Asleep at the Wheel

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Topic Author
Heather
Posts: 25
Joined: Fri Sep 28, 2007 10:52 am

Asleep at the Wheel

Post by Heather »

Hello again Bogleheads! Those of you that have read my previous threads know that my husband and I have recently “woke up” and starting learning the basics about investing. I’ve been dreading looking at his 403b investments because I knew the Ameriprise rep had basically had her way with him for all these years. Sure enough, it’s ugly. As I’m trying to get fees and loads from M* and it dawns on me that the reason these fund names aren’t quite right is that THEY ARE ALL variable annuities. What I’d learned about those so far in my reading , was that I didn’t want any, at least any time soon. Turns out we have 84k of them. I’ve yet to find out where we stand on the surrender fee thing, but I’m guessing it will take a long time to (cost effectively) get the $ out of them and into something less expensive. The good news is, I talked to the HR person at my husband’s school and the school already deals with VG! ( To give my poor husband some credit, the school had maybe 2 vendors back when he first started working there, and VG wasn’t an option ) Also, shutting off the cash flow to Ameriprise is easy too (already done!). We are filling out the paperwork for sending new contributions to Vanguard. My question for the forum is:

What funds should we go with at VG? We were thinking to just use the TR 2015 for now.


Also, if you’ve been reading my threads (thank you), you’ll remember that we are going to get a blast of cash from an inheritance some time next year, (something over 1 million), and at least 80k this year as regular taxable income from my husband being the PR for his Mom’s estate.

Plus, I guess I should trot out the dang Ameriprise portfolio, to let everyone see what we're dealing with. Here it is. The few expense ratios that I listed came from a recent reports that my H saved from Riversource and Wanger Intl Small Cap. It’s all I have to work besides a recent account statement.

Riversource VP Diversified Bond Fund (er .74) 5%
Riversource VP Short Duration US government fund (er 1.22) 5%
Riversource VP Growth Fund (er 1.01) 10%
Riversource VP Diversified Equity Income Fund (er . 91) 15%
WF Advantage VT Asset Alloc 15%
Goldman VIT Mid Cap Value 10%
American Cent VP Value Class II 10%
Wanger US smaller Co 10%
Wanger Intl Small Cap (er.99) 10%
Allbern VPS Intl Val 10%


My instinct is to move assets to VG as the penalties expire, if that’s possible. I will have to find out how to do this. If we are stuck there, then I guess we need to think of this as a learning experience. I dread working with the Ameriprise person, because I am unhappy with her company. I figure she will be unfriendly and unhelpful, since all we want is out. This lady has the letters CFP ChFC after her name. As my kids would say, “Too bad she chose to use her powers for Evil instead of Good.” I’ve got some funny kids!

Heather
fishndoc
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CFP ethics

Post by fishndoc »

Heather,
I will defer advise on your investments to the more experienced and knowledgeable forum members. But, for a CFP to place tax-deferred funds in a variable annuity may well be a violation of the CFB Board's ethics- at the least it is poor judgment. I would definitely check it out, and file a complaint if indeed this is the case.

BTW, while like you I hate paying any unnecessary fees, since the surrender charges for these annuities is going to be a fairly small amount compared to your total portfolio once you get the inheritance, I would probably just go ahead and get completely out of ameriprise, and consider the fees an expensive lesson.

Wayne
" Successful investing involves doing just a few things right, and avoiding serious mistakes." - J. Bogle
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Socrativestor
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Post by Socrativestor »

Hope you don't mind if I weigh in on related issues that you didn't ask about. (And that I haven't seen prior threads.)

1) Inheritance of that size radically changes your financial picture (unless you are very wealthy before). You really need to do top-to-bottom personal financial planning as part of (and prior to) IPS and AA. Not least, your need to take risk is probably going to be quite different going forward.

2) You need liability umbrella insurance ASAP (even before you actually receive the inheritance), if you do not have it already. $2 million is probably a good number. It's cheap, especially for the protection you get.

3) You should do some serious tax planning covering the current and immediate future years -- before your husband draws any/much PR commission. You probably have options on how and when your husband receives his PR commission which can then impact other things like deductions. Obviously you should look for a plan that minimizes overall taxes of the income spike.

In other words, dealing with past VAs may well be least of the challenges facing you at the moment.

Good luck.
--Socrativestor | "Neither of us has any knowledge to boast of, but he thinks that he knows something which he does not know, whereas I am quite conscious of my ignorance."
Topic Author
Heather
Posts: 25
Joined: Fri Sep 28, 2007 10:52 am

Post by Heather »

Thanks Wayne. I wish! But I bet it’s not illegal. Poor judgment? Not for her! The literature tells you all the stupid things you are doing, we just didn’t read (me)or understand it (my Husband - he might have read it). Hiring a financial advisor is not like hiring a painter to do your house! The effects last so much longer and are significantly greater.

Socrativestor,
(1)Yeah, we get that. The other thread “windfall…financial advisor?” has lots of discussion on that theme.
(2)We are getting the insurance.
(3) Our CPA thinks it is best tax wise to take all the income from the PR job in this tax year.

The main thing here is that I want to fill out the VG 403b form in the next day or 2; all the rest is not going to happen immediately!
H
Rodc
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Post by Rodc »

FWIW: Your kids sound like a hoot. :)
mptfan
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Re: Asleep at the Wheel

Post by mptfan »

Heather wrote:What funds should we go with at VG? We were thinking to just use the TR 2015 for now.

Heather
That is an excellent, low cost and well diversified fund of funds. If the asset allocation fits your risk tolerance, then you will be well advised to put all of your retirement funds in that one fund. If you do that, you will be better off than 99% of the population in terms of your asset allocation. Do not equate complexity and sophistication.
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Mel Lindauer
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Post by Mel Lindauer »

Hi Heather:

It's very possible that you can pay the surrender fees and still come out well ahead in a relatively short period of time by switching to the low-cost Vanguard funds that are now available in your husband's 403b.

You can compare your current VA ERs vs the lower Vanguard ERs to see how long it would take you to break even after paying the surrender fees. Keep in mind that normally surrender fees are reduced by 1% on each contract date, so if you're close to a contract date, you might wait until after that surrender fee reduction takes place before making the switch.

With your upcoming inheritance, your taxable account will most likely overwhelm your tax-deferred accounts, so you'll want to make sure you invest the taxable inherited funds in a tax-efficient manner. At that time, you'll may well need to switch all of your tax-deferred accounts to bonds to keep your desired asset allocation in line.

With your upcoming inheritance, it's good to see that you're getting a good handle on how to invest wisely, since there will no doubt be lots of sharks circling you and your husband, trying to get their hands on your money.

Regards,

Mel
bolt
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Post by bolt »

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Barry Barnitz
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403-b

Post by Barry Barnitz »

Heather:

On your 403-b:

1. The expense loadings you have found may not include all of the expenses you are paying. Two years ago I helped an old friend execute a 90-24 transfer on his 403-b balance from a Variable Annuity to a Vanguard 403-b(7) plan. The fund reports supplied the subaccount ERs (without the insurance charges) as .35 for an equity income fund and .65 for a diversified large cap fund. I had to dig through the documentation to find the 1.35 annual insurance charge that was being charged on the total investment. He was actually paying 1.70 and 2.00 for his stock funds.

2. The surrender charge imposed on your 403-b is determined by the rules of your specific contract. In my friend's case, there was a 9 year surrender term on his 403-b. If your husband has been contributing for quite some time you might have passed the surrender tenure point. Make sure you get a copy of the Variable Annuity Prospectus and any other plan documentation to get this information. (In some contracts the surrender term is imposed on each investment in the contract; this is about as bad as it can get.) If you have passed the surrender term for all or part of the investment, you should be able to exchange this part of the investment free of surrender charges to the Vanguard fund of your choice.

3. As you have noted, you can shift your current and future salary deferrals to the Vanguard funds in the 403(b).
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tibbitts
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variable annuities

Post by tibbitts »

A while back, I had a variable annuity for my 403b. Although I didn't know what I was doing and was "sold" the annuity, it turned out that the "fixed account" option paid similar to medium-term CDs, even net of the annuity charge. At the time I probably would have invested in CDs, not knowing anything better, so that turned out okay for me.

For many years, tiaa-cref was the dominant retirement plan in higher education, and it was always considered a a good option despite the annuity aspects.

So while in general it may be a bad idea to have an annuity inside a deferred account, in some cases you might not be so bad off it that happens.

Paul
Topic Author
Heather
Posts: 25
Joined: Fri Sep 28, 2007 10:52 am

Post by Heather »

Bolt,
Don't worry! My husband is a terrific guy. We were both financial dorks together and equally!

mptfan,
Risk tol. is ok, the simplicity is certainly attractive. It will have to change, of course, because so much will be happening, but for today it seems fine to us.

Hi Mel,
I hope you are right and those losses CAN be easily and quickly recouped. I'd like to be shut of that account and the unhappy feelings it generates! Don't worry too much about sharks. We aren't exactly hermits but we don't let people into our lives (and pocketbooks) casually either. I was thinking the same thing about having to have mostly bonds in the tax def accts, eventually. Makes me feel like I'm "catching on"! Thanks for the encouragement!

Barry, I know that the CFP added all the non ameriprise/riversource funds fairly recently. In light of the education I'm getting I wonder if that is because a good portion of some of the old funds were past surrender tenure. Thanks for the heads up on hidden costs. That would make cutting out early even more attractive.

Paul, it would be nice if that were the case, and we didn't really get hosed here! We'll see.

Now I better knock off until tomorrow, because I am way past my self imposed limit on time spent on finance per day. I'm going to go make a homemade fresh pumpkin pie to make up for it!
H
sport
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Don't delay the insurance

Post by sport »

Heather wrote: (2)We are getting the insurance.

The main thing here is that I want to fill out the VG 403b form in the next day or 2; all the rest is not going to happen immediately!
H
Heather,
I suggest that you do not delay getting the umbrella insurance. It is affordable, and if you need it, it is invaluable. All it takes is a phone call to your insurance agent and you have it. Once something happens, it is too late.

Best wishes,
Jeff
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