was really a wash -- the annuity companies get their money either way. We kept the oldest one on advise from this forum as it was underwater and ready to start paying out in 2017 @ 5% for the rest of my life. Its a small % of our retirement assets and I look at it now as a very long term CD or a Bond…

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Re: Should we keep this variable annuity?

Post by ljr » Fri Jan 05, 2018 1:53 pm

Thank you--yes, I will post what we decide to do and what advice we might get from the two advisors I may reach out to. (The two websites mentioned earlier in this thread.)

We were also told that at a certain point the surrender fee was the same as the fees to keep the product, but we just kept stalling on really looking deeply into this issue. So now we are near to the date when there will no longer be a surrender fee. I am taking the lead on this research and will present my husband with my findings. He is still of the mind that the annuity buys some sort of safety net against losing all the money in a severe crash. I also recall our Fidelity rep saying once that we should have more aggressive investments in the annuity (not a Fidelity annuity and not sold to us by him) because it's an insurance product--but now I notice that indeed, they don't allow aggressive investments inside the annuity. I think this might be new--I recall having more choice when it was a MetLife annuity.

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Re: Should we keep this variable annuity?

Post by smitcat » Fri Jan 05, 2018 2:15 pm

CJC000 wrote:
Fri Jan 05, 2018 12:59 pm
We were sold four annuities from 2007-13 by our “friend” advisor totaling over $400K. Three of them were in IRA’s! I retired in 2014 and started looking more carefully into them and realized how misled and foolish I had been. I have a good pension so didn’t need to buy this kind of product at all. We ended up surrendering three of them and paid various large surrender fees just to get out. Comparing the huge fees of the annuity times the years left to surrender for free was really a wash -- the annuity companies get their money either way. We kept the oldest one on advise from this forum as it was underwater and ready to start paying out in 2017 @ 5% for the rest of my life. Its a small % of our retirement assets and I look at it now as a very long term CD or a Bond…
Thank you - we have a similar story and will be surrendering our VA shortly.

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Re: Should we keep this variable annuity?

Post by itstoomuch » Fri Jan 05, 2018 2:17 pm

ljr wrote:
Fri Jan 05, 2018 1:53 pm
Thank you--yes, I will post what we decide to do and what advice we might get from the two advisors I may reach out to. (The two websites mentioned earlier in this thread.)

We were also told that at a certain point the surrender fee was the same as the fees to keep the product, but we just kept stalling on really looking deeply into this issue. So now we are near to the date when there will no longer be a surrender fee. I am taking the lead on this research and will present my husband with my findings. He is still of the mind that the annuity buys some sort of safety net against losing all the money in a severe crash. I also recall our Fidelity rep saying once that we should have more aggressive investments in the annuity (not a Fidelity annuity and not sold to us by him) because it's an insurance product--but now I notice that indeed, they don't allow aggressive investments inside the annuity. I think this might be new--I recall having more choice when it was a MetLife annuity.
I am a husband too. I have the same leanings as your husband. My wife does not know how close we came to disaster when our son went to college in 2002 and again in 2008 on the verge of retirement. I now think the annuities as a BH bond component.
Our particular MetLife VA annuities, privately branded, I selected an all equity portfolio which has come has done approximately close to a BH 70/30-60/40 portfolio, net all fees, Accumulation Acct. The 6 VA's Accumulation Accts has an annual average +9%. The Income Account if normalized to a BH 4% withdrawal rate would be close to BH 80/20- 90/10 portfolio. Newer VAs do not allow for all equity selection because of the longterm obligations to the Annuity company if the all equity portfolio does extremely well.

We have migrated much of our non-annuity retirement portfolio into quality rentals yielding ~5% ROI. The unrealizd appreciation is 20%/yr. Seattle region. At this time we can tolerate a -40% RE collapse and still be even to the original investments and still receive rental income. The RE function as deferred Income annuities with "expensive" fees (HOA, Insurance, Property taxes, set asides for property damage and vacancies, property management and repairs). :annoyed

There are many ways to diversify and control risks.
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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Re: Should we keep this variable annuity?

Post by CJC000 » Fri Jan 05, 2018 2:53 pm

ljr wrote:
Fri Jan 05, 2018 1:53 pm
Thank you--yes, I will post what we decide to do and what advice we might get from the two advisors I may reach out to. (The two websites mentioned earlier in this thread.)

We were also told that at a certain point the surrender fee was the same as the fees to keep the product, but we just kept stalling on really looking deeply into this issue. So now we are near to the date when there will no longer be a surrender fee. I am taking the lead on this research and will present my husband with my findings. He is still of the mind that the annuity buys some sort of safety net against losing all the money in a severe crash. I also recall our Fidelity rep saying once that we should have more aggressive investments in the annuity (not a Fidelity annuity and not sold to us by him) because it's an insurance product--but now I notice that indeed, they don't allow aggressive investments inside the annuity. I think this might be new--I recall having more choice when it was a MetLife annuity.
Your husband is correct about the safety net - you just have to be willing to pay for that safety. With a 5% guarantee you should "shoot for the moon" with your investments in the annuity. That was possible years ago but the annuity companies wised up and didn't want large gains that they would have to pay on in later years. If you look at most of the returns of their funds on their website, they won't exceed the 5%. It's all be design.

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Re: Should we keep this variable annuity?

Post by ljr » Fri Jan 05, 2018 3:26 pm

itstoomuch: interesting about the real estate. It seems like a scary step to me, but it does make sense. I've read about people who buy parking spots to rent out in cities. No HOA fees or repairs with that--interesting idea.

In our case with real estate, we'd have to buy it other than where we live, NYC, because it's so outrageously costly here. There might be some areas where we really could afford to buy a rental property, though. We'd have to hire out any maintenance chores (we are incapable of that anyway).

We have certainly benefited from the run-up in real estate values in NYC. I remember my former accountant advised against buying a NYC coop--he thought it was too risky. But we did it, and it increased in value from $168,000 purchase price to $690,000, which is what we sold it for 23 years later. Then we bought another, less expensive coop where we now live. We had the chance to buy another apartment in our old building during a down period where an apartment like our old one could be had for just $50,000, and we would have made a lot of money on that as well, but we were too chicken to do it.

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Re: Should we keep this variable annuity?

Post by ljr » Fri Jan 05, 2018 4:26 pm

So this annuity review site, annuitygator, that one of you posted in your comments actually directs people to a financial advisor--ie, someone selling annuities, I assume. I found this by Googling:

"One such site, annuitygator.com, features an alligator mascot dubbed the “annuity investigator” who promises “in-depth annuity reviews that reveal the facts on what you can really expect from your annuity.” The site offers instant access to a free annuity e-book. If a visitor has questions, they’re directed to contact “annuity gator,” which leads them to Retirement Wealth Advisors."

So--would this site really be useful and "objective"?

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Re: Should we keep this variable annuity?

Post by Silk McCue » Fri Jan 05, 2018 8:48 pm

ljr wrote:
Fri Jan 05, 2018 4:26 pm
So this annuity review site, annuitygator, that one of you posted in your comments actually directs people to a financial advisor--ie, someone selling annuities, I assume. I found this by Googling:

"One such site, annuitygator.com, features an alligator mascot dubbed the “annuity investigator” who promises “in-depth annuity reviews that reveal the facts on what you can really expect from your annuity.” The site offers instant access to a free annuity e-book. If a visitor has questions, they’re directed to contact “annuity gator,” which leads them to Retirement Wealth Advisors."

So--would this site really be useful and "objective"?
It appears Retirement Wealth Advisors is a fee only advisor and they use this site and others to funnel prospects that are searching for info related to retirement planning. They do appear to provide good analysis on annuities based on what you can see on their website. I would take them up on their stated offer to review the policy and post it on their website. Since you are a boglehead I don’t think you will need investment advice beyond their analysis of your annuity. It would be really helpful to find out how they perform through this process.

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Re: Should we keep this variable annuity?

Post by itstoomuch » Fri Jan 05, 2018 8:54 pm

CJC000 wrote:Your husband is correct about the safety net - you just have to be willing to pay for that safety. With a 5% guarantee you should "shoot for the moon" with your investments in the annuity. That was possible years ago but the annuity companies wised up and didn't want large gains that they would have to pay on in later years. If you look at most of the returns of their funds on their website, they won't exceed the 5%. It's all be design.
When I was first introduced to GLWB VA in 2008, I couldn't believe that annuity companies were offering such a product. They acquired a a possible unlimited risk for those who saw the fund selection flaw in choosing an all equity portfolio. Little did I know that 5% GLWB was small compared to the 7% they were offering with even better terms just 6 months prior to my first purchase. I wasn't a high net worth or high profile so I missed out. I was already investigating long leap options and other retirement strategies. I saw many seminars but never got more than cookies and coffee.

It was only 5 years ago when we bought the last of the GLWB annuities with the ability to select an all equity portfolio.

SO: nowadays, only stock/bond blends are being offered in the GLWB annuities. Can you see the future drag on your Income whether it be in Indexes or within a annuity?
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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Re: Should we keep this variable annuity?

Post by Sandtrap » Fri Jan 05, 2018 11:24 pm

ljr wrote:
Fri Jan 05, 2018 3:26 pm
itstoomuch: interesting about the real estate. It seems like a scary step to me, but it does make sense. I've read about people who buy parking spots to rent out in cities. No HOA fees or repairs with that--interesting idea.

In our case with real estate, we'd have to buy it other than where we live, NYC, because it's so outrageously costly here. There might be some areas where we really could afford to buy a rental property, though. We'd have to hire out any maintenance chores (we are incapable of that anyway).

We have certainly benefited from the run-up in real estate values in NYC. I remember my former accountant advised against buying a NYC coop--he thought it was too risky. But we did it, and it increased in value from $168,000 purchase price to $690,000, which is what we sold it for 23 years later. Then we bought another, less expensive coop where we now live. We had the chance to buy another apartment in our old building during a down period where an apartment like our old one could be had for just $50,000, and we would have made a lot of money on that as well, but we were too chicken to do it.
I think of R/E income property as buying into a card game in Vegas. You can buy into the "100 dollar table" or maybe have enough to play on the million dollar table (New York). But, there has to be enough to make the initial ROI worthwhile without undue risk.

Many attempt to mitigate risk by putting the least amount forward (high leveraging) but then that decreases returns. It sounds good in books and sells seminars but has a low percentage success rate. SFH's (condo, townhouse, home apartment) represents a SPOF. Single point of failure. One mortgage one income stream. A duplex = 1 mortgage + 4 income streams. 30 unit apartment building under one roof. . .etc.

IMHO, if one is capable of running a R/E rental business and has the "buy in price" to get "into the game", it is one of the strongest anchors to an investment portfolio because of the addition of income streams. Rental income. Appreciative value. Tax breaks. Especially for retirees where they no longer have the income stream from employment.
j :D

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Re: Should we keep this variable annuity?

Post by ljr » Mon Jan 08, 2018 6:25 pm

Reporting back on the annuitygator website. It purports to do objective reviews of specific annuities and post them on its site. If you don't find your specific annuity there, you can fill out a form to request a review, which they say will be posted as soon as possible. So filled out the request form---and instead of a posted review, I just got a voicemail from a financial planning firm, someone who said he would be happy to answer any questions I have about my annuity. He also said he does sell annuities, but he did not expect that to be the content of the call. So...lead generation, eh????? He also offered to call the issuer with me to clear up any questions--but that's not really any help, because I've read that you can't necessarily trust what a phone rep at the insurance company tells you.

But realistically, why would that site be anything but lead generation? They say they will give you an objective review free of charge. Why would they do that--what's in it for them?

The other service, Annuity Reviews, charges $300 to review and report and answer your questions. That makes sense. Last time I suggested doing this, I was talking to my husband and our Fidelity rep, who said why pay for that, I can do that for you. So we gave him the contract and his feedback was that it seemed like a reasonable thing to keep. So that made me think maybe he is right, since he is not trying to get us to switch to a Fidelity annuity. However, now that I've read more about this, it could also be that he doesn't know much about it and was not really able to evaluate it.

I am thinking I will order the $300 review, but need to get my husband onboard with that idea first. The Annuity Reviews site sounds really smart and discerning. They do say that some older annuities are a good deal, while many may not be what they are sold as. Then there is the fact that the payout depends on the continued existence and health of the insurance company. We bought from MetLife--and it's not MetLife anymore.

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Re: Should we keep this variable annuity?

Post by itstoomuch » Mon Jan 08, 2018 7:15 pm

When I looked at this,
+I discovered that if you were to be convinced that you should move to another annuity, The new annuity must offer the same or better features/cost than the annuity given up. It is a federal/state/industry regulation, IIRC.
+Older annuities of all types are probably better than more recent annuities, regardless of fees. This is because we've had 9 years of amazing equity market and steady fall of interest rates :D . Of course an annuity sold one year earlier will have less of an advantage as a current annuity. Our 2008-2012 annuities have a huge feature advantage over any annuity sold today, even though today's annuity may have a very small fee structure. Going forward will always be a guess :oops: . However, some real old annuities had high fees and low features. So you need to investigate and determine if the annuity is right for your purposes.

MetLife and others big name insurers/annuity cos. got named as TBTF (too big too fail), systemic risk entities just as big banks were named. I heard that some States were almost put into a systemic risk situation because their Tier1 pension liabilities could potentially affect the "Markets". (There are no more pure investment firms, only Banks and Insurance). Insurance/annuity companies and state regulatory agencies (which may have theoretical regulatory jurisdiction) have argued successfully that Insurance and annuities are fundamentally different from Banks and thus their reserve requirements should not be held to the same standard as national Banks ( a federal jurisdiction); For AIG, it was the insurance reserves that saved them.

By all means spend the $300 or not, to get a piece of mind.
Good Luck.
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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Re: Should we keep this variable annuity?

Post by itstoomuch » Mon Jan 08, 2018 7:43 pm

As I was writing the above, my wife asked me how much do we have for Income and how much to we have Now.
I told her and showed her the online statements for the annuities: It will be ~1/3 to 1/4 of our annual income. REGARDLESS on Market performance. If the future Market continues rising we will get a few thousands more per year. If the future Market falls, we will get maybe 1 thousand more per year, the GLWB's 5% put feature. The reason why I haven't called the GLWB's Income is because we didn't need the Income and because the Market keeps adding to our future Income, 5%+/year (2017, the gains to future annuity income was +11% above 2016's Income mark.)

We are gathering up documents for a new RE purchase in a 1031. We may possibly finance some of that purchase.

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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Re: Should we keep this variable annuity?

Post by itstoomuch » Mon Jan 08, 2018 8:06 pm

OP, we have about +$500k in deferred annuities, 8 annuities and 2 people.
For this amount of future Income and current funds' value, You really need to understand what you got and the alternatives to annuities.
We also had a similar amount in the Equity Market. I also got to be familiar to what we had in Equities and alternatives to equity.
GoodLuck
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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Re: Should we keep this variable annuity?

Post by Dinosaur Dad » Mon Jan 08, 2018 10:15 pm

Not sure if someone mentioned this...but Jane Bryant Quinn recommends annuityreview.com in her book, "how to make your money last." I have found her books in valuable so lends some credibility.

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Re: Should we keep this variable annuity?

Post by smitcat » Tue Jan 09, 2018 9:10 am

itstoomuch wrote:
Mon Jan 08, 2018 7:43 pm
As I was writing the above, my wife asked me how much do we have for Income and how much to we have Now.
I told her and showed her the online statements for the annuities: It will be ~1/3 to 1/4 of our annual income. REGARDLESS on Market performance. If the future Market continues rising we will get a few thousands more per year. If the future Market falls, we will get maybe 1 thousand more per year, the GLWB's 5% put feature. The reason why I haven't called the GLWB's Income is because we didn't need the Income and because the Market keeps adding to our future Income, 5%+/year (2017, the gains to future annuity income was +11% above 2016's Income mark.)

We are gathering up documents for a new RE purchase in a 1031. We may possibly finance some of that purchase.

YMMV
The challenge with these annuities is that you need to decide if that 1/3rd of current income needs will be sufficient over a long period of time. One reason people look at annuities is for the stable income but over time there can be serious inflation erosion so the problem moves from growth to inflation when you annuitize the product. If you do not annuitize the product you need to figure out how you will remove the funds over time or all at once as the case may be. Another issue you bring out is the availability of funds - they are not available for real estate of other needs as long as they are in the annuity. This can generate costs that come from the need for funds that are not readily available - I consider that a cost of the annuity.
Just about every GLWB statement I have seen has a line after the option that reads like "subject to the insurance companies ability to pay these GLWB features at the time of demand". Unlike today there may be a time when these funds are tested and the results may not be so black and white.

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Re: Should we keep this variable annuity?

Post by itstoomuch » Tue Jan 09, 2018 12:19 pm

^smitcat
Our annuities was purchased as an Insurance to the Market. And as a synthetic pension with better options when compared to a regular pension.
My wife's pension fund, was raided many times in her career for it's excess funds. Today the rust belt company isn't doing well.
Whether the funds will be there when needed is question for all financial products and entities. At TBTF BigBank, at one time, the Office of the Comptroller, occupied several floors at BigBank. Assurance of funds, is the #1 concern of all BH. It is the reason why Bonds are used, and which I don't use but use annuities instead.

The disclaimer/risk of annuities are VA's and GLWB is unknown.
My BIL who is an corporate officer said that VA's have only been around for a short period. (40yr?) But Pensions and government imposed retirement/disability insurance have been around a longtime and have a two book accounting: The Accumulation (CashValue) and the Income (pension liability). BIL's company loathes to sell VA's and will sell a SPIA at every opportunity :confused :P . It's too bad his company is a mutual rather than a stock insurance company :twisted: :idea: .

My question for the mortgage loan officer is, 1) how do they value a retirement funds/IRA,Roths when one is in retirement? ; How to do they value annuities?; 3) How do they value GLWB annuities with deferred guaranteed Income?
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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Re: Should we keep this variable annuity?

Post by smitcat » Tue Jan 09, 2018 2:28 pm

itstoomuch wrote:
Tue Jan 09, 2018 12:19 pm
^smitcat
Our annuities was purchased as an Insurance to the Market. And as a synthetic pension with better options when compared to a regular pension.
My wife's pension fund, was raided many times in her career for it's excess funds. Today the rust belt company isn't doing well.
Whether the funds will be there when needed is question for all financial products and entities. At TBTF BigBank, at one time, the Office of the Comptroller, occupied several floors at BigBank. Assurance of funds, is the #1 concern of all BH. It is the reason why Bonds are used, and which I don't use but use annuities instead.

The disclaimer/risk of annuities are VA's and GLWB is unknown.
My BIL who is an corporate officer said that VA's have only been around for a short period. (40yr?) But Pensions and government imposed retirement/disability insurance have been around a longtime and have a two book accounting: The Accumulation (CashValue) and the Income (pension liability). BIL's company loathes to sell VA's and will sell a SPIA at every opportunity :confused :P . It's too bad his company is a mutual rather than a stock insurance company :twisted: :idea: .

My question for the mortgage loan officer is, 1) how do they value a retirement funds/IRA,Roths when one is in retirement? ; How to do they value annuities?; 3) How do they value GLWB annuities with deferred guaranteed Income?
All that being what it is - you bought annuities for a reason and now need to decide whether to stay with them or not. Once you reach these points in time doing nothing is not likely to be the best choice so the challenge is to stay with these or to change them.

Interestingly - one of the more common reason many folks choose annuities is to 'simplify' their finances in the future and lock in known payments generating a floor of sorts for their costs.

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Re: Should we keep this variable annuity?

Post by itstoomuch » Tue Jan 09, 2018 3:49 pm

correct.
The annuities are a foundational part of my funded ratio, just as the SS and pension make a leg, and rentals make up the third leg. The rental leg has surplanted Whether SS, the pension, or annuities survive in the future is just unknown.
I protect the Funded Ratio. It is my Residual Living Expense (RLE).
Lots of BH use Bonds and later SPIAs as they get older should they make it that long. I use GLWB annuities because at the time the terms were extremely good going forward. For new retirees, the terms may still be good when view in context of current alternatives; For us, the terms for new annuities are disappointing, just as find Bonds Funds disappointing.
When we were looking at SPIA's in 2008, @58/61, the initial rate was ~3 to 4%. Today the rates for 67/70yo is only ~3-4%. It's all relative to the times.


My point is, there are different paths. Each path may or may not be better than another. A blanket statement NOT to do GLWB annuities is Not good advice. Neither is the positive statement. There are a lot of factors to making a financial decision that BH do not get in a brief posting.
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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Re: Should we keep this variable annuity?

Post by smitcat » Tue Jan 09, 2018 5:35 pm

itstoomuch wrote:
Tue Jan 09, 2018 3:49 pm
correct.
The annuities are a foundational part of my funded ratio, just as the SS and pension make a leg, and rentals make up the third leg. The rental leg has surplanted Whether SS, the pension, or annuities survive in the future is just unknown.
I protect the Funded Ratio. It is my Residual Living Expense (RLE).
Lots of BH use Bonds and later SPIAs as they get older should they make it that long. I use GLWB annuities because at the time the terms were extremely good going forward. For new retirees, the terms may still be good when view in context of current alternatives; For us, the terms for new annuities are disappointing, just as find Bonds Funds disappointing.
When we were looking at SPIA's in 2008, @58/61, the initial rate was ~3 to 4%. Today the rates for 67/70yo is only ~3-4%. It's all relative to the times.


My point is, there are different paths. Each path may or may not be better than another. A blanket statement NOT to do GLWB annuities is Not good advice. Neither is the positive statement. There are a lot of factors to making a financial decision that BH do not get in a brief posting.
I happen to agree with jsut about everfythging you say although some of the patterhn is not so clear.
What is very interesting and i believ factual is that you have some of the best VA's that have been available and now are at a decision point.
For the large population of folks they purchase VA's intending to utilize them thruout their life by annutizing the funds at 70 or so the latest - one of the best ways to extract the insurance investment.
So it real interesting that you may or may not follwo thru and utilzie the GLWB's that are avaible on these better than current VA"s - perhaps partly a lessen for folks looking at a 'less attractive' VA available now.
In any case the underlying market can go down or up in the future and you can either stay with the VA's of do something else - but now you are at a point where there is a choice.
I can almost guaratee that SPIA rates will rise in the future along with inflation - but like everything else in life i do not know when - coudl be in a year or could be in 20 years.
FWIW - in no place diud i ever say "do not get GLWB's". But recently I continue to be interested in the many folks that have these options and are not saying "OK, here goes I am movng toward activating those options now that they are currently available to me".

Johio
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Re: Should we keep this variable annuity?

Post by Johio » Tue Jan 09, 2018 5:45 pm

I had a variable annuity from MetLife (Brighthouse), similar to what you describe. The annual fees were, if I recall correctly, just above 3%. Mine only had a 4 year surrender period, so as part of moving all my assets from Merrill Lynch to Vanguard, I told my ML guy to get me out of the annuity, reduce it to cash, and add it to my IRA so I could transfer it to VG. Best decision I ever made. I ran the numbers, but I did not engage a FA to assess it. I just could not justify paying 3% annually on the balance until I died, then have my wife pay 3% on the survivor benefits, if she outlived me.

I am no annuity expert. Buying it was foolish, and I am sure I did not understand all the aspects of it when the ML guy suggested it. Shame on me. In any case, I agree with others - consider having someone knowledgeable look at the specifics to see how/if you can easily replicate the income at a lower expense. However, based on a lot of comments on this site, it seems very rare that these products are valuable to anyone other than the person that sold it to you.

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Re: Should we keep this variable annuity?

Post by itstoomuch » Tue Jan 09, 2018 6:40 pm

smitcat wrote:I can almost guaratee that SPIA rates will rise in the future along with inflation - but like everything else in life i do not know when - coudl be in a year or could be in 20 years.
future BH who are waiting till 70 to 80yo, in inflationary conditions are going to face new purchasing SPIA realities. They could, theoretically, be shut-out from SPIA's. Certainly, a payout that will be lagging inflation.
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

smitcat
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Re: Should we keep this variable annuity?

Post by smitcat » Tue Jan 09, 2018 7:00 pm

itstoomuch wrote:
Tue Jan 09, 2018 6:40 pm
smitcat wrote:I can almost guaratee that SPIA rates will rise in the future along with inflation - but like everything else in life i do not know when - coudl be in a year or could be in 20 years.
future BH who are waiting till 70 to 80yo, in inflationary conditions are going to face new purchasing SPIA realities. They could, theoretically, be shut-out from SPIA's. Certainly, a payout that will be lagging inflation.
Maybe true - but they can just put the money in CD's then. Does not change the situation today though.

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Re: Should we keep this variable annuity?

Post by technovelist » Tue Jan 09, 2018 11:12 pm

itstoomuch wrote:
Tue Jan 09, 2018 6:40 pm
smitcat wrote:I can almost guaratee that SPIA rates will rise in the future along with inflation - but like everything else in life i do not know when - coudl be in a year or could be in 20 years.
future BH who are waiting till 70 to 80yo, in inflationary conditions are going to face new purchasing SPIA realities. They could, theoretically, be shut-out from SPIA's. Certainly, a payout that will be lagging inflation.
I think it is VERY unlikely that SPIAs will cease to be offered due to inflation.

Inflation-protected ones, yes, but I can't see any reason that insurance companies would stop selling nominal annuities.
In theory, theory and practice are identical. In practice, they often differ.

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Mel Lindauer
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Re: Should we keep this variable annuity?

Post by Mel Lindauer » Tue Jan 09, 2018 11:51 pm

Several comments:
1. IMO, it should be against the law to sell unsuspecting investors a high-cost annuity inside an already tax-deferred account. Here's a Forbes column I did on this subject a while back:
https://www.forbes.com/2010/07/02/varia ... 29b1a3caaa

2. Since this is an Individual Retirement Arrangement/Account, the wife is not covered except perhaps as the beneficiary or joint annuitant (if later annuitized). "Individual" means individual; there are no joint IRAs.
Best Regards - Mel | | Semper Fi

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