I have a Vanguard Variable Annuity in my name. Plan A is to use it to provide income for my wife after I am gone. (I'm 73; she is 72). As she is the beneficiary, she will just assume ownership of it and annuitize it when the time comes. No plans to annuitize during my lifetime as we don't really need the income.
It's currently invested 22% Total Stock Market; 11% Total International Stock Market; 67% Total (US) Bond Market. Value is a bit north of $250K. Conservative allocation is to preserve its value as much as possible - no need to swing for the fences at this stage of the game. It has declined in value modestly during the last 6 months for obvious reasons on both the stock and bond sides.
As an alternative, I'm considering a 1035 exchange to a Flexible Premium Deferred Annuity which:
- guarantees the nominal value of the initial investment.
- pays an annual interest rate prior to annuitization, either:
-- a guaranteed 1% OR
-- a periodically adjusted market-based "portfolio rate" rate, currently 3% (2.75% for the first year)
- upon annuitization, pays out more or less the same as the VG annuity
What would you do?
- keep the current conservatively invested VG annuity in the hope of more upside but with some risk of downside OR
- go for a nominally "no loss" annuity with the expectation that it would probably barely keep up with inflation?
Notes:
- expenses are less for the guaranteed annuity than VG
- guaranteed annuity is through Navy Mutual Aid Association, a non-profit insurance company
- Plan B, if I survive my wife, is to use the money in the annuity for charitable and family gift purposes.
- Non-annuity assets are invested 40-45% equity (20% international) with remainder spread across several categories of FI + cash and are generally not needed for living expenses. Both the annuity income and withdrawals from portfolio will be needed after I'm gone.
Would appreciate thoughts/opinions/insights.
Exchange VG variable annuity for fixed deferred annuity?
Exchange VG variable annuity for fixed deferred annuity?
Friar1610 |
50-ish/50-ish - a satisficer, not a maximizer
Re: Exchange VG variable annuity for fixed deferred annuity?
I would be tempted to use a fixed deferred annuity as long as it could keep me a bit ahead of inflation. It looks to me the fixed product you describe can do just that but probably barely. It is a hard choice. On the other hand, a 2/3 bond and 1/3 stock portfolio in a Variable Annuity seems to be a pretty conservative asset mix and you have better odds staying ahead of inflation and by a bigger margin than the fixed product. I recall the academic research that says a 20% stock/80% bond portfolio is safer than 100% bonds. If you ran the numbers, my guess is that you would be better off sticking with what you have. But still, making the switch looks tempting. Hard choice.
A fool and his money are good for business.
Re: Exchange VG variable annuity for fixed deferred annuity?
One question I have is how close you are cutting it if you stay with just the Vg VA....that is, how far can the value fall before pain starts. Don't have to get into actual numbers as much as saying "if it falls more than x% at time of annuitization....".
Also, without getting overly complex, you can do a partial 1035. So, there would be the taxable accounts, the VA, & the new fixed deferred.
Would your spouse have the option to annuitize only a part of the VA when it is inherited? If so, might be in a lower tax bracket & could withdraw some to buy an spia?
Personally, I'm not familiar with that provider & might be more concerned about their viability than the difference in "current" expense ratios (depending upon actual gap.
Good luck -- tough to foresee which will work out better.
Also, without getting overly complex, you can do a partial 1035. So, there would be the taxable accounts, the VA, & the new fixed deferred.
Would your spouse have the option to annuitize only a part of the VA when it is inherited? If so, might be in a lower tax bracket & could withdraw some to buy an spia?
Personally, I'm not familiar with that provider & might be more concerned about their viability than the difference in "current" expense ratios (depending upon actual gap.
Good luck -- tough to foresee which will work out better.