Annuity [Have variable annuities - is this a good idea?]

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Sam13
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Annuity [Have variable annuities - is this a good idea?]

Post by Sam13 » Sun Feb 10, 2019 10:47 am

Hi everyone,
I’m new to investing and to the blog, actually just registered today.
Had a quick question plz
I have 2 variable annuities set as part of retirement, is this is a good idea? Should I roll them over to IRA?
Thanks for the input
Last edited by Sam13 on Sun Feb 10, 2019 4:08 pm, edited 1 time in total.

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Mel Lindauer
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Re: Annuity [Have variable annuities - is this a good idea?]

Post by Mel Lindauer » Sun Feb 10, 2019 11:26 am

Sam13 wrote:
Sun Feb 10, 2019 10:47 am
Hi everyone,
I’m new to investing and to the blog, actually just registered today.
Had a quick question plz
I have 2 variable annuities set with northwestern mutual as part of retirement, is this is a good idea? Should I roll them over to IRA?
Thanks for the input
Are these annuities inside an already-tax-deferred account, like your IRA? If so, then why on earth are you paying extra excessive annuity fees for tax-deferral you already have? Let me guess: you were sold this by a nice salesperson who told you lots of great things about it and then got a nice fat commission for suckering you into this? Do I win a prize for being right?

All (realistic) sarcasm aside, you need to find out if you have any surrender fees (probably do) and how much they are before deciding to do the transfer.

However, if you're young and have a long time horizon, it often pays to eat the surrender fee and escape to lower-cost mutual funds, since the payback period with the lower mutual fund expenses can often be fairly short. (Surrender fees normally decrease on each anniversary date of policy issue, so if you're going to move and pay the surrender fee and are close to an anniversary date, you might want to wait until right after that to make the move.)
Best Regards - Mel | | Semper Fi

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Sam13
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Re: Annuity [Have variable annuities - is this a good idea?]

Post by Sam13 » Sun Feb 10, 2019 11:54 am

Thanks for the response
The annuities are tax deferred accounts as it was a rollover from 401 K and IRA, and was sold to me by an agent and was told that is the best for retirement and I didn’t know anything about investing then.
I’m 45y old, I got the annuities almot 8 to 9 years ago and both has fees to cancel
Thanks again for the response and the advice

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Stinky
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Re: Annuity [Have variable annuities - is this a good idea?]

Post by Stinky » Sun Feb 10, 2019 12:04 pm

Sam13 wrote:
Sun Feb 10, 2019 11:54 am
The annuities are tax deferred accounts as it was a rollover from 401 K and IRA, and was sold to me by an agent and was told that is the best for retirement and I didn’t know anything about investing then.

I’m 45y old, I got the annuities almot 8 to 9 years ago and both has fees to cancel

Thanks again for the response and the advice
Welcome to the Board! You'll see that there are a lot of really smart, caring people who post to this Board, on a wide variety of topics.

I'm sorry, but you were totally taken advantage of by the insurance salesman. You already have tax deferral inside your 401K and IRA, so no need for additional tax deferral of annuities. And your annuities are probably charging some high fees, both on the mutual funds themselves and for the "mortality and expense" charges.

When the surrender charges drop off, you'll certainly want to surrender the annuities and invest elsewhere within the IRA. You'll find plenty of references on index fund investing on this Board. Depending on the level of surrender charges and fees, you might want to surrender before the surrender charges run out.

The only person who "won" in this situation is the salesman, who probably made a 5-7% commission for selling you this annuity.
It's a GREAT day to be alive - Travis Tritt

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Re: Annuity [Have variable annuities - is this a good idea?]

Post by STINGRAY75 » Sun Feb 10, 2019 12:16 pm

Welcome to BH Sam. Mel L gave a great starting point but It’s gonna to be difficult to give a solid answer without more info about where these are invested, your age and other retirement funds (health, future pension, SS, ira withdrawals) expected once you enter retirement. It’s not a simple answer so search for Variable Annuities and spend a few days reading and most importantly, avoid asking the person who sold you the product for an opinion - they’ll protect their cash cow.

Having an VA generally ensures a continuation of income for life. If you outlive the actuary table at which point you’ll be money ahead EXCEPT, the insurance co will have siphoned off 2-3% each year over the period they’ve held your monies. Having control of your money for the same period of time removes a lot of the financial leakage and allows the principle to grow FOR YOU.

Personally, I’m rolling my pretax VA back into my pretax TIRA. In 6 years I’ve had the VA, it’s grown ~20% so I’ve realized the higher growth in my Tira would more than cover much of the risk of market drop eroding any planned withdrawal I would have enjoyed from the VA. My plan is to place the proceeds into a separate mutual fund within my Tira so I can isolate and manage growth and withdrawals. Yep, others have made the same mistake.

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Re: Annuity [Have variable annuities - is this a good idea?]

Post by averagedude » Sun Feb 10, 2019 12:34 pm

I would find out what the surrender fees are. Since you have had it this long, it may not be much. Some may disagree, but i would pull out and invest it in a three fund portfolio. If you are the type of person who is only going to invest this money in fixed income because you are fearful of the stock market, i would leave it where it is. Many people buy these products because they are fearful of losing money in the unknown (stocks) at the detriment of the known (fees, commisions, and expenses). Most of these are sold instead of bought. Ask anyone who has a variable annuity what yearly fees they are paying and most likely they won't know.

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Sam13
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Re: Annuity [Have variable annuities - is this a good idea?]

Post by Sam13 » Sun Feb 10, 2019 1:18 pm

Thanks everyone for taking the time to answer my question and for all the great input
What triggered me to think to transfer the annuity to rollover IRA was two things
First I calculated the compounding return for the money over the years it was there and the percentage of growth was 3-4% per year using one of the online compounding calculators.
The other reason when I got the quarterly report I saw that they sold all the shares and bought them back, which didn’t make sense to me and the only reason I thought of is to charge me transaction fees, cause they could simply sold part or bought part to rebalance the account not to sell the whole thing.
I was thinking to role it over to rollover IRA and invest in index funds but was not sure if that will be the right thing to do.

Thanks again

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Sam13
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Re: Annuity [Have variable annuities - is this a good idea?]

Post by Sam13 » Sun Feb 10, 2019 1:19 pm

I also tried to find out how much fees they charge but couldn’t find out.

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Re: Annuity [Have variable annuities - is this a good idea?]

Post by averagedude » Sun Feb 10, 2019 1:45 pm

I helped someone close to me on this same topic, and the financial advisor didn't know and had to call to find out. I had researched beforehand about the expense ratios of the underlying funds the variable annuity was in, and suggested to the advisor that it was 90 basis points and he disagreed with me, only to find out that i was right. Even he agreed that we would be better off to pay the surrender charge and invest it ourselves, since this client would never need the defined benefit due to life expectancy reasons. This advisor got his commissioned sale a long time ago and he knew he ripped off this client. Not only was this in a tax deferred account, but it was also visually obvious that this person was in very poor health and would likely have a short life expectancy. It was difficult to be cordial through this process with this advisor.

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Re: Annuity [Have variable annuities - is this a good idea?]

Post by Mel Lindauer » Sun Feb 10, 2019 3:17 pm

Sam13 wrote:
Sun Feb 10, 2019 1:18 pm
Thanks everyone for taking the time to answer my question and for all the great input
What triggered me to think to transfer the annuity to rollover IRA was two things
First I calculated the compounding return for the money over the years it was there and the percentage of growth was 3-4% per year using one of the online compounding calculators.
The other reason when I got the quarterly report I saw that they sold all the shares and bought them back, which didn’t make sense to me and the only reason I thought of is to charge me transaction fees, cause they could simply sold part or bought part to rebalance the account not to sell the whole thing.
I was thinking to role it over to rollover IRA and invest in index funds but was not sure if that will be the right thing to do.

Thanks again
Sounds like "churning" so as to earn another round of commissions/transaction fees. You may have legal recourse if this was done without your knowledge or consent and you hadn't given him/her trading authority.
Best Regards - Mel | | Semper Fi

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