Help with MIL’s Annuities

[fixieclimber]

Hi all,

Hope you all are well! Life’s been busy with two young kids but still periodically try and catch up on up the forum.

Helping my MIL with some retirement planning and need some help on her current annuities. We have a call with Vanguard tomorrow to determine options but wanted your thoughts here as well.

Background as I understand it:

• 1. MIL met with an “advisor” that had sold her and my wife on various products - whole life and the annuities we’ll talk about here. I’ve cancelled my wife’s whole life policy but think we’ll keep MIL’s given how long she’s had it but waiting on illustration (so I can apply my knowledge from last time!)
  2. Annuity details:
  • Flexible Premium Deferred Annuity through North American
    Accumulation Value: $192K
    Surrender Value: $166K
    GMWB Rider Value: $297K
    Annual Lifetime Payment: $14K
    Annual Premium: $1200
    Rider Cost: $2800
  MIL had an old 401k that she rolled over into this annuity. Is this an okay product to keep? $14K/yr seems good superficially but waiting on illustration for this. The annoying thing is the growth is capped at 1-2% so she’s lost out on gains but she’s okay as she’s risk averse.
  • Indexed Annuity Athene Performance Elite Plus 10 through Athena Annuity
    Accumulation Value: $73K
    Surrender Value: $57K
    Death Benefit: $73K
  I can’t find any details on payments from the statement but is this a 10-yr annuity or lifetime? The death benefit confuses me as well. Is this worth keeping?

The “advisor” is suggesting she rolls all of this into a universal life insurance. We don’t need a death benefit but one focus he called out was tax-free income from it. She was sold on it until she talked to me and now doesn’t know what to do. Her goal is a comfortable retirement so I’m trying to figure out best path forward. Personally I wanted to surrender these annuities and put it all in a simple fund but she likes the idea of keeping the lifetime one. How should I approach this analysis?

Goal with Vanguard tomorrow is to learn a bit more and ultimately move away from her old advisor and work with one from Vanguard. Let me know if you need more information and thank you as always.

F

[Harmanic]

It's challenging to assess whether the GMWB is a good value without knowing your mother-in-law's age and health. Activating it is somewhat similar to annuitizing the annuity, but you retain access to the remaining cash value until it's depleted. After that, the guaranteed payments continue. However, making extra withdrawals can reduce the benefit base and future payments. Additionally, it would be helpful to know how long these annuities have been in place and if there are any surrender charges.

[jhblegend]

The “advisor” is suggesting she rolls all of this into a universal life insurance. We don’t need a death benefit but one focus he called out was tax-free income from it.

This advisor is steaming, hot garbage. I would advise to stop communication with them.

1035 exchanges (where the transfer above cost basis would be tax free) is not allowed in the direction of annuity -> life insurance. Either they are grossly negligent or they were preparing to pay the tax on any gains.

[jhblegend]

Additionally, it would be helpful to know how long these annuities have been in place and if there are any surrender charges.

Given the Surrender Value is below the Accumulation Value on both of these annuities, they are both within the surrender charge period.

[Harmanic]

The “advisor” is suggesting she rolls all of this into a universal life insurance. We don’t need a death benefit but one focus he called out was tax-free income from it.

This advisor is steaming, hot garbage. I would advise to stop communication with them.

1035 exchanges (where the transfer above cost basis would be tax free) is not allowed in the direction of annuity -> life insurance. Either they are grossly negligent or they were preparing to pay the tax on any gains.

Agreed. But at least one of these is a retirement account rollover. Can you even hold life insurance inside a retirement account?

[Jack FFR1846]

Having had a Universal Life policy, I believe the term is "Tax Deferred Income", not tax free. Where it becomes tax free is where the premiums are such overpayments that over time, if you take the cash value out, there is so little gain that you pay no tax. In my policy that my dad bought, it was 27 years old and I surrendered it and cashed it out. I was taxed on $20 meaning that all that was "income" beyond what my dad then I paid for 27 years was $20.

People always change "Tax Deferred" to "Tax Free" in their head.

[Stinky]

Hi all,

Hope you all are well! Life’s been busy with two young kids but still periodically try and catch up on up the forum.

Helping my MIL with some retirement planning and need some help on her current annuities. We have a call with Vanguard tomorrow to determine options but wanted your thoughts here as well.

Background as I understand it:

• 1. MIL met with an “advisor” that had sold her and my wife on various products - whole life and the annuities we’ll talk about here. I’ve cancelled my wife’s whole life policy but think we’ll keep MIL’s given how long she’s had it but waiting on illustration (so I can apply my knowledge from last time!)
  2. Annuity details:
  • Flexible Premium Deferred Annuity through North American
    Accumulation Value: $192K
    Surrender Value: $155K
    GMWB Rider Value: $297K
    Annual Lifetime Payment: $14K
    Annual Premium: $1200
    Rider Cost: $2800
  MIL had an old 401k that she rolled over into this annuity. Is this an okay product to keep? $14K/yr seems good superficially but waiting on illustration for this. The annoying thing is the growth is capped at 1-2% so she’s lost out on gains but she’s okay as she’s risk averse.
  • Indexed Annuity Athene Performance Elite Plus 10 through Athena Annuity
    Accumulation Value: $73K
    Surrender Value: $57K
    Death Benefit: $73K
  I can’t find any details on payments from the statement but is this a 10-yr annuity or lifetime? The death benefit confuses me as well. Is this worth keeping?

The “advisor” is suggesting she rolls all of this into a universal life insurance. We don’t need a death benefit but one focus he called out was tax-free income from it. She was sold on it until she talked to me and now doesn’t know what to do. Her goal is a comfortable retirement so I’m trying to figure out best path forward. Personally I wanted to surrender these annuities and put it all in a simple fund but she likes the idea of keeping the lifetime one. How should I approach this analysis?

Goal with Vanguard tomorrow is to learn a bit more and ultimately move away from her old advisor and work with one from Vanguard. Let me know if you need more information and thank you as always.

F

Before I go too far with this long response, I wanted to make one thing clear. MIL’s “advisor” is giving her horrible, terrible, no good, very bad advice. He is attempting to churn the account for commissions, by exchanging annuities that have high surrender fees into a life insurance policy that she doesn’t want or need. I wouldn’t trust ANY recommendation from this advisor, and would suggest cutting off communication with this low life.

Now, on to the details.

Good for you for canceling wife’s whole life policy. When you get the illustration on MIL’s WL policy, let us know if you need any help in assessing it. In some cases, a seasoned whole life policy can provide a reasonable fixed income rate of return.

On the annuities - we’ll look at those separately.

—— North American - There’s something wrong with your numbers here. A surrender value of $155k and an accumulation value of $192k implies a surrender charge of 20%. No annuity has a surrender charge that high. So something’s wrong there.

Does MIL even need or want a monthly income from the annuity? If not, there’s no value or relevance to the GMWB rider. If so, the proper thing to do is to compare the monthly income from the annuity to what she could get from surrendering the annuity and buying a SPIA.

A 1-2% annual return is HORRIBLE. She could easily get 4+% in Treasuries, and a higher rate from MYGAs.

This is likely a “surrender now!” policy. But we need more facts about the surrender charge amount, how long it continues, her age, and her desire for monthly income. Until we have that, we can’t do a whole lot more.

—- Athena annuity - Once again, there’s something wrong here a $57k surrender value and a $73k account value implies a 20% surrender charge. It can’t be that high.

The “10” probably means that it’s a surrender charge that lasts for 10 years.

—- The universal life recommendation - Bad, bad, bad. As someone else has posted, you can’t commingle a taxable account and a rollover IRA, and you can’t buy life insurance with IRA money. Why buy universal life on someone who doesn’t need life insurance?

I can’t say it strongly enough. This advisor is bad news. Get away from that person.

Post back when you have more details on the annuities.

[fixieclimber]

Either they are grossly negligent or they were preparing to pay the tax on any gains.

I believe that was his plan for her. Made it sound like she would come out on top later on after all that.

—— North American - There’s something wrong with your numbers here. A surrender value of $155k and an accumulation value of $192k implies a surrender charge of 20%. No annuity has a surrender charge that high. So something’s wrong there.

Sorry the surrender value is $165K. I was looking at beginning value. I’ve edited above.

Does MIL even need or want a monthly income from the annuity? If not, there’s no value or relevance to the GMWB rider. If so, the proper thing to do is to compare the monthly income from the annuity to what she could get from surrendering the annuity and buying a SPIA.

Will look into this. Not familiar with annuity types but will research tonight. High level pro/con for keeping this vs a SPIA if it’s both guaranteed income?

A 1-2% annual return is HORRIBLE. She could easily get 4+% in Treasuries, and a higher rate from MYGAs.

Yeah I tried to not make her feel bad about it but agreed. I could’ve done better myself!

This is likely a “surrender now!” policy. But we need more facts about the surrender charge amount, how long it continues, her age, and her desire for monthly income. Until we have that, we can’t do a whole lot more.

This will reflect in the illustration right? Waiting on it today. For her retirement income, we’re looking into what she thinks she needs. Apparently advisor never even asked her these questions. But between SS and these balances, I think she’ll be okay so finding what investments she’s comfortable with.

—- Athena annuity - Once again, there’s something wrong here a $57k surrender value and a $73k account value implies a 20% surrender charge. It can’t be that high.

The “10” probably means that it’s a surrender charge that lasts for 10 years.

There’s no other surrender charges here. These are the numbers from the Feb statement.

I can’t say it strongly enough. This advisor is bad news. Get away from that person.

I have asked her to stop communication and let him know we’re looking into it before making a decision. But still waiting on the illustrations from him.

Thanks again everyone.

[bsteiner]

Buying both life insurance and an annuity is like betting on both teams in the same game.

[fixieclimber]

Sorry all dumb question, do all annuities have illustrations? He is “confused” by my request. Is there something else I need to ask?

[Jack FFR1846]

Contact the insurance company directly. Not this salesman. When I had my Universal Life policy, I called the actual company and had an illustration, I believe same day as a PDF emailed to me.

[Stinky]

—— North American - There’s something wrong with your numbers here. A surrender value of $155k and an accumulation value of $192k implies a surrender charge of 20%. No annuity has a surrender charge that high. So something’s wrong there.

Sorry the surrender value is $165K. I was looking at beginning value. I’ve edited above.

—- Athena annuity - Once again, there’s something wrong here a $57k surrender value and a $73k account value implies a 20% surrender charge. It can’t be that high.

There’s no other surrender charges here. These are the numbers from the Feb statement.

Let’s try another approach here, to see if it makes sense to keep these annuities until the surrender charge expires. Can you find out the following things for each annuity -
—— How many years until the surrender charge reduces to zero? You might find that in the policy, or in other documentation.
—- What is the approximate average credited amount she’s made on each annuity in the past? You quoted 1-2% above.

Let’s take the North American annuity. Per your numbers, the current surrender charge is $192k - $165k, or $27k. Let’s say that the surrender charge reduces to zero in 9 years from now. Then the surrender charge will reduce by an average of $27k / 9 years, or $3k per year. Divide that $3k by the current surrender value of $165k to get an average increase to your credited rate of 1.82%. Then add average increase to the credited rate of 1.82% to the (2%) average rate she’s earned on the annuity to get to a 3.82% effective earned rate over the next 9 years.

Is 3.82% (approximately), to be earned from now until the surrender charge expires, an attractive rate to her? If so, the annuity is a candidate for keeping. If not, surrender now.

Does MIL even need or want a monthly income from the annuity? If not, there’s no value or relevance to the GMWB rider. If so, the proper thing to do is to compare the monthly income from the annuity to what she could get from surrendering the annuity and buying a SPIA.

Will look into this. Not familiar with annuity types but will research tonight. High level pro/con for keeping this vs a SPIA if it’s both guaranteed income?

Let’s answer first questions first. Does MIL want to convert this annuity to monthly income, or not? If she wants a monthly income, we can look at alternative. If she wants to just keep the annuity funds intact, for example as a legacy for her family, there's no need to look further.

[jhblegend]

Depending on when those products were issued, I am guessing a huge Market Value Adjustment is making the Surrender Charge appear humongous.

As for inforce annuity illustrations, I am not certain many carriers produce these. Possibly check if there was a new business illustration that would show guaranteed and current assumption ledgers.