Annuity Advice

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Topic Author
LetsTalkMoney
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Annuity Advice

Post by LetsTalkMoney »

Hi Bogleheads,

This is the second time posting concerning this annuity. Mom 70, has Schwab Choice Variable Annuity. We've learned that she wasn't paying 2.5% of fees like we thought, but 2.11%.

Here are here sub accounts, which can be consolidated Boglehead style. However, with Protective Life, there aren't many low-cost index funds to use. The only one I found was the Schwab Schwab S&P 500 Index Net Expense Ratio .03%.

SUB ACCOUNTS

MID CAP:Great West T Rowe Midcap Growth Fund - Net Expense Ratio - 1.02%
INTERNATIONAL: American FUnds New World - Net Expense Ratio .84%
INTERNATIONAL: Invesco Global Fund - Net Expense Ratio .77%
INDEX: Vaguard VIF Real Estate Index - Net Expense Ratio .26%
INDEX: Schwab S&P 500 Index Net Expense Ratio .03%
BOND: Janus Henderson Flexible Bond - Net Expense Ratio .57%
BOND: PIMCO Cit Total Return - Net Expense Ratio .86%
BOND: Putnam VT Income - Net Expense Ratio .57%

We checked out Fidelities variable annuity. Her costs would be slashed to .77%, but removing the return of guarantee she's currently paying. We're also considering leaving the current annuity in place and just consolidating the subaccounts. Would it be ill-advised if we sold off all of her subaccounts in the Schwab annuity and put all the money into the Schwab S&P 500 Index Net Expense Ratio .03%?

If that's a terrible idea to slash fees, does she need a midcap fund? I don't know the differences in all of her bond funds either. Couldn't those be slashed to one bond fund? The lowest bond fund offered with Protective Life is .57% net expense ratio.

What would you advise us to do? She wants a variable annuity and does not want to take the tax hit to sell it completely.
DarkHelmetII
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Re: Annuity Advice

Post by DarkHelmetII »

1) Get rid of the annuity that charges 2+% which is ridiculous
2) Git rid of it by 1035 into lower cost platform such as Fidelity or Jefferson National / Nationwide
3) I don't believe there is a step-up in basis with annuities and so while nobody likes to take a tax hit, somebody will ultimately have to pay it
4) After getting rid of this annuity - whether to a lower cost provider or fully liquidating into a taxable account, you should have a broader set of low-cost investment options ... at that time re-assess your asset allocation and pick funds accordingly
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Stinky
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Re: Annuity Advice

Post by Stinky »

DarkHelmetII wrote: Fri Jun 18, 2021 1:48 pm 1) Get rid of the annuity that charges 2+% which is ridiculous
2) Git rid of it by 1035 into lower cost platform such as Fidelity or Jefferson National / Nationwide
3) I don't believe there is a step-up in basis with annuities and so while nobody likes to take a tax hit, somebody will ultimately have to pay it
4) After getting rid of this annuity - whether to a lower cost provider or fully liquidating into a taxable account, you should have a broader set of low-cost investment options ... at that time re-assess your asset allocation and pick funds accordingly
This would also be my normal advice.

But if your mother puts a premium value on the guarantees that she has with the current annuity, then the only way to preserve them is to keep the current annuity. In that case, you’d want to minimize the cost of the funds within the annuity.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
Topic Author
LetsTalkMoney
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Re: Annuity Advice

Post by LetsTalkMoney »

Stinky wrote: Fri Jun 18, 2021 2:47 pm
DarkHelmetII wrote: Fri Jun 18, 2021 1:48 pm 1) Get rid of the annuity that charges 2+% which is ridiculous
2) Git rid of it by 1035 into lower cost platform such as Fidelity or Jefferson National / Nationwide
3) I don't believe there is a step-up in basis with annuities and so while nobody likes to take a tax hit, somebody will ultimately have to pay it
4) After getting rid of this annuity - whether to a lower cost provider or fully liquidating into a taxable account, you should have a broader set of low-cost investment options ... at that time re-assess your asset allocation and pick funds accordingly
This would also be my normal advice.

But if your mother puts a premium value on the guarantees that she has with the current annuity, then the only way to preserve them is to keep the current annuity. In that case, you’d want to minimize the cost of the funds within the annuity.
Thank you both for your responses. In order to keep the existing annuity, my choices for low-cost funds in the subaccounts are limited to none. Would it be ill-advised to dump everything into the Schwab S&P 500 Index Fund? That would reduce her fees to .52% with zero diversification.
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Stinky
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Re: Annuity Advice

Post by Stinky »

LetsTalkMoney wrote: Fri Jun 18, 2021 3:07 pm Would it be ill-advised to dump everything into the Schwab S&P 500 Index Fund? That would reduce her fees to .52% with zero diversification.
While the Schwab 500 fund is only a single fund, it includes exposure to 500 large US companies, covering roughly 80% of the US stock market.

It is very diversified.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
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David Jay
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Re: Annuity Advice

Post by David Jay »

Stinky wrote: Fri Jun 18, 2021 3:12 pm
LetsTalkMoney wrote: Fri Jun 18, 2021 3:07 pm Would it be ill-advised to dump everything into the Schwab S&P 500 Index Fund? That would reduce her fees to .52% with zero diversification.
While the Schwab 500 fund is only a single fund, it includes exposure to 500 large US companies, covering roughly 80% of the US stock market.

It is very diversified.
+1 (if you wish to keep the annuity for the guarantees)
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
Topic Author
LetsTalkMoney
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Re: Annuity Advice

Post by LetsTalkMoney »

Stinky wrote: Fri Jun 18, 2021 3:12 pm
LetsTalkMoney wrote: Fri Jun 18, 2021 3:07 pm Would it be ill-advised to dump everything into the Schwab S&P 500 Index Fund? That would reduce her fees to .52% with zero diversification.
While the Schwab 500 fund is only a single fund, it includes exposure to 500 large US companies, covering roughly 80% of the US stock market.

It is very diversified.
Thank you for your feedback. This would be the easiest to do!
Topic Author
LetsTalkMoney
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Joined: Wed Apr 14, 2021 9:01 am

Re: Annuity Advice

Post by LetsTalkMoney »

David Jay wrote: Fri Jun 18, 2021 7:35 pm
Stinky wrote: Fri Jun 18, 2021 3:12 pm
LetsTalkMoney wrote: Fri Jun 18, 2021 3:07 pm Would it be ill-advised to dump everything into the Schwab S&P 500 Index Fund? That would reduce her fees to .52% with zero diversification.
While the Schwab 500 fund is only a single fund, it includes exposure to 500 large US companies, covering roughly 80% of the US stock market.

It is very diversified.
+1 (if you wish to keep the annuity for the guarantees)
She doesn't necessarily need the guarantee, but it'd be so much easier to just consolidate the subaccounts than move the money to Fidelity. Moving things to Fidelity, there's a 30-day holding period and a mess of paperwork.
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