Securing a "Private Pension"?

[cjonblanchard]

My sister recently attended one of those free one-session classes of 2 or 3 hours at a local college where attendees get an ultra-short course on investment and financial management of retirement assets. She said the guy running the class mentioned something that's new to me -- a "private pension" that's billed as usually only being available to the top 1 or 2% of the population, but also available to his firm's clients. The way she explained it, this "private pension" has principal protection, guaranteed lifetime income for a couple, and can be turned on/off as needed. In this particular case, the advisor suggested moving several hundreds of thousands of $$ from her IRA account to this very safe "Private Pension" (non-taxable transfer). After the death of the second to die, the remaining account balance would be paid to their heirs. She is in her mid-60s and her husband is in his late 70s. The approximate amount that the advisor (who said that he'd be advising her as a fiduciary if hired) said their monthly "pension" income would range from 6% - 8%. Of course, the guy also is offering to manage the rest of my sister and bro-in-law's assets, but didn't get into the fee structure yet. Just for kicks, I looked the guy up on the internet and couldn't find much, but he is listed as passing the Uniform Investment Adviser Law Exam. It appears that it doesn't take a lot to pass the exam -- study for a few weeks, take the test, and pass with a 72% or better. Doesn't look like he's been in the business very long.

I've never heard of a "private pension." Has anyone else out there? I'm starting to think it's another name for something else, like maybe a guaranteed lifetime annuity. But he told the class he didn't like annuities and doesn't like bond funds either. It all sounds fishy to me and I'm amazed at all the angles that exist out there.

Thanks for your insight.

[Gill]

It’s basically a single premium immediate annuity with a guarantee feature.
Gill

[Watty]

It’s basically a single premium immediate annuity with a guarantee feature.
Gill

Or more likely one of the more complex and high cost toxic versions like a variable annuity.

A carefully select single immediate annuity can be a reasonable part of a retirement plan but she is unlikely to get one from someone like him.

[DesertDiva]

Smells like an annuity or similar insurance-based product. The message of exclusivity should raise flags.

I bet his commissions are fabulous.

[SovereignInvestor]

It's interestin that a single premium.annuity is essentially identical to a pension and most commenters love pensions and agree about their safety but so many are reluctant to endorse annuities.

[DesertDiva]

It's interestin that a single premium.annuity is essentially identical to a pension and most commenters love pensions and agree about their safety but so many are reluctant to endorse annuities.

I might get an SPIA when I retire. If I do, it will be through Vanguard or Fidelity. Not from a random guy holding a brief seminar at a local college who is newly licensed.

[CurlyDave]

It's interestin that a single premium.annuity is essentially identical to a pension and most commenters love pensions and agree about their safety but so many are reluctant to endorse annuities.

The big difference is that my employer paid for my pension, but if I wanted a SPIA I would have to pay out of my own pocket.

I didn't have much choice in the pension, but since it was "free" it is a fabulous deal.

As far as the OP goes, I would avoid this private pension like Ebola. And I would avoid the salesman the same way.

[student]

I agree with others that this is likely an annuity. Just by the fact that this salesman is calling it a "private pension" and claims that this is only available to "the top 1 or 2% of the population," I would not do business with this person even if you are interested in an annuity.

[fire5soon]

Based on the description it sounds like an indexed annuity with a joint life income rider.

Couple of points:
- Indexed annuities typically have a capped upside based on an equity index but the contract value does not fall based on that index.
- The advisor may say there are no fees, but the income rider certainly does have a fee which is taken from the contract value.
- Joint life income rider withdrawal rates are based on the younger spouses age. Typically the withdrawal rate on joint life riders is about 50bps lower than a single life rider.
- Advisors like to call this type of contract a private pension because it offers a lifetime income stream based on the income rider. Anyone can buy these contracts, not just the top 1% or 2%. That was a total sales pitch.

These types of contracts have less explicit fees than a variable annuity but are still generally not the best idea. A SPIA will still offer a higher payout rate with no fees.

Hopefully that was a little helpful.

[jminv]

My sister recently attended one of those free one-session classes of 2 or 3 hours at a local college where attendees get an ultra-short course on investment and financial management of retirement assets. She said the guy running the class mentioned something that's new to me -- a "private pension" that's billed as usually only being available to the top 1 or 2% of the population, but also available to his firm's clients. The way she explained it, this "private pension" has principal protection, guaranteed lifetime income for a couple, and can be turned on/off as needed. In this particular case, the advisor suggested moving several hundreds of thousands of $$ from her IRA account to this very safe "Private Pension" (non-taxable transfer). After the death of the second to die, the remaining account balance would be paid to their heirs. She is in her mid-60s and her husband is in his late 70s. The approximate amount that the advisor (who said that he'd be advising her as a fiduciary if hired) said their monthly "pension" income would range from 6% - 8%. Of course, the guy also is offering to manage the rest of my sister and bro-in-law's assets, but didn't get into the fee structure yet. Just for kicks, I looked the guy up on the internet and couldn't find much, but he is listed as passing the Uniform Investment Adviser Law Exam. It appears that it doesn't take a lot to pass the exam -- study for a few weeks, take the test, and pass with a 72% or better. Doesn't look like he's been in the business very long.

I've never heard of a "private pension." Has anyone else out there? I'm starting to think it's another name for something else, like maybe a guaranteed lifetime annuity. But he told the class he didn't like annuities and doesn't like bond funds either. It all sounds fishy to me and I'm amazed at all the angles that exist out there.

Thanks for your insight.

It's an annuity of some kind. 'private pension' is just for sales and so is the exclusivity line, which isn't true. Just a dishonest/misleading sales person. Give this guy's company your money, he will take a cut directly or indirectly and the insurance company will give your sister's money back to her over time. How nice of them to give you back 6% of your money every year. Your sister could also continue investing the money herself and drawing down each year with no need for an intermediary. Specific types of annuties can be good for longevity insurance and to guard against cognitive decline, but what this salesperson is selling isn't it.

Look at immediateannuities.com to run some numbers and skip this sales person if she still wants to go ahead with an annuity.

Also, this wasn't an investment class. It was a sales presentation. They were stuck in a room with a salesman for 2-3 hours who wants the participants to buy his insurance product.

[mmcmonster]

Anyone can buy these contracts, not just the top 1% or 2%. That was a total sales pitch.

Maybe it’s only available to the top 1-2% of world population (7.5 Billion)? That may be true.

[Stinky]

a "private pension" that's billed as usually only being available to the top 1 or 2% of the population, but also available to his firm's clients.

Shark attack alert!

Those words alone would cause me to walk out.

[Arlington2019]

I have been working in healthcare for 35 years and thus have never had a pension. My wife does via her position as a school teacher. I buy annuities all the time as part of the settlement in the malpractice cases that I work on. I recently went through immediate annuities.com and bought myself a single premium deferred income annuity to essentially buy myself a pension. I placed the annuity with New York Life 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. 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.

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 fixed annuities for buying oneself an income stream.

[LadyGeek]

This thread is now in the Personal Finance (Not Investing) forum (pension).

Arlington2019, Welcome!

[capjak]

For some SPIAs, MYGAs can be the right tool. SPIAs are said to be by several researchers to be an efficient way to get a lifetime income stream with a portion of your portfolio. However if I was getting an annuity it would not be from someone that pitched it as described by the OP.

[smectym]

I might get an SPIA when I retire. If I do, it will be through Vanguard or Fidelity. Not from a random guy holding a brief seminar at a local college who is newly licensed.
[/quote]

Not clear whether you’ll be able to get one through Vanguard in the future. Vanguard is getting out of Variable annuities and transferring the servicing of their current VA customers to Transamerica. Whether continuing to service the purchase of immediate annuities will make sense to them is dubious.

[cjonblanchard]

Thanks for your comments, everyone! My sister is aware of the Bogleheads and asked me to inquire into comments, and I'm very glad she did. My opinion of the guy portraying himself as her "fiduciary" was in line with your comments. I'm especially glad she asked me to post, as it was good (for curiosity's sake) to get the an inkling of the probable type of annuity he's suggesting (thanks, fire5soon and others) and also to hear of recent personal experience (thanks, Arlington 2019). My eyebrows were also raised by his 1% claim. But it turns out the 1% figure I stated was over-expansive -- she showed me his proposal and it said this is how the top "1/10th of the top 1%" invest their money. Also that she wouldn't be buying anything -- she'd just be reallocating her funds from one account to another that works better for her, and would retain control of and access to her funds -- a bank analogy. My concern is for his unsuspecting future clients who buy into the strategy.

Like Arlington2019, I plan to purchase an immediate annuity or two, but in a staggered fashion starting maybe 10 years or so from now (I'm 66).

Thanks again for contributing to this great Boglehead resource.

[Helot]

But it turns out the 1% figure I stated was over-expansive -- she showed me his proposal and it said this is how the top "1/10th of the top 1%" invest their money.

There may actually be some truth to this claim. When you analyze insurance and annuity products of this nature, one of the few groups who could benefit from their excessive complexity and tax benefits are those who have assets in excess of the estate tax exemption: $22.8 million in 2019 for a married couple. And even then, the “benefit” is highly suspect.

Run, don’t walk, from this advisor and the product.

[tj]

I might get an SPIA when I retire. If I do, it will be through Vanguard or Fidelity. Not from a random guy holding a brief seminar at a local college who is newly licensed.

Not clear whether you’ll be able to get one through Vanguard in the future. Vanguard is getting out of Variable annuities and transferring the servicing of their current VA customers to Transamerica. Whether continuing to service the purchase of immediate annuities will make sense to them is dubious.
[/quote]

Vanguards variable annuities have nothing to do with their spia's. Completely different subcontractor.