Annuity?

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LFremont
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Location: Cleveland, Ohio

Annuity?

Post by LFremont » Thu May 21, 2020 7:31 pm

I'm retired and have a substantial amount of cash I need to invest safely. A banker where I do my banking referred me a person who works in an unregulated area of the bank who is promoting an annuity which would pay 2.6% for a period of time, say 3 years. Like a CD without FDIC coverage they say. That's quite a bit more than what you can get for a CD these days however, given the state of the economy, I want to invest in something that is pretty certain to work out well. Do annuities such as the one I mentioned make sense to consider or is it better, given the state of the economy, to go to an online bank and get the best CD rate that is FDIC insured even though it would be less than an annuity? I have never bought an annuity before.
LFremont

fabdog
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Re: Annuity?

Post by fabdog » Thu May 21, 2020 7:35 pm

A banker where I do my banking referred me a person who works in an unregulated area of the bank who is promoting an annuity which would pay 2.6% for a period of time, say 3 years. Like a CD without FDIC coverage they say.
Read thru that sentence you wrote... In a best case scenario it's a fixed type annuity not layered in fees. There are many flavors of this, including a longer lockup for your money, "guaranteed" for a shorter period... if you want out there may be surrender fees...

So the banker sent you to the unregulated area of the bank... like a CD without FDIC they say... does that make you at all nervous? The person he sent you to gets a nice commission, and the banker who referred you gets credit towards a quota for referrals

Ask to see the prospectus... I bet (and no insult intended) that you can't decipher it. That's the sign that it may be a complex unsuitable product

Mike

retired@50
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Re: Annuity?

Post by retired@50 » Thu May 21, 2020 7:40 pm

LFremont wrote:
Thu May 21, 2020 7:31 pm
I have never bought an annuity before.
Good for you. I wouldn't start now. Stick to products you understand. Right now, investing cash is a challenge. Yields are low. Don't get talked into something that "sounds good". I'd use CDs, or short term bond mutual funds at a reputable financial firm like Vanguard.

Regards,
This is one person's opinion. Nothing more.

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Stinky
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Re: Annuity?

Post by Stinky » Thu May 21, 2020 7:45 pm

LFremont wrote:
Thu May 21, 2020 7:31 pm
I'm retired and have a substantial amount of cash I need to invest safely. A banker where I do my banking referred me a person who works in an unregulated area of the bank who is promoting an annuity which would pay 2.6% for a period of time, say 3 years. Like a CD without FDIC coverage they say. That's quite a bit more than what you can get for a CD these days however, given the state of the economy, I want to invest in something that is pretty certain to work out well. Do annuities such as the one I mentioned make sense to consider or is it better, given the state of the economy, to go to an online bank and get the best CD rate that is FDIC insured even though it would be less than an annuity? I have never bought an annuity before.
It sounds like you’re being pitched a Multi Year Guaranteed Annuity, or MYGA. See this recent thread for a pretty extensive discussion of these products.

viewtopic.php?f=1&t=313935

The interest rate can be attractive, and is guaranteed for the three year term. Taxable income is not reported until proceeds are withdrawn. Those are both good things.

The biggest drawback can be very high surrender charges if you withdraw before 3 years. See the thread for example, and ask your banker for what they would be on your product. The other negative is the lack of FDIC insurance.

In summary, this is one of the potentially “good” annuities. But go in with your eyes open.
It's a GREAT day to be alive - Travis Tritt

Dead Man Walking
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Re: Annuity?

Post by Dead Man Walking » Thu May 21, 2020 10:10 pm

I had a similar experience yesterday. I researched annuities here and found that some Bogleheads don’t have a problem with them. My problem with them is that I would be placing faith in the financial stability of an insurance company in an unstable economy. My wife and I decided that we would rather lose a little more to inflation than risk the stability of an insurance company in this economy. We are sticking with CDs with FDIC insurance rather than an annuity.

DMW

KSActuary
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Re: Annuity?

Post by KSActuary » Thu May 21, 2020 10:22 pm

Your banker is getting a spiff for recommending you to the in-house broker. 'nuf said.

HEDGEFUNDIE
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Re: Annuity?

Post by HEDGEFUNDIE » Thu May 21, 2020 10:57 pm

KSActuary wrote:
Thu May 21, 2020 10:22 pm
Your banker is getting a spiff for recommending you to the in-house broker. 'nuf said.
Doesn’t automatically make it a bad deal.

JBTX
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Re: Annuity?

Post by JBTX » Thu May 21, 2020 11:19 pm

I wouldn't tie up money in an annuity just to make 2.6%.

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Stinky
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Re: Annuity?

Post by Stinky » Fri May 22, 2020 3:55 am

HEDGEFUNDIE wrote:
Thu May 21, 2020 10:57 pm
KSActuary wrote:
Thu May 21, 2020 10:22 pm
Your banker is getting a spiff for recommending you to the in-house broker. 'nuf said.
Doesn’t automatically make it a bad deal.
The commission on a MYGA is a lot less than on the annuities that most Bogleheads do not like - that is, indexed annuities and variable annuities.

And the interest rate paid already considers the cost of that commission.
It's a GREAT day to be alive - Travis Tritt

bberris
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Re: Annuity?

Post by bberris » Fri May 22, 2020 5:31 am

KSActuary wrote:
Thu May 21, 2020 10:22 pm
Your banker is getting a spiff for recommending you to the in-house broker. 'nuf said.
As do brokers who broker CDs.

reln
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Re: Annuity?

Post by reln » Fri May 22, 2020 5:42 am

LFremont wrote:
Thu May 21, 2020 7:31 pm
I'm retired and have a substantial amount of cash I need to invest safely. A banker where I do my banking referred me a person who works in an unregulated area of the bank who is promoting an annuity which would pay 2.6% for a period of time, say 3 years. Like a CD without FDIC coverage they say. That's quite a bit more than what you can get for a CD these days however, given the state of the economy, I want to invest in something that is pretty certain to work out well. Do annuities such as the one I mentioned make sense to consider or is it better, given the state of the economy, to go to an online bank and get the best CD rate that is FDIC insured even though it would be less than an annuity? I have never bought an annuity before.
Surrender charges end after 3 years? Make sure the insurance company is highly rated (AA and higher).

If you're old enough, a SPIA or DIA could make more sense to make up any current or future income gap (in stead of cash, CD's, or bonds).

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Stinky
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Re: Annuity?

Post by Stinky » Fri May 22, 2020 5:57 am

reln wrote:
Fri May 22, 2020 5:42 am
Surrender charges end after 3 years?
The surrender charge is likely zero for a short window around the expiration of the 3 year term. Maybe a month or two.

Then, if the owner decides to renew for another term, the surrender charge will pop up again.
It's a GREAT day to be alive - Travis Tritt

reln
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Re: Annuity?

Post by reln » Fri May 22, 2020 9:08 am

Stinky wrote:
Fri May 22, 2020 5:57 am
reln wrote:
Fri May 22, 2020 5:42 am
Surrender charges end after 3 years?
The surrender charge is likely zero for a short window around the expiration of the 3 year term. Maybe a month or two.

Then, if the owner decides to renew for another term, the surrender charge will pop up again.
Interesting, link one.

PatrickA5
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Re: Annuity?

Post by PatrickA5 » Fri May 22, 2020 9:16 am

Just bought a 2%, 3yr MYGA from Mass Mutual in our IRA's. Little downside if you know you won't need the money for the period. It is basically just like a CD, but surrender charges are a lot worse than early withdrawal penalties. In my case 7% of the balance withdrawn. You're allowed 10% withdrawals per year without surrender charges.

I'm not worried about Mass Mutual going under. It's highly rated and my state has $300,000 guarantee fund. If Mass Mutual and my states fund goes under then, well, we have some serious problems.

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Stinky
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Re: Annuity?

Post by Stinky » Fri May 22, 2020 9:18 am

reln wrote:
Fri May 22, 2020 9:08 am
Stinky wrote:
Fri May 22, 2020 5:57 am
reln wrote:
Fri May 22, 2020 5:42 am
Surrender charges end after 3 years?
The surrender charge is likely zero for a short window around the expiration of the 3 year term. Maybe a month or two.

Then, if the owner decides to renew for another term, the surrender charge will pop up again.
Interesting, link one.
Try this. 30 day period to withdraw without surrender charge.

https://www.immediateannuities.com/defe ... nuity.html
It's a GREAT day to be alive - Travis Tritt

KSActuary
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Re: Annuity?

Post by KSActuary » Fri May 22, 2020 9:35 am

HEDGEFUNDIE wrote:
Thu May 21, 2020 10:57 pm
KSActuary wrote:
Thu May 21, 2020 10:22 pm
Your banker is getting a spiff for recommending you to the in-house broker. 'nuf said.
Doesn’t automatically make it a bad deal.
Completely agree. More of a comment on the relationship, not the product, per se.

KSActuary
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Re: Annuity?

Post by KSActuary » Fri May 22, 2020 9:36 am

bberris wrote:
Fri May 22, 2020 5:31 am
KSActuary wrote:
Thu May 21, 2020 10:22 pm
Your banker is getting a spiff for recommending you to the in-house broker. 'nuf said.
As do brokers who broker CDs.
Yes, yield stripping is very prevalent in CDs and online bond sales.

KSActuary
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Re: Annuity?

Post by KSActuary » Fri May 22, 2020 9:40 am

PatrickA5 wrote:
Fri May 22, 2020 9:16 am
Just bought a 2%, 3yr MYGA from Mass Mutual in our IRA's. Little downside if you know you won't need the money for the period. It is basically just like a CD, but surrender charges are a lot worse than early withdrawal penalties. In my case 7% of the balance withdrawn. You're allowed 10% withdrawals per year without surrender charges.

I'm not worried about Mass Mutual going under. It's highly rated and my state has $300,000 guarantee fund. If Mass Mutual and my states fund goes under then, well, we have some serious problems.
In the normal course of events, has a major insurer ever gone under and policyholders gone begging to the state with any success? No. Completely binary outcome. Nothing happens, you better enjoy the 2% with significant liquidity issues. If something does happen, your out. Was it worth it?

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Stinky
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Re: Annuity?

Post by Stinky » Fri May 22, 2020 9:43 am

KSActuary wrote:
Fri May 22, 2020 9:40 am
In the normal course of events, has a major insurer ever gone under and policyholders gone begging to the state with any success? No. Completely binary outcome. Nothing happens, you better enjoy the 2% with significant liquidity issues. If something does happen, your out. Was it worth it?
Not true.

Guaranty funds step in all the time and make good on the policies of life insurers in receivership or liquidation.
It's a GREAT day to be alive - Travis Tritt

annu
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Re: Annuity?

Post by annu » Fri May 22, 2020 9:50 am

Happy to learn something new, just wanted to add for Fidelity below are the best options

Issuer/Product Guarantee/Surrender Period Base Rate3 Jumbo Rate
MassMutual Stable VoyageSM 3/3 YR 1.75% 2.00%
New York Life Secure Term MVA Fixed IV 3/3 YR 1.55% 1.80%
Principal Select Series 3/3 YR 1.45% 1.65%
Western Southern SmartSelect 3/3 YR 1.55% 1.70%
MassMutual Stable VoyageSM 4/4 YR 1.75% 2.00%
New York Life Secure Term MVA Fixed IV 4/4 YR 1.55% 1.80%
Principal Select Series 4/4 YR 1.60% 1.85%
Western Southern SmartSelect 4/4 YR 1.45% 1.60%
Guardian Fixed Target AnnuitySM 5/5 YR 1.05% 1.15%
MassMutual Stable VoyageSM 5/5 YR 1.75% 2.00%
New York Life Secure Term MVA Fixed IV 5/5 YR 1.55% 1.80%
Principal Select Series 5/5 YR 1.60% 1.85%
Western Southern SmartSelect 5/5 YR 1.25% 1.40%
Guardian Fixed Target AnnuitySM 6/6 YR 1.00% 1.05%
New York Life Secure Term MVA Fixed IV 6/6 YR 1.55% 1.80%
Principal Select Series 6/6 YR 1.80% 2.05%
Western Southern SmartSelect 6/6 YR 1.20% 1.35%
Principal Select Series 7/7 YR 1.85% 2.10%
Western Southern SmartSelect 7/7 YR 1.10% 1.25%
Principal Select Series 9/9 YR 1.65% 1.90%
Western Southern SmartSelect 9/9 YR 0.80% 0.95%
Western Southern SmartSelect 10/10 YR 0.85% 1.00%

PatrickA5
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Re: Annuity?

Post by PatrickA5 » Fri May 22, 2020 10:03 am

KSActuary wrote:
Fri May 22, 2020 9:40 am
PatrickA5 wrote:
Fri May 22, 2020 9:16 am
Just bought a 2%, 3yr MYGA from Mass Mutual in our IRA's. Little downside if you know you won't need the money for the period. It is basically just like a CD, but surrender charges are a lot worse than early withdrawal penalties. In my case 7% of the balance withdrawn. You're allowed 10% withdrawals per year without surrender charges.

I'm not worried about Mass Mutual going under. It's highly rated and my state has $300,000 guarantee fund. If Mass Mutual and my states fund goes under then, well, we have some serious problems.
In the normal course of events, has a major insurer ever gone under and policyholders gone begging to the state with any success? No. Completely binary outcome. Nothing happens, you better enjoy the 2% with significant liquidity issues. If something does happen, your out. Was it worth it?
Thank you. I will enjoy my 2%.

PatrickA5
Posts: 520
Joined: Mon Jul 28, 2014 1:55 pm

Re: Annuity?

Post by PatrickA5 » Fri May 22, 2020 10:06 am

annu wrote:
Fri May 22, 2020 9:50 am
Happy to learn something new, just wanted to add for Fidelity below are the best options

Issuer/Product Guarantee/Surrender Period Base Rate3 Jumbo Rate
MassMutual Stable VoyageSM 3/3 YR 1.75% 2.00%
New York Life Secure Term MVA Fixed IV 3/3 YR 1.55% 1.80%
Principal Select Series 3/3 YR 1.45% 1.65%
Western Southern SmartSelect 3/3 YR 1.55% 1.70%
MassMutual Stable VoyageSM 4/4 YR 1.75% 2.00%
New York Life Secure Term MVA Fixed IV 4/4 YR 1.55% 1.80%
Principal Select Series 4/4 YR 1.60% 1.85%
Western Southern SmartSelect 4/4 YR 1.45% 1.60%
Guardian Fixed Target AnnuitySM 5/5 YR 1.05% 1.15%
MassMutual Stable VoyageSM 5/5 YR 1.75% 2.00%
New York Life Secure Term MVA Fixed IV 5/5 YR 1.55% 1.80%
Principal Select Series 5/5 YR 1.60% 1.85%
Western Southern SmartSelect 5/5 YR 1.25% 1.40%
Guardian Fixed Target AnnuitySM 6/6 YR 1.00% 1.05%
New York Life Secure Term MVA Fixed IV 6/6 YR 1.55% 1.80%
Principal Select Series 6/6 YR 1.80% 2.05%
Western Southern SmartSelect 6/6 YR 1.20% 1.35%
Principal Select Series 7/7 YR 1.85% 2.10%
Western Southern SmartSelect 7/7 YR 1.10% 1.25%
Principal Select Series 9/9 YR 1.65% 1.90%
Western Southern SmartSelect 9/9 YR 0.80% 0.95%
Western Southern SmartSelect 10/10 YR 0.85% 1.00%
New York Life has come down quite a bit over the last 10 days - from 2.1% to 1.8%. Mass Mutual is hanging on at 2%, but might be coming down soon. I got my MYGA through Fidelity and the process was simple - took maybe 30 minutes.

KSActuary
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Re: Annuity?

Post by KSActuary » Fri May 22, 2020 10:43 am

Stable Value funds in 401k plans are next for the storm.

bberris
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Re: Annuity?

Post by bberris » Fri May 22, 2020 12:29 pm

KSActuary wrote:
Fri May 22, 2020 10:43 am
Stable Value funds in 401k plans are next for the storm.
Do you mean "shelter from the storm" or ripped to shreds by a hurricane?

Stable value funds are vulnerable to savings programs being terminated. This could happen in a bankruptcy or a merger. It doesn't matter how sound the insurance company is, the contracts on these things generally allow them to avoid paying losses when a plan terminates.

KSActuary
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Re: Annuity?

Post by KSActuary » Fri May 22, 2020 1:26 pm

Stable value funds are the insurance company's answer to a money market and most who invest in them do not understand what backs these funds. Most don't even know that an insurance company is involved. I know many plan participants who have blindly invested their entire 401k account in these funds due to the promised returns. Plan participants forget about diversification and that the worst can't happen.

Given what may happen in the debt and real estate markets as the US economy recovers, I can't see a way that stable value funds don't take a hair cut.

Personal opinion.

CFM300
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Re: Annuity?

Post by CFM300 » Fri May 22, 2020 1:48 pm

KSActuary wrote:
Fri May 22, 2020 1:26 pm
I can't see a way that stable value funds don't take a hair cut.
What exactly do you mean by hair cut, and does your prediction apply to TIAA Traditional as well? Just curious.

KSActuary
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Re: Annuity?

Post by KSActuary » Fri May 22, 2020 2:55 pm

Not predicting a disaster but these accounts are back by the carrier's general assets and I believe that these could be impaired in the future should RE falter and interest rates remain low. I am very familiar with moving stable value funds when changing recordkeepers for 401k plans where the insurer implements a broad market value adjustment. I think that most financial enterprises will struggle in the future and those that do well will not be hampered by having decades long liabilities tagging along behind him. Also, I do not see much reason to think that, if anyone is going to get hurt by a struggling large insurer, that 401k participants should be protected. Just don't like plan participants putting everything in one investment, especially one that they think is "guaranteed".

reln
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Re: Annuity?

Post by reln » Fri May 22, 2020 4:10 pm

Stinky wrote:
Fri May 22, 2020 9:18 am
reln wrote:
Fri May 22, 2020 9:08 am
Stinky wrote:
Fri May 22, 2020 5:57 am
reln wrote:
Fri May 22, 2020 5:42 am
Surrender charges end after 3 years?
The surrender charge is likely zero for a short window around the expiration of the 3 year term. Maybe a month or two.

Then, if the owner decides to renew for another term, the surrender charge will pop up again.
Interesting, link one.
Try this. 30 day period to withdraw without surrender charge.

https://www.immediateannuities.com/defe ... nuity.html
The wording is awkward.
It doesn't appear that there is a surrender charge after policy year 10.
The surrender charge schedule states "0%" for policy years "11+".
In states like NY there is a requirement that surrender charges go to zero on a specific maximum charge path.

"When the guarantee period you’ve chosen comes to an
end, Palladium MYG gives you flexibility and choice. At
the end of your guarantee period, you can either:
1. Withdraw all money without penalty during a special
30-day window, OR
2. Continue the annuity and earn an annual effective
interest rate, declared annually on the policy
anniversary.
Should you decide to continue your annuity, your contract
has a Minimum Guaranteed Interest Rate to assure annual
growth in your annuity after the end of your guarantee
period. This Minimum Guaranteed Interest Rate will be
determined when your contract is issued and will remain
the same for the life of the contract."

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Stinky
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Re: Annuity?

Post by Stinky » Fri May 22, 2020 4:39 pm

reln wrote:
Fri May 22, 2020 4:10 pm
Stinky wrote:
Fri May 22, 2020 9:18 am
reln wrote:
Fri May 22, 2020 9:08 am
Stinky wrote:
Fri May 22, 2020 5:57 am
reln wrote:
Fri May 22, 2020 5:42 am
Surrender charges end after 3 years?
The surrender charge is likely zero for a short window around the expiration of the 3 year term. Maybe a month or two.

Then, if the owner decides to renew for another term, the surrender charge will pop up again.
Interesting, link one.
Try this. 30 day period to withdraw without surrender charge.

https://www.immediateannuities.com/defe ... nuity.html
The wording is awkward.
It doesn't appear that there is a surrender charge after policy year 10.
The surrender charge schedule states "0%" for policy years "11+".
In states like NY there is a requirement that surrender charges go to zero on a specific maximum charge path.

"When the guarantee period you’ve chosen comes to an
end, Palladium MYG gives you flexibility and choice. At
the end of your guarantee period, you can either:
1. Withdraw all money without penalty during a special
30-day window, OR
2. Continue the annuity and earn an annual effective
interest rate, declared annually on the policy
anniversary.
Should you decide to continue your annuity, your contract
has a Minimum Guaranteed Interest Rate to assure annual
growth in your annuity after the end of your guarantee
period. This Minimum Guaranteed Interest Rate will be
determined when your contract is issued and will remain
the same for the life of the contract."
Maybe this is a better example? Or pick your own at immediateannuities.com.

https://www.immediateannuities.com/defe ... iew-3.html
It's a GREAT day to be alive - Travis Tritt

bberris
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Re: Annuity?

Post by bberris » Sat May 23, 2020 6:27 am

Here is an excerpt from the Newport Group stable value primer. Recommended reading if you use a SVF. A guaranty does not guaranty against everything:

"Employer-Directed Events
As discussed above, stable value contracts are less risky for contract providers when redemptions occur randomly than when large redemptions are made at the same time. In the case of large, coordinated transfers, additional protection is added through the put period. However, to protect against sudden large withdrawals, there are certain circumstances where participant withdrawals may be made at the lower of the book and market values. This may occur when the participant withdraws from the fund due to an action by the plan sponsor, such as divestment of a division where the participant had worked or bankruptcy by the plan sponsor. If the plan sponsor advises participants to divest from the fund, their transfers would also be considered employer-directed. Small transfers arising from employer-directed events may sometimes be made at book value, up to a limit set by the fund’s “corridor provision,” if one is in place. This type of transfer tends to be less problematic with pooled vehicles because each plan comprises only a portion of the total fund."

reln
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Re: Annuity?

Post by reln » Sat May 23, 2020 1:05 pm

Stinky wrote:
Fri May 22, 2020 4:39 pm
reln wrote:
Fri May 22, 2020 4:10 pm
Stinky wrote:
Fri May 22, 2020 9:18 am
reln wrote:
Fri May 22, 2020 9:08 am
Stinky wrote:
Fri May 22, 2020 5:57 am


The surrender charge is likely zero for a short window around the expiration of the 3 year term. Maybe a month or two.

Then, if the owner decides to renew for another term, the surrender charge will pop up again.
Interesting, link one.
Try this. 30 day period to withdraw without surrender charge.

https://www.immediateannuities.com/defe ... nuity.html
The wording is awkward.
It doesn't appear that there is a surrender charge after policy year 10.
The surrender charge schedule states "0%" for policy years "11+".
In states like NY there is a requirement that surrender charges go to zero on a specific maximum charge path.

"When the guarantee period you’ve chosen comes to an
end, Palladium MYG gives you flexibility and choice. At
the end of your guarantee period, you can either:
1. Withdraw all money without penalty during a special
30-day window, OR
2. Continue the annuity and earn an annual effective
interest rate, declared annually on the policy
anniversary.
Should you decide to continue your annuity, your contract
has a Minimum Guaranteed Interest Rate to assure annual
growth in your annuity after the end of your guarantee
period. This Minimum Guaranteed Interest Rate will be
determined when your contract is issued and will remain
the same for the life of the contract."
Maybe this is a better example? Or pick your own at immediateannuities.com.

https://www.immediateannuities.com/defe ... iew-3.html
I've never seen a Fixed Deferred Annuity that restarts the surrender charge schedule. I think that would violate nonforfeiture law. But I'm not a lawyer.

In the link you provided the surrender charge schedule also ends after the "contract term". The schedule shows no surrender charge after the selected term.

"A surrender charge applies to all withdrawals over 10% during a contract term and reduces your contract value."

reln
Posts: 191
Joined: Fri Apr 19, 2019 4:01 pm

Re: Annuity?

Post by reln » Sat May 23, 2020 1:09 pm

bberris wrote:
Sat May 23, 2020 6:27 am
Here is an excerpt from the Newport Group stable value primer. Recommended reading if you use a SVF. A guaranty does not guaranty against everything:

"Employer-Directed Events
As discussed above, stable value contracts are less risky for contract providers when redemptions occur randomly than when large redemptions are made at the same time. In the case of large, coordinated transfers, additional protection is added through the put period. However, to protect against sudden large withdrawals, there are certain circumstances where participant withdrawals may be made at the lower of the book and market values. This may occur when the participant withdraws from the fund due to an action by the plan sponsor, such as divestment of a division where the participant had worked or bankruptcy by the plan sponsor. If the plan sponsor advises participants to divest from the fund, their transfers would also be considered employer-directed. Small transfers arising from employer-directed events may sometimes be made at book value, up to a limit set by the fund’s “corridor provision,” if one is in place. This type of transfer tends to be less problematic with pooled vehicles because each plan comprises only a portion of the total fund."
Yeah svf are interesting. I'm not aware of any blowing up in real life yet. My friends that analyze 401k svfs say the models show they are very stable over 99.9% of the time. When they do blow up (in models), the result is pretty damn awful.

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Stinky
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Re: Annuity?

Post by Stinky » Sat May 23, 2020 1:19 pm

reln wrote:
Sat May 23, 2020 1:05 pm
I've never seen a Fixed Deferred Annuity that restarts the surrender charge schedule. I think that would violate nonforfeiture law. But I'm not a lawyer.
I’m also not a non forfeiture law expert. But I know that a MYGA with a “rate for term”, and with a restart on the surrender charge at the start of a new term, is a very common design.

I believe that a new commission is paid at the start of each term. (If the original company didn’t pay a new commission, the broker would 1035 the policy to another MYGA carrier.). That’s a reason for the springing surrender charge.
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bt365
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Re: Annuity?

Post by bt365 » Sat May 23, 2020 2:10 pm

PatrickA5 wrote:
Fri May 22, 2020 9:16 am
Just bought a 2%, 3yr MYGA from Mass Mutual in our IRA's. Little downside if you know you won't need the money for the period. It is basically just like a CD, but surrender charges are a lot worse than early withdrawal penalties. In my case 7% of the balance withdrawn. You're allowed 10% withdrawals per year without surrender charges.

I'm not worried about Mass Mutual going under. It's highly rated and my state has $300,000 guarantee fund. If Mass Mutual and my states fund goes under then, well, we have some serious problems.
Rating agencies. Huh. No more respect for ratings agencies than for high commission whole life policies and wrap accounts. Our short history has plenty instances of capitalism run amok. In recent history billions of dollars in triple-A rated (thank you Moody's, S&P and Fitch) loans were downgraded to junk status and harm from that is with us to this day. Remains to be seen how history will judge ethics of recent corporate tax cut. Each need be their own first line of oversight for financial security.

reln
Posts: 191
Joined: Fri Apr 19, 2019 4:01 pm

Re: Annuity?

Post by reln » Sat May 23, 2020 3:54 pm

Stinky wrote:
Sat May 23, 2020 1:19 pm
reln wrote:
Sat May 23, 2020 1:05 pm
I've never seen a Fixed Deferred Annuity that restarts the surrender charge schedule. I think that would violate nonforfeiture law. But I'm not a lawyer.
I’m also not a non forfeiture law expert. But I know that a MYGA with a “rate for term”, and with a restart on the surrender charge at the start of a new term, is a very common design.

I believe that a new commission is paid at the start of each term. (If the original company didn’t pay a new commission, the broker would 1035 the policy to another MYGA carrier.). That’s a reason for the springing surrender charge.
Can you link one with the restarting surrender schedule?

You're describing a different situation. If you 1035 exchange it into a new contract, you will have a new surrender charge schedule. If you stay in the same contract, you will not have a new surrender charge schedule.

The rate for term structure gives you a "higher" rate for a period and then a lower rate for renewals annually reset. Maybe so low that it's "worth" exchanging into another contract or CD etc.

But fixed annuity contracts are required to have increasing minimum values (section 4: https://www.google.com/url?sa=t&source= ... hnBjyXmFiz ). An increasing surrender charge schedule would violate this requirement.

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Stinky
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Re: Annuity?

Post by Stinky » Sat May 23, 2020 5:47 pm

reln wrote:
Sat May 23, 2020 3:54 pm
Stinky wrote:
Sat May 23, 2020 1:19 pm
reln wrote:
Sat May 23, 2020 1:05 pm
I've never seen a Fixed Deferred Annuity that restarts the surrender charge schedule. I think that would violate nonforfeiture law. But I'm not a lawyer.
I’m also not a non forfeiture law expert. But I know that a MYGA with a “rate for term”, and with a restart on the surrender charge at the start of a new term, is a very common design.

I believe that a new commission is paid at the start of each term. (If the original company didn’t pay a new commission, the broker would 1035 the policy to another MYGA carrier.). That’s a reason for the springing surrender charge.
Can you link one with the restarting surrender schedule?

You're describing a different situation. If you 1035 exchange it into a new contract, you will have a new surrender charge schedule. If you stay in the same contract, you will not have a new surrender charge schedule.

The rate for term structure gives you a "higher" rate for a period and then a lower rate for renewals annually reset. Maybe so low that it's "worth" exchanging into another contract or CD etc.

But fixed annuity contracts are required to have increasing minimum values (section 4: https://www.google.com/url?sa=t&source= ... hnBjyXmFiz ). An increasing surrender charge schedule would violate this requirement.
Look at the “surrender charge” section on the top right side of Page 3.

For this Sagicor product, it says that new surrender charges may apply during a renewal period.

https://www.sagicor.com/-/media/USA-Ass ... 2238352145
It's a GREAT day to be alive - Travis Tritt

reln
Posts: 191
Joined: Fri Apr 19, 2019 4:01 pm

Re: Annuity?

Post by reln » Sat May 23, 2020 9:32 pm

Stinky wrote:
Sat May 23, 2020 5:47 pm
reln wrote:
Sat May 23, 2020 3:54 pm
Stinky wrote:
Sat May 23, 2020 1:19 pm
reln wrote:
Sat May 23, 2020 1:05 pm
I've never seen a Fixed Deferred Annuity that restarts the surrender charge schedule. I think that would violate nonforfeiture law. But I'm not a lawyer.
I’m also not a non forfeiture law expert. But I know that a MYGA with a “rate for term”, and with a restart on the surrender charge at the start of a new term, is a very common design.

I believe that a new commission is paid at the start of each term. (If the original company didn’t pay a new commission, the broker would 1035 the policy to another MYGA carrier.). That’s a reason for the springing surrender charge.
Can you link one with the restarting surrender schedule?

You're describing a different situation. If you 1035 exchange it into a new contract, you will have a new surrender charge schedule. If you stay in the same contract, you will not have a new surrender charge schedule.

The rate for term structure gives you a "higher" rate for a period and then a lower rate for renewals annually reset. Maybe so low that it's "worth" exchanging into another contract or CD etc.

But fixed annuity contracts are required to have increasing minimum values (section 4: https://www.google.com/url?sa=t&source= ... hnBjyXmFiz ). An increasing surrender charge schedule would violate this requirement.
Look at the “surrender charge” section on the top right side of Page 3.

For this Sagicor product, it says that new surrender charges may apply during a renewal period.

https://www.sagicor.com/-/media/USA-Ass ... 2238352145
The wording is horrendous. They need to get their English together.

But renewals are surrender charge free see last sentence.

"At the end of a 3 or 5 year guarantee period, a 30-day
penalty-free window begins. Written notice is provided
45 days in advance of the start of the penalty-free
window period. During the “window” a full or partial
withdrawal may be taken without surrender charge or
market value adjustment. If no withdrawal or a partial
withdrawal is taken, the initial 3 or 5 year guarantee
period will automatically renew with the then-current
guaranteed interest rate subject to surrender charge
and market value adjustment. A 3 year guarantee
period may be renewed a second time. *After the initial
7 year guarantee period, the second 5 year guarantee
period, or the third 3 year guarantee period, renewals
are on an annual basis at the then-current guaranteed
interest rate and withdrawals may be taken at any time
without a surrender charge or market value adjustment.*"

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Stinky
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Location: Sweet Home Alabama

Re: Annuity?

Post by Stinky » Sun May 24, 2020 4:27 am

Reln, read the surrender charge language in its entirety. It is lawyerly and a little cumbersome, but very precise.

Your point (I thought) was that a surrender charge couldn’t go away and then reappear. However, a reappearing surrender charge happens for a Sagicor MYGA with a 3 or 5 year guarantee period.

Consider a Sagicor MYGA policy purchased 1/1/20 with a 3 year guarantee period. If it is renewed, the surrender charge pattern looks like this:

2020 - 9%
2021 - 8%
2022 - 7%
2023 (1/1 to 1/30) - 0%

2023 (1/31 to 12/31) - 9%
2024 - 8%
2025 - 7%
2026 (1/1 to 1/30) - 0%

2026 (1/31 to 12/31) - 9%
2027 - 8%
2028 - 7%

2029 and later - 0%
It's a GREAT day to be alive - Travis Tritt

bberris
Posts: 1422
Joined: Sun Feb 20, 2011 9:44 am

Re: Annuity?

Post by bberris » Mon May 25, 2020 7:38 am

reln wrote:
Sat May 23, 2020 1:09 pm
bberris wrote:
Sat May 23, 2020 6:27 am
Here is an excerpt from the Newport Group stable value primer. Recommended reading if you use a SVF. A guaranty does not guaranty against everything:

"Employer-Directed Events
As discussed above, stable value contracts are less risky for contract providers when redemptions occur randomly than when large redemptions are made at the same time. In the case of large, coordinated transfers, additional protection is added through the put period. However, to protect against sudden large withdrawals, there are certain circumstances where participant withdrawals may be made at the lower of the book and market values. This may occur when the participant withdraws from the fund due to an action by the plan sponsor, such as divestment of a division where the participant had worked or bankruptcy by the plan sponsor. If the plan sponsor advises participants to divest from the fund, their transfers would also be considered employer-directed. Small transfers arising from employer-directed events may sometimes be made at book value, up to a limit set by the fund’s “corridor provision,” if one is in place. This type of transfer tends to be less problematic with pooled vehicles because each plan comprises only a portion of the total fund."
Yeah svf are interesting. I'm not aware of any blowing up in real life yet. My friends that analyze 401k svfs say the models show they are very stable over 99.9% of the time. When they do blow up (in models), the result is pretty damn awful.
I am aware of at least one blowing up (down?) during 2018 in the absence of a crisis.
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