Just Bought an Annuity

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Arlington2019
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Re: Just Bought an Annuity

Post by Arlington2019 »

I have been working in healthcare administration for 35 years and thus have never had a pension. My wife does via her position as a school teacher. I am a healthcare risk manager so I deal with insurance and liability issues for a living. I buy annuities all the time as part of the settlement in the malpractice cases that I work on and the Courts usually prefer a simple fixed annuity with a COLA as opposed to a variable annuity. I buy my settlement annuities through a structured settlement consultant that I have been using for 25 years.

When it came time for me to think about an annuity, I did some research and ended up with immediate annuities.com and placed an individual single premium deferred income annuity to essentially buy myself a pension. I first approached our retirement adviser/broker at work, and after I laid out the plan and costs for her, she said I clearly knew what I was doing, she could not do a better job and I would pay a lower commission via immediate annuities, so I should place the annuity through them. I found better quotes through immediate than with Blueprint and I went with New York Life (due to their history, financials and AM Best rating) and opted for the cash benefit option: if I die before the $ 202,400 annuity premium is paid out to me in benefits, the remaining premium is paid as a lump sum to my wife. I did not add any other riders that may be applicable in a joint annuitant situation, for example. I paid for the annuity via a rollover check from my Merrill Edge 401(k) paid directly to New York Life.

Starting two years from now, the annuity will pay me $ 1000/month. The annuity payout plus Social Security at age 62 will provide me with approximately $ 3000/month. This left me with about $ 650 K in my 401(k) that I have invested in TRRBX, VWINX and VBIAX. My current position is about 55% equities and 45% fixed, which I think appropriate for being close to 60 and planning on retiring in 2.5 years and the TRRBX glide path will continue to increase the percentage of fixed vs. equities as we get farther out from 2020. My wife of course has her own state pension, 403(b) and Social Security. I paid off the house earlier this year and we have no debt. I have gained and lost hundreds of thousands of dollars over the years in various market corrections and recoveries, and I wanted to use a portion of my portfolio to fund a guaranteed income stream, especially as we get older and have less time to recover from future market corrections.

Just like the Courts are a big fan of fixed annuities to provide a lifetime income stream for severely-injured people, I am a fan of simple fixed annuities for buying oneself an income stream. I am generally not a fan of variable annuities for my situation. My sister-in-law is an actuary in private practice consulting for corporate retirement plans, and she is also a big fan of simple fixed income (immediate or deferred) annuities if you don't have a pension.
FoolStreet
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Re: Just Bought an Annuity

Post by FoolStreet »

Arlington2019 wrote: Fri Jun 28, 2019 2:59 pm I have been working in healthcare administration for 35 years and thus have never had a pension. My wife does via her position as a school teacher. I am a healthcare risk manager so I deal with insurance and liability issues for a living. I buy annuities all the time as part of the settlement in the malpractice cases that I work on and the Courts usually prefer a simple fixed annuity with a COLA as opposed to a variable annuity. I buy my settlement annuities through a structured settlement consultant that I have been using for 25 years.

When it came time for me to think about an annuity, I did some research and ended up with immediate annuities.com and placed an individual single premium deferred income annuity to essentially buy myself a pension. I first approached our retirement adviser/broker at work, and after I laid out the plan and costs for her, she said I clearly knew what I was doing, she could not do a better job and I would pay a lower commission via immediate annuities, so I should place the annuity through them. I found better quotes through immediate than with Blueprint and I went with New York Life (due to their history, financials and AM Best rating) and opted for the cash benefit option: if I die before the $ 202,400 annuity premium is paid out to me in benefits, the remaining premium is paid as a lump sum to my wife. I did not add any other riders that may be applicable in a joint annuitant situation, for example. I paid for the annuity via a rollover check from my Merrill Edge 401(k) paid directly to New York Life.

Starting two years from now, the annuity will pay me $ 1000/month. The annuity payout plus Social Security at age 62 will provide me with approximately $ 3000/month. This left me with about $ 650 K in my 401(k) that I have invested in TRRBX, VWINX and VBIAX. My current position is about 55% equities and 45% fixed, which I think appropriate for being close to 60 and planning on retiring in 2.5 years and the TRRBX glide path will continue to increase the percentage of fixed vs. equities as we get farther out from 2020. My wife of course has her own state pension, 403(b) and Social Security. I paid off the house earlier this year and we have no debt. I have gained and lost hundreds of thousands of dollars over the years in various market corrections and recoveries, and I wanted to use a portion of my portfolio to fund a guaranteed income stream, especially as we get older and have less time to recover from future market corrections.

Just like the Courts are a big fan of fixed annuities to provide a lifetime income stream for severely-injured people, I am a fan of simple fixed annuities for buying oneself an income stream. I am generally not a fan of variable annuities for my situation. My sister-in-law is an actuary in private practice consulting for corporate retirement plans, and she is also a big fan of simple fixed income (immediate or deferred) annuities if you don't have a pension.
Sounds very well researched and thought out. Seems like you have a 6% withdrawal rate backstopped by your premium. Vs a self-funded 4% Safe Withdrawal Rate backstopped by a floating account balance.
FBN2014
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Re: Just Bought an Annuity

Post by FBN2014 »

Last night I attended another free dinner from an insurance agent peddling fixed indexed annuities. They like them the best because it pays a fat 6-10% commission. He lied through his teeth claiming that the annuity earns a guaranteed 7% return. As they say, the details are in the fine print. Indexed annuities have 2 account values. The actual account which will return 4-6% if the market index that is used to credit interest goes up and the phantom account that accumulates a 7% roll up every year until you start taking income. The amount of income you receive is based on the phantom account value and the payout percentage that corresponds to your age when you turn on the income. I could see the attendees eyes light up when the salesman said you get 7% guaranteed. If you purchase the lifetime income rider that will cost you .95-1.25% each year. As far as I am aware all the other moving parts of an indexed annuity can change and are not guaranteed. Why would anyone buy this product yet tens of billions are sold each year.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain
FoolStreet
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Joined: Fri Sep 07, 2012 12:18 am

Re: Just Bought an Annuity

Post by FoolStreet »

FBN2014 wrote: Fri Jun 28, 2019 4:31 pm Last night I attended another free dinner from an insurance agent peddling fixed indexed annuities. They like them the best because it pays a fat 6-10% commission. He lied through his teeth claiming that the annuity earns a guaranteed 7% return. As they say, the details are in the fine print. Indexed annuities have 2 account values. The actual account which will return 4-6% if the market index that is used to credit interest goes up and the phantom account that accumulates a 7% roll up every year until you start taking income. The amount of income you receive is based on the phantom account value and the payout percentage that corresponds to your age when you turn on the income. I could see the attendees eyes light up when the salesman said you get 7% guaranteed. If you purchase the lifetime income rider that will cost you .95-1.25% each year. As far as I am aware all the other moving parts of an indexed annuity can change and are not guaranteed. Why would anyone buy this product yet tens of billions are sold each year.
If you bought one for 200k, what would the phantom account start at? What is a lifetime rider and which account does it get billed against? If the phantom account is used to base income, then what is the point of the index account? And is there a 3rd account for death value?
FBN2014
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Joined: Sat Mar 08, 2014 2:07 pm

Re: Just Bought an Annuity

Post by FBN2014 »

FoolStreet wrote: Fri Jun 28, 2019 4:44 pm
FBN2014 wrote: Fri Jun 28, 2019 4:31 pm Last night I attended another free dinner from an insurance agent peddling fixed indexed annuities. They like them the best because it pays a fat 6-10% commission. He lied through his teeth claiming that the annuity earns a guaranteed 7% return. As they say, the details are in the fine print. Indexed annuities have 2 account values. The actual account which will return 4-6% if the market index that is used to credit interest goes up and the phantom account that accumulates a 7% roll up every year until you start taking income. The amount of income you receive is based on the phantom account value and the payout percentage that corresponds to your age when you turn on the income. I could see the attendees eyes light up when the salesman said you get 7% guaranteed. If you purchase the lifetime income rider that will cost you .95-1.25% each year. As far as I am aware all the other moving parts of an indexed annuity can change and are not guaranteed. Why would anyone buy this product yet tens of billions are sold each year.
If you bought one for 200k, what would the phantom account start at? The phantom account starts at $200,000 and 7% is added each year until income is turned on. The ones I have seen usually limit the number of years that you can get the 7% rollup to a max of around 10 years. What is a lifetime rider and which account does it get billed against? A lifetime rider guarantees you will receive income until you die (unless its a joint account) and the income distributions are then deducted from the actual cash value account.If the phantom account is used to base income, then what is the point of the index account? The amount of interest that the cash value account is credited with is based on an index that the owner chooses (the S&P 500 is the most popular however you don't receive any dividends that the actual S&P 500 index generates). And is there a 3rd account for death value? The cash vale account is the death benefit amount but if withdrawals have occurred for 20+ years I doubt that there would be much cash value left in the account.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain
gd
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Re: Just Bought an Annuity

Post by gd »

xerxes101 wrote: Sun May 05, 2019 12:15 pm Thanks to OP for this posting and the answers he has provided which have been very informative. I am now wondering what was the cost or commission of the New York Life SPIA versus other annuity providers such as Schwab, Fidelity, Vanguard, or TIAA-CREF. I know for sure that TIAA-CREF does operate in the annuity space and is supposed to be low cost.
Browsing the thread, ran across this and an earlier similar question. From ImmediateAnnuities.com, I just got 4.14% with 2% COLA-adjusted and 5.32% fixed from New York Life, vs. 6% fixed (no inflation-adjusted is offered) over the phone from Vanguard rep (annuity from Transamerica) a month ago. I have low confidence the Vanguard quote is what I'd actually get, the rep was uncomfortably non-straightforward. Offered for comparison, rather not give my personal details.

I've seen reference to a web-based quote for Vanguard annuities (i.e, Transamerica), but cannot find it. Can anyone point me to a way to get quotes on something through Vanguard without a phone call?
FBN2014
Posts: 871
Joined: Sat Mar 08, 2014 2:07 pm

Re: Just Bought an Annuity

Post by FBN2014 »

gd wrote: Sun Jun 30, 2019 5:28 am
xerxes101 wrote: Sun May 05, 2019 12:15 pm Thanks to OP for this posting and the answers he has provided which have been very informative. I am now wondering what was the cost or commission of the New York Life SPIA versus other annuity providers such as Schwab, Fidelity, Vanguard, or TIAA-CREF. I know for sure that TIAA-CREF does operate in the annuity space and is supposed to be low cost.
Browsing the thread, ran across this and an earlier similar question. From ImmediateAnnuities.com, I just got 4.14% with 2% COLA-adjusted and 5.32% fixed from New York Life, vs. 6% fixed (no inflation-adjusted is offered) over the phone from Vanguard rep (annuity from Transamerica) a month ago. I have low confidence the Vanguard quote is what I'd actually get, the rep was uncomfortably non-straightforward. Offered for comparison, rather not give my personal details.

I've seen reference to a web-based quote for Vanguard annuities (i.e, Transamerica), but cannot find it. Can anyone point me to a way to get quotes on something through Vanguard without a phone call?
I remember reading a few years ago that Hueler Companies (Hueler.com) and their sister website (income solutions.com) run the Vanguard quotes. That may have changed.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain
Freetime76
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Re: Just Bought an Annuity

Post by Freetime76 »

HomerJ wrote: Tue Apr 02, 2019 5:13 pm
Greenman72 wrote: Tue Apr 02, 2019 1:42 pm Out of curiosity....it seems that you intentionally did NOT choose to go with a variable annuity. May I ask why not?

(Note--I am an advisor, and I do periodically sell VA's when I deem them appropriate, and you seem like a good candidate. I am NOT soliciting or advertising or promoting my services. Just genuinely curious.)
Because, in general, VAs are bad investments. Fees are too high.

The only "good" annuity is a SPIA, which can be used like the OP did. To set up a lifetime income stream, like a do-it-yourself pension.
I’m appreciating this discussion: my mother has her will set up so that my sister receives an annuity instead of money directly. Am definitely going to check with my mom to see if it specifies the type or not (hope not). Mom didn’t want to do a trust, but she doesn’t want sis to “be homeless” as she says. Of course, the annuity can be sold.. .but I done understand the ins and outs yet. Which is why I am reading this. Thank you for sharing your retirement funding plans! It sounds like you’re in excellent shape and a great model to follow.
FoolStreet
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Re: Just Bought an Annuity

Post by FoolStreet »

FBN2014 wrote: Sun Jun 30, 2019 9:04 am
gd wrote: Sun Jun 30, 2019 5:28 am
xerxes101 wrote: Sun May 05, 2019 12:15 pm Thanks to OP for this posting and the answers he has provided which have been very informative. I am now wondering what was the cost or commission of the New York Life SPIA versus other annuity providers such as Schwab, Fidelity, Vanguard, or TIAA-CREF. I know for sure that TIAA-CREF does operate in the annuity space and is supposed to be low cost.
Browsing the thread, ran across this and an earlier similar question. From ImmediateAnnuities.com, I just got 4.14% with 2% COLA-adjusted and 5.32% fixed from New York Life, vs. 6% fixed (no inflation-adjusted is offered) over the phone from Vanguard rep (annuity from Transamerica) a month ago. I have low confidence the Vanguard quote is what I'd actually get, the rep was uncomfortably non-straightforward. Offered for comparison, rather not give my personal details.

I've seen reference to a web-based quote for Vanguard annuities (i.e, Transamerica), but cannot find it. Can anyone point me to a way to get quotes on something through Vanguard without a phone call?
I remember reading a few years ago that Hueler Companies (Hueler.com) and their sister website (income solutions.com) run the Vanguard quotes. That may have changed.
If the backtested safe withdrawal rate is 4%, which is calculated on then-current dollars, which effectively makes it keep up with inflation, then it seems to me like you are giving up a lot of money for the guarantee of an annuity. Not worth it to me and I’d rather self insure.
Freetime76
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Re: Just Bought an Annuity

Post by Freetime76 »

Greenman72 wrote: Wed Apr 03, 2019 9:08 am Also, IOVA's are extremely useful for people who have large stashes of money that they know they will never use. (Yes--these people exist.)

I have a client who makes about $2m per year in oil & gas royalties. He also has several million dollars in securities that he never ever plans to use--he just doesn't know what else to do with his money. If he puts it in a IOVA, he can put off the tax on the dividends, interest, and capital gains.

This does pose a couple of problems. 1.) You turn capital gain income into ordinary income, and 2.) You forfeit the step-up in basis. Most of the time, #1 is a non-issue, because we do the same thing with all retirement plans. The tax deferral is usually more valuable. #2 is more difficult to deal with. It is always situation-dependent.

Also, IOVA's are extremely useful for trusts that pay tax at compressed rates. They also provide flexibility in determining income to the beneficiary. Don't want any income? Don't take any. Want $50k? Take $50k. Want 173,451.75? You can take exactly that amount. And since inter-vivos trusts get no basis step-up, #2 is a non-issue.
Hello!! Thank you for sharing further details/options. I had to google IOVA...jargon is challenge for us. :confused Anyway, I suspect that there are a number of people on this forum with cash stashes that won’t be used... hopefully that will us, too!

Also, I am curious: what are typical surrender charges (or a range)? Someone else wrote that VA surrender charges are high...
Please spell out new acronyms. Thank you.
bsteiner
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Re: Just Bought an Annuity

Post by bsteiner »

Freetime76 wrote: Sun Jun 30, 2019 10:52 am ...
my mother has her will set up so that my sister receives an annuity instead of money directly. Am definitely going to check with my mom to see if it specifies the type or not (hope not). Mom didn’t want to do a trust, but she doesn’t want sis to “be homeless” as she says. ...
She could include a trust for your sister in her Will.

The annuity will protect against her living too long and the trust being used up, but at a substantial economic and tax cost and loss of flexibility.
Broken Man 1999
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Re: Just Bought an Annuity

Post by Broken Man 1999 »

Freetime76 wrote: Sun Jun 30, 2019 11:08 am
Greenman72 wrote: Wed Apr 03, 2019 9:08 am Also, IOVA's are extremely useful for people who have large stashes of money that they know they will never use. (Yes--these people exist.)

I have a client who makes about $2m per year in oil & gas royalties. He also has several million dollars in securities that he never ever plans to use--he just doesn't know what else to do with his money. If he puts it in a IOVA, he can put off the tax on the dividends, interest, and capital gains.

This does pose a couple of problems. 1.) You turn capital gain income into ordinary income, and 2.) You forfeit the step-up in basis. Most of the time, #1 is a non-issue, because we do the same thing with all retirement plans. The tax deferral is usually more valuable. #2 is more difficult to deal with. It is always situation-dependent.

Also, IOVA's are extremely useful for trusts that pay tax at compressed rates. They also provide flexibility in determining income to the beneficiary. Don't want any income? Don't take any. Want $50k? Take $50k. Want 173,451.75? You can take exactly that amount. And since inter-vivos trusts get no basis step-up, #2 is a non-issue.
Hello!! Thank you for sharing further details/options. I had to google IOVA...jargon is challenge for us. :confused Anyway, I suspect that there are a number of people on this forum with cash stashes that won’t be used... hopefully that will us, too!

Also, I am curious: what are typical surrender charges (or a range)? Someone else wrote that VA surrender charges are high...
One data point, our Vanguard VA has no surrender charges. Others apparently do.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go." - Mark Twain
FBN2014
Posts: 871
Joined: Sat Mar 08, 2014 2:07 pm

Re: Just Bought an Annuity

Post by FBN2014 »

Freetime76 wrote: Sun Jun 30, 2019 11:08 am
Greenman72 wrote: Wed Apr 03, 2019 9:08 am Also, IOVA's are extremely useful for people who have large stashes of money that they know they will never use. (Yes--these people exist.)

I have a client who makes about $2m per year in oil & gas royalties. He also has several million dollars in securities that he never ever plans to use--he just doesn't know what else to do with his money. If he puts it in a IOVA, he can put off the tax on the dividends, interest, and capital gains.

This does pose a couple of problems. 1.) You turn capital gain income into ordinary income, and 2.) You forfeit the step-up in basis. Most of the time, #1 is a non-issue, because we do the same thing with all retirement plans. The tax deferral is usually more valuable. #2 is more difficult to deal with. It is always situation-dependent.

Also, IOVA's are extremely useful for trusts that pay tax at compressed rates. They also provide flexibility in determining income to the beneficiary. Don't want any income? Don't take any. Want $50k? Take $50k. Want 173,451.75? You can take exactly that amount. And since inter-vivos trusts get no basis step-up, #2 is a non-issue.
Hello!! Thank you for sharing further details/options. I had to google IOVA...jargon is challenge for us. :confused Anyway, I suspect that there are a number of people on this forum with cash stashes that won’t be used... hopefully that will us, too!

Also, I am curious: what are typical surrender charges (or a range)? Someone else wrote that VA surrender charges are high...
You can buy a IOVA directly from Jefferson National (a Nationwide company). It has $0 surrender fees, totally liquid. There are 370 mutual fund subaccounts including Vanguard and DFA. The only fees are $20/month unlike other VAs that have mortality and expense charges that can total up to 3%. Another feature I like is that beneficiaries can stretch the payout over their lifetime like a stretch IRA, so they don't get hit with a gigantic tax bill all at once. Not many insurance companies allow this.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain
gd
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Location: MA, USA

Re: Just Bought an Annuity

Post by gd »

FoolStreet wrote: Sun Jun 30, 2019 11:04 am If the backtested safe withdrawal rate is 4%, which is calculated on then-current dollars, which effectively makes it keep up with inflation, then it seems to me like you are giving up a lot of money for the guarantee of an annuity. Not worth it to me and I’d rather self insure.
The point of an annuity for us is a backstop of lifetime payments without muddleheaded old people trying to manage investments. A few percent yield is nothing compared to some of the other undesirable outcomes. People's circumstances in old age are wildly different depending on offspring, pensions, aptitude of spouses and who survives for how long in what cognitive condition.
biscuits
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Re: Just Bought an Annuity

Post by biscuits »

This is a helpful discussion. I am heartened to hear the positive comments on TIAA, as I have a TIAA account (all TIAA traditional) currently at about $140,000. I'm 64 and not planning to touch this until RMD time, but starting to think about which would be better for me, RMD's or an annuity. (This account is one smallish piece of my puzzle).

Another annuity option I've thought about is a charitable annuity with my high school as a beneficiary. Rates look good, and if I die a year after establishing it, the school benefits, and good for them.

Anyone have any thoughts on charitable annuities vs. annuities from commercial entities?
JackoC
Posts: 4710
Joined: Sun Aug 12, 2018 11:14 am

Re: Just Bought an Annuity

Post by JackoC »

FoolStreet wrote: Sun Jun 30, 2019 11:04 am
FBN2014 wrote: Sun Jun 30, 2019 9:04 am
gd wrote: Sun Jun 30, 2019 5:28 am
xerxes101 wrote: Sun May 05, 2019 12:15 pm Thanks to OP for this posting and the answers he has provided which have been very informative. I am now wondering what was the cost or commission of the New York Life SPIA versus other annuity providers such as Schwab, Fidelity, Vanguard, or TIAA-CREF. I know for sure that TIAA-CREF does operate in the annuity space and is supposed to be low cost.
Browsing the thread, ran across this and an earlier similar question. From ImmediateAnnuities.com, I just got 4.14% with 2% COLA-adjusted and 5.32% fixed from New York Life, vs. 6% fixed (no inflation-adjusted is offered) over the phone from Vanguard rep (annuity from Transamerica) a month ago. I have low confidence the Vanguard quote is what I'd actually get, the rep was uncomfortably non-straightforward. Offered for comparison, rather not give my personal details.

I've seen reference to a web-based quote for Vanguard annuities (i.e, Transamerica), but cannot find it. Can anyone point me to a way to get quotes on something through Vanguard without a phone call?
I remember reading a few years ago that Hueler Companies (Hueler.com) and their sister website (income solutions.com) run the Vanguard quotes. That may have changed.
If the backtested safe withdrawal rate is 4%, which is calculated on then-current dollars, which effectively makes it keep up with inflation, then it seems to me like you are giving up a lot of money for the guarantee of an annuity. Not worth it to me and I’d rather self insure.
But that comparison is basically apples and oranges. Backtested results reflect past returns, including bond returns on stock/bond portfolios which in retirement case would include a significant % of bonds. Bond yields were just higher in the past. The annuity is priced on where bond yields are now. And it's also apples and oranges to say 'I want stocks not annuities'. Annuities compare to bonds not stocks. If you want real growth potential in a retirement portfolio neither annuities nor bonds give it. The generally reasonable assumption I think is that annuities are a candidate to replace some bonds in a retirement portfolio, not necessarily to shift the portfolio away from stocks*. In which case the 'back test' argument is pretty clearly apples and oranges, past bond returns v today's yield curve, why would that be any more an argument against annuities than it is against bonds?

I think it's fairly clear that *stock* expected returns are also lower now than the historical average realized return on stocks but that's again somewhat off the point of annuities: annuities aren't stocks. Annuities kind of are bonds, with a long duration (thus increased sensitivity to inflation, compared to fixed rate bonds, and especially compared to TIPs, and which is not mitigated whatsoever by a 2% annual fixed step up, which is *not* a 'COLA'), and the key feature of insuring against longevity risk. Which bonds don't provide at all.

*some people's idea of a retirement portfolio might be no stocks. Others' might be a high stock allocation, 50%+, like in their working years, others' idea is that retirement portfolio's should have some but definitely modest % of stocks like 25%. That's again IMO a somewhat separate decision from having *some* annuities or not.
Greenman72
Posts: 544
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Re: Just Bought an Annuity

Post by Greenman72 »

Freetime76 wrote: Sun Jun 30, 2019 11:08 am
Greenman72 wrote: Wed Apr 03, 2019 9:08 am Also, IOVA's are extremely useful for people who have large stashes of money that they know they will never use. (Yes--these people exist.)

I have a client who makes about $2m per year in oil & gas royalties. He also has several million dollars in securities that he never ever plans to use--he just doesn't know what else to do with his money. If he puts it in a IOVA, he can put off the tax on the dividends, interest, and capital gains.

This does pose a couple of problems. 1.) You turn capital gain income into ordinary income, and 2.) You forfeit the step-up in basis. Most of the time, #1 is a non-issue, because we do the same thing with all retirement plans. The tax deferral is usually more valuable. #2 is more difficult to deal with. It is always situation-dependent.

Also, IOVA's are extremely useful for trusts that pay tax at compressed rates. They also provide flexibility in determining income to the beneficiary. Don't want any income? Don't take any. Want $50k? Take $50k. Want 173,451.75? You can take exactly that amount. And since inter-vivos trusts get no basis step-up, #2 is a non-issue.
Hello!! Thank you for sharing further details/options. I had to google IOVA...jargon is challenge for us. :confused Anyway, I suspect that there are a number of people on this forum with cash stashes that won’t be used... hopefully that will us, too!

Also, I am curious: what are typical surrender charges (or a range)? Someone else wrote that VA surrender charges are high...
Sorry--didn't see this until now.
In my experience (which is small), most IOVA's don't have a surrender charge. They may charge a fee if you withdraw within the first year, but that's just to offset the insurance company's cost of setting up the contract. But again, I haven't looked across the universe to see. YMMV.
bluegrassman
Posts: 5
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OP's Social Security Re: Just Bought an Annuity

Post by bluegrassman »

Sorry to be late to the party -- I'm an inexperienced poster, and I apologize in advance if this should be a new thread. I don't understand something the original poster, TravelforFun, said about Social Security. He said, "My wife filed at 62 last year and she gets $750 a month. I filed for spousal benefits a few months later at my age 66 and get $525 a month. In three years, I will file for my own benefits at age 70 and get $3,600 a month; then my wife would file for her spousal benefits and get $1,000 a month." I fully understand how his wife's benefits are calculated, and why her spousal benefits are reduced because she filed early. However, I thought when a spouse files for benefits, they are deemed to be filing for ALL benefits. So when TravelforFun filed for his spousal benefits at age 66, did he not file for ALL benefits? How does he collect spousal benefits at age 66 and then get to file for his increased benefits (greater than PIA) at age 70? Wouldn't SS say he filed for benefits at age 66, period, and base his benefits on filing at age 66? Sorry if I am ignorant.
dcare
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Re: Just Bought an Annuity

Post by dcare »

From ssa.gov:
If you were born before January 2, 1954 and have already reached full retirement age, you can choose to receive only the spouse’s benefit and delay receiving your retirement benefit until a later date.
bluegrassman
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Re: Just Bought an Annuity

Post by bluegrassman »

OK, thank you dcare. I forgot about the difference for people born before January 2, 1954. My mistake.
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TravelforFun
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Re: Just Bought an Annuity

Post by TravelforFun »

bluegrassman wrote: Mon Jul 22, 2019 4:13 pm OK, thank you dcare. I forgot about the difference for people born before January 2, 1954. My mistake.
bluegrassman, very unfair for the younger folks but we play the cards we're dealt.

TravelforFun
bluegrassman
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Re: Just Bought an Annuity

Post by bluegrassman »

No problem, TravelforFun -- you definitely should play the cards you are dealt. I just have trouble keeping track of the rules of the game!

I have learned a lot from this forum and look forward to learning more.
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Re: Just Bought an Annuity

Post by Tommy »

TravelforFun wrote: Tue Apr 02, 2019 1:07 pm After months of consideration, we pulled the trigger last month and bought an annuity policy from New York Life. We chose:

- The premium of $250K because this is the limit the Texas Life & Health Insurance Guaranty Association would cover.

-
TravelforFun
How do you buy this insurance? You need to apply separately or it is part of the sell?
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TravelforFun
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Re: Just Bought an Annuity

Post by TravelforFun »

Tommy wrote: Wed Nov 27, 2019 8:20 pm
TravelforFun wrote: Tue Apr 02, 2019 1:07 pm After months of consideration, we pulled the trigger last month and bought an annuity policy from New York Life. We chose:

- The premium of $250K because this is the limit the Texas Life & Health Insurance Guaranty Association would cover.

-
TravelforFun
How do you buy this insurance? You need to apply separately or it is part of the sell?
I went to a couple of seminars, reviewed a number of websites, get quotes from a few of companies, then chose New York Life because it has one of the best ratings, been around a long time, has a local office close to me, and the monthly amount it pays me is only $10 less than the highest payment I could get. I called the NYL local office and its agent was more than glad to help me.

TravelforFun
Allan
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Re: Just Bought an Annuity

Post by Allan »

TravelforFun wrote: Tue Apr 02, 2019 5:44 pm My wife filed at 62 last year and she gets $750 a month. I filed for spousal benefits a few months later at my age 66 and get $525 a month. In three years, I will file for my own benefits at age 70 and get $3,600 a month; then my wife would file for her spousal benefits and get $1,000 a month.

TravelforFun
I am about same age and drawing spousal benefits. My #'s are similar to yours except my wife's SS is $2,100. I don't understand your spousal benefit math, don't you get 50% of what your wife is getting? I am also waiting until 70, I also do not understand your wife getting spousal benefits when you turn 70. Wouldn't she continue to get her $750 and then receive spousal benefits only when you pass away? Maybe I'm confused...........
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TravelforFun
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Re: Just Bought an Annuity

Post by TravelforFun »

Allan wrote: Thu Nov 28, 2019 5:18 am
TravelforFun wrote: Tue Apr 02, 2019 5:44 pm My wife filed at 62 last year and she gets $750 a month. I filed for spousal benefits a few months later at my age 66 and get $525 a month. In three years, I will file for my own benefits at age 70 and get $3,600 a month; then my wife would file for her spousal benefits and get $1,000 a month.

TravelforFun
I am about same age and drawing spousal benefits. My #'s are similar to yours except my wife's SS is $2,100. I don't understand your spousal benefit math, don't you get 50% of what your wife is getting? I am also waiting until 70, I also do not understand your wife getting spousal benefits when you turn 70. Wouldn't she continue to get her $750 and then receive spousal benefits only when you pass away? Maybe I'm confused...........
Let me walk you through this. My wife's benefits at her full retirement age (FRA) is $1,050 a month. Because she filed early at 62, she's only getting $750. My spousal benefits of $525 a month is half of my wife FRA benefits.

My benefits at my FRA (age 66) is about $2,700 and at 70 is about $3,600. When I file for my benefits at 70, my wife would be at her FRA and could claim spousal benefits. Her full spousal benefits would be half of my $2,700 or $1,350 but because she had filed early, her spousal benefits would be reduced to about $1,000.

You receive spousal benefits when you are alive and survivor's benefits when your spouse passes. My wife would get my $3,600 if she survives me.

I may be off by a few dollars.

TravelforFun
Last edited by TravelforFun on Sat Nov 30, 2019 10:31 am, edited 1 time in total.
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boglesmymind
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Re: Just Bought an Annuity

Post by boglesmymind »

I too just purchased an annuity. It's a straight joint life which I annuitized from my Vanguard Variable annuity.
It will be with Transamerica who quoted me a significently higher payout than any quote I received from
immediateannuities.com. The amount annuitized was $330000.00 with a 5.95% payout which came to $1638/mo.
This was for a male 66 and female 63.

One thing Vanguard did that I think was pretty shady was take my money out of my portfolio and then never
sent me a statement or email telling me of the transaction. This happened on Nov. 21 2019.
I have heard nothing from Transamerica either. Maybe I'm being a bit impatient, but shouldn't I be
getting an annuity contract?

The $330000 might not even be accurate since I don't know what the closing price was the day it disapeared from my account.
Does anyone here have experiance with annuitizing a Vanguard variable annuity that can explain how the process works going forward?
Last edited by boglesmymind on Fri Nov 29, 2019 12:49 pm, edited 1 time in total.
tj
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Re: Just Bought an Annuity

Post by tj »

boglesmymind wrote: Thu Nov 28, 2019 10:27 pm I too just purchased an annuity. It's a straight joint life which I annuitized from my Vanguard Variable annuity.
It will be with Transamerica which quoted me a significently higher payout than any quote I received from
immediateannuities.com. The amount annuitized was $330000.00 with a 5.95% payout which came to $1638/mo.
This was for a male 66 and female 63.

One thing Vanguard did that I think was pretty shady was take my money out of my portfolio and then never
sent me a statement or email telling me of the transaction. This happened on Nov. 21 2019.
I have heard nothing from Transamerica either. Maybe I'm being a bit impatient, but shouldn't I be
getting an annuity contract?

The $330000 might not even be accurate since I don't know what the closing price was the day it disapeared from my account.
Does anyone here have experiance with annuitizing a Vanguard annuity that can explain how the process works going forward?
That's interesting, how was TransAmerica able to offer something so superior?
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boglesmymind
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Re: Just Bought an Annuity

Post by boglesmymind »

The Vanguard rep quoted those numbers to me, and I remarked about how generous they seemed to be.
He said my contract from Feb 2000 has an automatic bump up in value of 4%.
We shall see.
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TravelforFun
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Re: Just Bought an Annuity

Post by TravelforFun »

boglesmymind wrote: Thu Nov 28, 2019 10:27 pm I too just purchased an annuity. It's a straight joint life which I annuitized from my Vanguard Variable annuity.
It will be with Transamerica who quoted me a significently higher payout than any quote I received from
immediateannuities.com. The amount annuitized was $330000.00 with a 5.95% payout which came to $1638/mo.
This was for a male 66 and female 63.

One thing Vanguard did that I think was pretty shady was take my money out of my portfolio and then never
sent me a statement or email telling me of the transaction. This happened on Nov. 21 2019.
I have heard nothing from Transamerica either. Maybe I'm being a bit impatient, but shouldn't I be
getting an annuity contract?

The $330000 might not even be accurate since I don't know what the closing price was the day it disapeared from my account.
Does anyone here have experiance with annuitizing a Vanguard variable annuity that can explain how the process works going forward?
I reviewed and signed my annuity contract with New York Life online, then had Charles Schwab transfer my money from an IRA account to New York Life, then received a fully executed contract.

TravelforFun
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boglesmymind
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Re: Just Bought an Annuity

Post by boglesmymind »

TravelforFun,
I received my contract today! The rates were a little better than first quoted.
Annuitization amount $330,103.64
Exclusion ratio 30.70%
Cost basis $155,000.00
Payout 5.97%
Payment amt. $1643.92/mo.

Transamerica had the best rates.
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Re: Just Bought an Annuity

Post by CWRadio »

Before buying a SPIA did you consider having a have biological age DNA test? You may find you are 10 older then your calendar age or maybe 10 years younger.
Paul
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Re: Just Bought an Annuity

Post by noraz123 »

FrugalInvestor wrote: Tue Apr 02, 2019 9:55 pm
Greenman72 wrote: Tue Apr 02, 2019 1:42 pm Out of curiosity....it seems that you intentionally did NOT choose to go with a variable annuity. May I ask why not?

(Note--I am an advisor, and I do periodically sell VA's when I deem them appropriate, and you seem like a good candidate. I am NOT soliciting or advertising or promoting my services. Just genuinely curious.)
Under what circumstances would you consider a variable annuity to be appropriate? Not appropriate?
The only time I have seen a variable annuity worth buying is when when unwinding cash value life insurance. It seems one really lousy investment (whole, variable, universal life insurance) can be made slightly less lousy when getting rid of it by using a different lousy investment (variable annuity). For anyone in the position of needing to get rid of whole/variable/universal life insurance that you bought were sold, check out https://www.whitecoatinvestor.com/how-t ... fe-policy/.

In summary
  • SPIAs = :)
  • Variable Annuities = :(
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boglesmymind
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Re: Just Bought an Annuity

Post by boglesmymind »

We opened a Vanguard Variable annuity because niether of us has pension income, only SS which we haven't started yet.
The amount we annuitized is 13% of our total retirement savings. We plan to use this income and withdrawals from those
savings to bridge us to age 70 SS benefits.

We have no heirs, and are both in good health. Everyones financial situations are different.
I think the annuity purchase was a good decicion for us.
I have no regrets.
tj
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Re: Just Bought an Annuity

Post by tj »

boglesmymind wrote: Sat Nov 30, 2019 1:10 pm We opened a Vanguard Variable annuity because niether of us has pension income, only SS which we haven't started yet.
The amount we annuitized is 13% of our total retirement savings. We plan to use this income and withdrawals from those
savings to bridge us to age 70 SS benefits.

We have no heirs, and are both in good health. Everyones financial situations are different.
I think the annuity purchase was a good decicion for us.
I have no regrets.
You said that you opened it in Feb 2000 though. What led you to open a Vanguard Variable annuity rather than alternatives like IRA's? Or is this in addition to your IRA's?
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Re: Just Bought an Annuity

Post by Broken Man 1999 »

Greenman72 wrote: Wed Apr 03, 2019 8:37 am
FrugalInvestor wrote: Tue Apr 02, 2019 9:55 pm
Greenman72 wrote: Tue Apr 02, 2019 1:42 pm Out of curiosity....it seems that you intentionally did NOT choose to go with a variable annuity. May I ask why not?

(Note--I am an advisor, and I do periodically sell VA's when I deem them appropriate, and you seem like a good candidate. I am NOT soliciting or advertising or promoting my services. Just genuinely curious.)
Under what circumstances would you consider a variable annuity to be appropriate? Not appropriate?
First--Anytime a person is considering the purchase of an annuity, I would look at a VA first, because (as we have seen) you can get better income and other better benefits out of the VA.

Second--True story--I sold my grandmother a VA. She had a huge concentrated position in one stock that she had been purchasing since the 70's. When her husband died, she got a basis step-up. So we sold the stock and purchased a VA. (She doesn't need the money. She gets plenty through other sources.)

But she didn't want to put the money in "the stock market", because she didn't want to lose money in her 80's. (I guess "the stock market" is riskier than one stock.) So I explained the death benefit to her--that this is a way to guarantee that she wouldn't lose money--she just had to die to take advantage of that guarantee. Since she doesn't need the money, she's fine with that. She just doesn't want to lose it.

Fact is--VA's have some GUARANTEES, which regular ol' mutual funds don't have. A death benefit (or "return of principal") is one of those guarantees. Whether or not we can expect some certain performance over the next year or five years or thirty years is irrelevant. Clients like to hear the G-word.
Greenman72, could you explain just how a VA would start paying $$$$ immediately?

Color me curious????

Now I have a VA from Vanguard that has grown nicely. I had no access to my 401k plan as I had no earned income. My ER is less than some folks pay on their 401k investment options. Vanguard VAs aren't too shabby. Mine works for my particular situation.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go." - Mark Twain
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boglesmymind
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Re: Just Bought an Annuity

Post by boglesmymind »

You said that you opened it in Feb 2000 though. What led you to open a Vanguard Variable annuity rather than alternatives like IRA's? Or is this in addition to your IRA's?
This was in addition to 401Ks we had at our employers. My wife moved on to an employer who did not offer one, but wanted to continue contributing.
The Variable annuity seemed like a good tax deferred vehicle to substitute for the lack of a 401k.
I have heard that one should not open a VA if they have no intention of some day turning it into an income stream.
There are better methods of investments available.
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TravelforFun
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Re: Just Bought an Annuity

Post by TravelforFun »

boglesmymind wrote: Sat Nov 30, 2019 12:16 pm TravelforFun,
I received my contract today! The rates were a little better than first quoted.
Annuitization amount $330,103.64
Exclusion ratio 30.70%
Cost basis $155,000.00
Payout 5.97%
Payment amt. $1643.92/mo.

Transamerica had the best rates.
Sweet! Enjoy the steady payments. Mine are deposited into my checking account right on the first day of every month.

TravelforFun
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TravelforFun
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Re: Just Bought an Annuity

Post by TravelforFun »

CWRadio wrote: Sat Nov 30, 2019 12:27 pm Before buying a SPIA did you consider having a have biological age DNA test? You may find you are 10 older then your calendar age or maybe 10 years younger.
Paul
No. I've been healthy all my life, my mother is in her early 90s, my wife's parents are in their late 80s, plus my annuity has a cash refund feature meaning if we both die before the sum of our annuity payments reaches the premium, our beneficiaries would receive the difference.

TravelforFun
Greenman72
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Re: Just Bought an Annuity

Post by Greenman72 »

Broken Man 1999 wrote: Sat Nov 30, 2019 2:42 pm
Greenman72 wrote: Wed Apr 03, 2019 8:37 am
FrugalInvestor wrote: Tue Apr 02, 2019 9:55 pm
Greenman72 wrote: Tue Apr 02, 2019 1:42 pm Out of curiosity....it seems that you intentionally did NOT choose to go with a variable annuity. May I ask why not?

(Note--I am an advisor, and I do periodically sell VA's when I deem them appropriate, and you seem like a good candidate. I am NOT soliciting or advertising or promoting my services. Just genuinely curious.)
Under what circumstances would you consider a variable annuity to be appropriate? Not appropriate?
First--Anytime a person is considering the purchase of an annuity, I would look at a VA first, because (as we have seen) you can get better income and other better benefits out of the VA.

Second--True story--I sold my grandmother a VA. She had a huge concentrated position in one stock that she had been purchasing since the 70's. When her husband died, she got a basis step-up. So we sold the stock and purchased a VA. (She doesn't need the money. She gets plenty through other sources.)

But she didn't want to put the money in "the stock market", because she didn't want to lose money in her 80's. (I guess "the stock market" is riskier than one stock.) So I explained the death benefit to her--that this is a way to guarantee that she wouldn't lose money--she just had to die to take advantage of that guarantee. Since she doesn't need the money, she's fine with that. She just doesn't want to lose it.

Fact is--VA's have some GUARANTEES, which regular ol' mutual funds don't have. A death benefit (or "return of principal") is one of those guarantees. Whether or not we can expect some certain performance over the next year or five years or thirty years is irrelevant. Clients like to hear the G-word.
Greenman72, could you explain just how a VA would start paying $$$$ immediately?

Color me curious????

Now I have a VA from Vanguard that has grown nicely. I had no access to my 401k plan as I had no earned income. My ER is less than some folks pay on their 401k investment options. Vanguard VAs aren't too shabby. Mine works for my particular situation.

Broken Man 1999
Sorry about the delayed response. Life has been busy in Greenman World. Nonetheless....

To start taking income from a VA, you just....start taking money out of the VA. Most VA's (all of them, I think) will allow you "start income" on the contract without actually annuitizing it. So you put $100k into the annuity, immediately turn on the income, and you start getting a 6% income stream on $100k. Then, the actual balance the account starts to move with asset prices, VA charges, etc. And if asset prices increase (net of VA charges) to, say, $110k, then your 6% withdrawal rate bumps up to $6,600 (6% of $110k).

Remember--in the VA world, you can take an annual stream of income that is NOT an actual "annuitization".
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Re: Just Bought an Annuity

Post by Broken Man 1999 »

Greenman72 wrote: Mon Jul 20, 2020 2:02 pm
Broken Man 1999 wrote: Sat Nov 30, 2019 2:42 pm
Greenman72 wrote: Wed Apr 03, 2019 8:37 am
FrugalInvestor wrote: Tue Apr 02, 2019 9:55 pm
Greenman72 wrote: Tue Apr 02, 2019 1:42 pm Out of curiosity....it seems that you intentionally did NOT choose to go with a variable annuity. May I ask why not?

(Note--I am an advisor, and I do periodically sell VA's when I deem them appropriate, and you seem like a good candidate. I am NOT soliciting or advertising or promoting my services. Just genuinely curious.)
Under what circumstances would you consider a variable annuity to be appropriate? Not appropriate?
First--Anytime a person is considering the purchase of an annuity, I would look at a VA first, because (as we have seen) you can get better income and other better benefits out of the VA.

Second--True story--I sold my grandmother a VA. She had a huge concentrated position in one stock that she had been purchasing since the 70's. When her husband died, she got a basis step-up. So we sold the stock and purchased a VA. (She doesn't need the money. She gets plenty through other sources.)

But she didn't want to put the money in "the stock market", because she didn't want to lose money in her 80's. (I guess "the stock market" is riskier than one stock.) So I explained the death benefit to her--that this is a way to guarantee that she wouldn't lose money--she just had to die to take advantage of that guarantee. Since she doesn't need the money, she's fine with that. She just doesn't want to lose it.

Fact is--VA's have some GUARANTEES, which regular ol' mutual funds don't have. A death benefit (or "return of principal") is one of those guarantees. Whether or not we can expect some certain performance over the next year or five years or thirty years is irrelevant. Clients like to hear the G-word.
Greenman72, could you explain just how a VA would start paying $$$$ immediately?

Color me curious????

Now I have a VA from Vanguard that has grown nicely. I had no access to my 401k plan as I had no earned income. My ER is less than some folks pay on their 401k investment options. Vanguard VAs aren't too shabby. Mine works for my particular situation.

Broken Man 1999
Sorry about the delayed response. Life has been busy in Greenman World. Nonetheless....

To start taking income from a VA, you just....start taking money out of the VA. Most VA's (all of them, I think) will allow you "start income" on the contract without actually annuitizing it. So you put $100k into the annuity, immediately turn on the income, and you start getting a 6% income stream on $100k. Then, the actual balance the account starts to move with asset prices, VA charges, etc. And if asset prices increase (net of VA charges) to, say, $110k, then your 6% withdrawal rate bumps up to $6,600 (6% of $110k).

Remember--in the VA world, you can take an annual stream of income that is NOT an actual "annuitization".
Yeah, I knew all that, but if I were annuitizing immediately, I would think a SPIA would return better than simply pulling money out. As you have said, it wouldn't have to be all or nothing for the $$$ in the VA. But, I have never ran the numbers, and truthfully never thought about an immediate income stream from a new VA. That is not to say it might be beneficial for some.

I'll run this by Stan the Annuity Man and Vanguard.


Broken Man 1999
Last edited by Broken Man 1999 on Mon Jul 20, 2020 3:00 pm, edited 1 time in total.
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go." - Mark Twain
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Re: Just Bought an Annuity

Post by FBN2014 »

"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain
Greenman72
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Re: Just Bought an Annuity

Post by Greenman72 »

Broken Man 1999 wrote: Mon Jul 20, 2020 2:25 pm Yeah, I knew all that, but if I were annuitizing immediately, I would think a SPIA would return better than simply pulling money out. As you have said, it wouldn't have to be all or nothing for the $$$ in the VA. But, I have never ran the numbers, and truthfully never thought about an immediate income stream from a new VA. That is not to say it might be beneficial for some.
(I'm working off of memory. Some of the details may be off, but the concept remains.)
A few years ago, I had to run some numbers for a 70-year old woman. I was comparing annuities for her. (Don't remember why.)

I shopped around and asked a couple of places how much money she would get on an SPIA. They were all in the 7% range.

I called Jackson (my preferred VA vendor) and asked them what the distribution rate was on a VA for a 70 year old. They said it was 6%. And you still got to keep your contract. And you still got to stay invested in the market. And you still got your death benefits. etc. etc. I'll take that tradeoff for 1% income. Had annuitizing given her 10-12% income, then the decision becomes much more difficult.
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Re: Just Bought an Annuity

Post by bhusa »

Sandtrap wrote: Wed Apr 03, 2019 8:48 am
The Wizard wrote: Wed Apr 03, 2019 8:45 am
TravelforFun wrote: Tue Apr 02, 2019 5:54 pm
Taylor Larimore wrote: Tue Apr 02, 2019 5:06 pm
Greenman72 wrote: Tue Apr 02, 2019 1:42 pm Out of curiosity....it seems that you intentionally did NOT choose to go with a variable annuity. May I ask why not?
Greenman72:

This is why I would never buy a Variable Annuity:

ONE FAULTY INVESTMENT

Best wishes.
Taylor
Wow!
TIAA Immediate Variable Annuities are fine: low cost, uncomplicated, no guarantees or caps.
Portions of my monthly annuity income are based on the broad stock market (CREF Stock) and commercial real estate (TREA).
These payments tend to keep up with inflation and, in fact, have probably outpaced it since I started in 2013.

I have no particular knowledge or recommendation for Variable Annuities from companies other than TIAA...
FWIW, a close old super senior friend (retired university prof) has this and it has paid all his living expenses far beyond what he had into it. Not for everyone but in his case, it has worked out very well.
I bought Vanguard immediate VA in 2013. 70 yr old at the time, invested in Vanguard Equity income fund and total bond (65/35), $1.2M, pay out is 100K/yr at the start, right now it is $130k/yr. I use Roth IRA money.
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Re: Just Bought an Annuity

Post by tj »

Greenman72 wrote: Mon Jul 20, 2020 9:06 pm
Broken Man 1999 wrote: Mon Jul 20, 2020 2:25 pm Yeah, I knew all that, but if I were annuitizing immediately, I would think a SPIA would return better than simply pulling money out. As you have said, it wouldn't have to be all or nothing for the $$$ in the VA. But, I have never ran the numbers, and truthfully never thought about an immediate income stream from a new VA. That is not to say it might be beneficial for some.
(I'm working off of memory. Some of the details may be off, but the concept remains.)
A few years ago, I had to run some numbers for a 70-year old woman. I was comparing annuities for her. (Don't remember why.)

I shopped around and asked a couple of places how much money she would get on an SPIA. They were all in the 7% range.

I called Jackson (my preferred VA vendor) and asked them what the distribution rate was on a VA for a 70 year old. They said it was 6%. And you still got to keep your contract. And you still got to stay invested in the market. And you still got your death benefits. etc. etc. I'll take that tradeoff for 1% income. Had annuitizing given her 10-12% income, then the decision becomes much more difficult.
How can it pay out 6% indefinitely? What is the death benefit? The principle eventually gets eroded, right? What sub-portfolio is the 70 year old invested in?
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Re: Just Bought an Annuity

Post by Greenman72 »

- It pays out 6% indefinitely because it's in the contract. They are contractually obligated to pay 6% on the income base, which is the GREATER of the "premium" ($100k) or the high-water-mark of the portfolio value.
- The death benefit is usually either the contract value, or in the case of Jackson, you can get a guaranteed return of premium as long as there is at least $1 left in the contract value.
- Yes, the principal will eventually erode. But the 6% income benefit stays for ever and ever and ever, amen--until the client dies. Then the beneficiary gets the death benefit, if any remains.
- The 70 year-old will be in whatever sub-portfolio she desires--probably a pretty aggressive portfolio, since we have a guaranteed floor for both income and death benefit, and an unlimited upside.

Compare this to a SPIA. Sure, you get 1% more income. (Or 16.6% more, depending on how you look at it.) But you give up ALL control of your money. You get your monthly income, with no COLA rider, no opportunity for gains in the market, zero liquidity, and zero death benefit.
tj
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Re: Just Bought an Annuity

Post by tj »

Greenman72 wrote: Mon Jul 20, 2020 9:58 pm - It pays out 6% indefinitely because it's in the contract. They are contractually obligated to pay 6% on the income base, which is the GREATER of the "premium" ($100k) or the high-water-mark of the portfolio value.
- The death benefit is usually either the contract value, or in the case of Jackson, you can get a guaranteed return of premium as long as there is at least $1 left in the contract value.
- Yes, the principal will eventually erode. But the 6% income benefit stays for ever and ever and ever, amen--until the client dies. Then the beneficiary gets the death benefit, if any remains.
- The 70 year-old will be in whatever sub-portfolio she desires--probably a pretty aggressive portfolio, since we have a guaranteed floor for both income and death benefit, and an unlimited upside.

Compare this to a SPIA. Sure, you get 1% more income. (Or 16.6% more, depending on how you look at it.) But you give up ALL control of your money. You get your monthly income, with no COLA rider, no opportunity for gains in the market, zero liquidity, and zero death benefit.
The lowest fee for the Jackson seems to have a fee of 0.6% for Vanguard Total Stock Market Index.

If I understand correctly, you are saying someone can buy this annuity and when it comes time to annuitize it, the contractholder will receive either 6% of their premium they've invested or 6% of the premium + growth to that point? Or does the 6% change as time goes on?

What's the catch? How is the insurance company making $$?

Also, how does one compare the various products available from different insurers in this space? How does one even find someone who distributes a given products? There was a lot of press about the Nationwide Monumental product, but it didn't seem any cheaper than a variable annuity form Fidelity or Vanguard.
Broken Man 1999
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Re: Just Bought an Annuity

Post by Broken Man 1999 »

tj wrote: Mon Jul 20, 2020 10:16 pm
Greenman72 wrote: Mon Jul 20, 2020 9:58 pm - It pays out 6% indefinitely because it's in the contract. They are contractually obligated to pay 6% on the income base, which is the GREATER of the "premium" ($100k) or the high-water-mark of the portfolio value.
- The death benefit is usually either the contract value, or in the case of Jackson, you can get a guaranteed return of premium as long as there is at least $1 left in the contract value.
- Yes, the principal will eventually erode. But the 6% income benefit stays for ever and ever and ever, amen--until the client dies. Then the beneficiary gets the death benefit, if any remains.
- The 70 year-old will be in whatever sub-portfolio she desires--probably a pretty aggressive portfolio, since we have a guaranteed floor for both income and death benefit, and an unlimited upside.

Compare this to a SPIA. Sure, you get 1% more income. (Or 16.6% more, depending on how you look at it.) But you give up ALL control of your money. You get your monthly income, with no COLA rider, no opportunity for gains in the market, zero liquidity, and zero death benefit.
The lowest fee for the Jackson seems to have a fee of 0.6% for Vanguard Total Stock Market Index.

If I understand correctly, you are saying someone can buy this annuity and when it comes time to annuitize it, the contractholder will receive either 6% of their premium they've invested or 6% of the premium + growth to that point? Or does the 6% change as time goes on?

What's the catch? How is the insurance company making $$?

Also, how does one compare the various products available from different insurers in this space? How does one even find someone who distributes a given products? There was a lot of press about the Nationwide Monumental product, but it didn't seem any cheaper than a variable annuity form Fidelity or Vanguard.
Frankly, this sounds like a unicorn to me. I think I will ask Stan the Annuity Man what he knows.

Broken Man 1999
“If I cannot drink Bourbon and smoke cigars in Heaven then I shall not go." - Mark Twain
FBN2014
Posts: 871
Joined: Sat Mar 08, 2014 2:07 pm

Re: Just Bought an Annuity

Post by FBN2014 »

tj wrote: Mon Jul 20, 2020 10:16 pm
Greenman72 wrote: Mon Jul 20, 2020 9:58 pm - It pays out 6% indefinitely because it's in the contract. They are contractually obligated to pay 6% on the income base, which is the GREATER of the "premium" ($100k) or the high-water-mark of the portfolio value.
- The death benefit is usually either the contract value, or in the case of Jackson, you can get a guaranteed return of premium as long as there is at least $1 left in the contract value.
- Yes, the principal will eventually erode. But the 6% income benefit stays for ever and ever and ever, amen--until the client dies. Then the beneficiary gets the death benefit, if any remains.
- The 70 year-old will be in whatever sub-portfolio she desires--probably a pretty aggressive portfolio, since we have a guaranteed floor for both income and death benefit, and an unlimited upside.

Compare this to a SPIA. Sure, you get 1% more income. (Or 16.6% more, depending on how you look at it.) But you give up ALL control of your money. You get your monthly income, with no COLA rider, no opportunity for gains in the market, zero liquidity, and zero death benefit.
The lowest fee for the Jackson seems to have a fee of 0.6% for Vanguard Total Stock Market Index.

If I understand correctly, you are saying someone can buy this annuity and when it comes time to annuitize it, the contractholder will receive either 6% of their premium they've invested or 6% of the premium + growth to that point? Or does the 6% change as time goes on?

What's the catch? How is the insurance company making $$?

Also, how does one compare the various products available from different insurers in this space? How does one even find someone who distributes a given products? There was a lot of press about the Nationwide Monumental product, but it didn't seem any cheaper than a variable annuity form Fidelity or Vanguard.
Nationwide's Monument Advisor has no mortality and expense fees. Only a $20 quarterly administration fee plus the expense ratio fee for the sub funds that you choose. All of the major Vanguard index funds are offered in the annuity.
"October is one of the peculiarly dangerous months to speculate in stocks. The others are July, January, September, April, November, May March, June, December, August and February." - M. Twain
Greenman72
Posts: 544
Joined: Fri Nov 01, 2013 2:17 pm

Re: Just Bought an Annuity

Post by Greenman72 »

^Nationwide Monument Advisor is an IOVA, or Investment Only Variable Annuity. It is nothing at all like the Jackson Perspective II, which is the one I was discussing. It has absolutely no additional bells or whistles, like a GMWB or enhanced death benefit. Plus, considering that is designed to be sold as an advisory product, then it will also have an advisory fee added to it (if sold through an FA).

Not a good comparison.
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