Variable Annuity - Time to Surrender ?

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smitcat
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Re: Variable Annuity - Time to Surrender ?

Post by smitcat » Sat Nov 25, 2017 10:02 am

bsteiner wrote:
Fri Nov 24, 2017 4:42 pm
nedsaid wrote:
Fri Nov 24, 2017 1:14 pm
.. The 3-4% annual fee drag is a lot to overcome.
...
That's a large portion of your expected return to pay for the privilege of turning your qualified dividends and capital gains into ordinary income.
Yes - that part about the taxes makes the product a problem as well as the drag.

smitcat
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Re: Variable Annuity - Time to Surrender ?

Post by smitcat » Sat Nov 25, 2017 10:06 am

itstoomuch wrote:
Fri Nov 24, 2017 7:31 pm
nedsaid wrote:
Fri Nov 24, 2017 4:04 pm
itstoomuch wrote:
Fri Nov 24, 2017 3:38 pm
^ sorta worked.
I was expecting a major correction in the Markets, making the Put in the GLWB valuable. Instead the Market has been stupendous and I only got 50-66% of this the run up because of the Put fee and guarantee fees. :annoyed still got another 12 months :twisted:
Ymmv.
Off to Freddy for a new Kindle. :mrgreen:
This is an excellent illustration of what I have been trying to say. There are trade-offs in purchasing these kind of products. In 2008-2009, you were scared and wanted the guarantees. Now that the markets have recovered rather nicely, one can see what you gave up in order to get the downside protection.
I gave up nothing. Remember, I bought this for the #1/ FUTURE insurance with #2/ Income secondary and #3/ Investment purposes.. We still had a like amount in remaining IRA/Roth/+Discretionary that are all equity. The annuities functioned as quality, high yielding bond as income #2 side; and done fairly well as an investment #3, secured by the good graces of TARP :P . I had moved converted balanced funds in IRA to All equity in the Annuities. Today, even in Vanguard's annuities, you cannot do all equity annuities, only reduced total returns as in balanced funds. Thus even with Vanguard low fees, the buyer has lower yields in the funds allowed.

Ours was a derisking move, not a reduction in volatility.
"I gave up nothing. Remember, I bought this for the #1/ FUTURE insurance with #2/ Income secondary and #3/ Investment purposes."
If these are the goal(s) in that order why not delay SS to a later date to achieve #1 for both the delayer as well as for the surviving spouse?
What other too/plan can reward both the delayer as well as the spouse to such a degree? It also accomplishes #2 as well with great step ups and allows one the ability to spend early with less fear

itstoomuch
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Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Sat Nov 25, 2017 1:31 pm

"I gave up nothing. Remember, I bought this for the #1/ FUTURE insurance with #2/ Income secondary and #3/ Investment purposes."
If these are the goal(s) in that order why not delay SS to a later date to achieve #1 for both the delayer as well as for the surviving spouse?
In context of 2008, The Great Recession, 58/61, one income, my industry in hardware electronics have moved on to massively integrated and programmable ICs and I was taking care of Mom and IL's, and our son who was coming off multiple global internships with big software, dual degreed from TT engineering universities, MS, couldn't find a job. The GWLB annuity was to establish a guaranteed minimum income in 1-10 years much like a pension, PER tier 1 or TIAA traditional annuity, or SS. In 2011, the last remaining human-capital job was gone (smokestack) at our ages 61/64. We had to take early SS and bet that the Markets would improve further.

The delaying of SS for higher income is misunderstood. You are only delaying the return of your own money. It is the same as in annuities. :idea: :confused :annoyed However in a GLWB VA (2008 era) you also get increased Income if the Market does well-the Call :moneybag. If the Market should fall, I would still have the GLWB Income, the Put :dollar . So the Income graphics would be a long staddle ( A "V" shape Income, 1-10 year leap option) :moneybag or :dollar.

If you keep your Retirement Money in the Markets, the INCOME is dependent on the Markets. You are Market Driven. In the mid 70's when Bogle introduced Indexing to the world on Louis Rukyser WSW, Indexing was an Investment not a retirement income vehicle. The Sequence of Returns and Events have turned to our favor, and now I am thinking of terminating the GLWB (some stepup guarantees expire in 2018) Retirement Plan to move the funds into taxable "Investing, non-retirement" . This is the situation that OP has with his Mom's annuity. How to do the transition is the Question; It is one of the question(s) I am trying to solve.
YMMV.
What other too/plan can reward both the delayer as well as the spouse to such a degree? It also accomplishes #2 as well with great step ups and allows one the ability to spend early with less fear
Older GLWB annuities. We got in at 5% stepups, 5% withdrawals, all equity funds. I learned that Metlife, Prudential, etal were marketing 7% stepups, 7% withdrawals. But I was not one of their clients nor one of the high net worth clients of wire houses or brokerages.
A PER Tier 1 employer. A old union employer. A old public transportation employer. A utility company employer.
Just about every employer has gone to cash balance, 401k, or dropped retirement plans all together. The "pension" plans as originally designed essentially put the company and the pension plan under great stress in a declining bond market. It is now up to the employee to discover their own path. Chose carefully :confused
YMMV
Last edited by itstoomuch on Sat Nov 25, 2017 4:08 pm, edited 3 times in total.
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

itstoomuch
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Location: midValley OR

Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Sat Nov 25, 2017 2:16 pm

Some interesting current threads:
How does RE affect AA, viewtopic.php?p=3633420#p3633420
The 4% rule Does fail, Does it still makes sense! viewtopic.php?p=3633414#p3633414
Why Not take SS at 62? viewtopic.php?f=2&t=232776
Regrets for taking SS at 62, or Waiting? viewtopic.php?f=2&t=232916
YMMV

There is no free lunch. :annoyed
Some lunches are better than others :wink:
Some lunches cost less :annoyed
How hungry you are partly determines the quality of the lunch :annoyed
Sometimes for a price, you can get a very good lunch. :idea:
:confused YMMV
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

smitcat
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Re: Variable Annuity - Time to Surrender ?

Post by smitcat » Sat Nov 25, 2017 9:51 pm

itstoomuch wrote:
Sat Nov 25, 2017 1:31 pm
"I gave up nothing. Remember, I bought this for the #1/ FUTURE insurance with #2/ Income secondary and #3/ Investment purposes."
If these are the goal(s) in that order why not delay SS to a later date to achieve #1 for both the delayer as well as for the surviving spouse?
In context of 2008, The Great Recession, 58/61, one income, my industry in hardware electronics have moved on to massively integrated and programmable ICs and I was taking care of Mom and IL's, and our son who was coming off multiple global internships with big software, dual degreed from TT engineering universities, MS, couldn't find a job. The GWLB annuity was to establish a guaranteed minimum income in 1-10 years much like a pension, PER tier 1 or TIAA traditional annuity, or SS. In 2011, the last remaining human-capital job was gone (smokestack) at our ages 61/64. We had to take early SS and bet that the Markets would improve further.

The delaying of SS for higher income is misunderstood. You are only delaying the return of your own money. It is the same as in annuities. :idea: :confused :annoyed However in a GLWB VA (2008 era) you also get increased Income if the Market does well-the Call :moneybag. If the Market should fall, I would still have the GLWB Income, the Put :dollar . So the Income graphics would be a long staddle ( A "V" shape Income, 1-10 year leap option) :moneybag or :dollar.

If you keep your Retirement Money in the Markets, the INCOME is dependent on the Markets. You are Market Driven. In the mid 70's when Bogle introduced Indexing to the world on Louis Rukyser WSW, Indexing was an Investment not a retirement income vehicle. The Sequence of Returns and Events have turned to our favor, and now I am thinking of terminating the GLWB (some stepup guarantees expire in 2018) Retirement Plan to move the funds into taxable "Investing, non-retirement" . This is the situation that OP has with his Mom's annuity. How to do the transition is the Question; It is one of the question(s) I am trying to solve.
YMMV.
What other too/plan can reward both the delayer as well as the spouse to such a degree? It also accomplishes #2 as well with great step ups and allows one the ability to spend early with less fear
Older GLWB annuities. We got in at 5% stepups, 5% withdrawals, all equity funds. I learned that Metlife, Prudential, etal were marketing 7% stepups, 7% withdrawals. But I was not one of their clients nor one of the high net worth clients of wire houses or brokerages.
A PER Tier 1 employer. A old union employer. A old public transportation employer. A utility company employer.
Just about every employer has gone to cash balance, 401k, or dropped retirement plans all together. The "pension" plans as originally designed essentially put the company and the pension plan under great stress in a declining bond market. It is now up to the employee to discover their own path. Chose carefully :confused
YMMV
"In context of 2008, The Great Recession, 58/61, one income, my industry in hardware electronics have moved on to massively integrated and programmable ICs and I was taking care of Mom and IL's, and our son who was coming off multiple global internships with big software, dual degreed from TT engineering universities, MS, couldn't find a job"
Some similarities but we are a bot younger - in 2009 we both lost our jobs in the marketing support industry with no likelihood of similar positions in the foreseeable future. In my case I also lost the opportunity for a % payout of the company sale which went south about a year prior. Our daughter was a junior in HS at the time and began undergrad college in 2011. Our daughter has worked most seasons and can earn a decent salary even with her part time and hectic schedule across 4 jobs each year. She should be out of grad school this time next year and be employed quickly thereafter. Between 2009 and last year we were faced with supporting 3 or our parents who went through protracted medical situations as well as my wife's older brother. Each situation was poor as expected and there appeared no real choices for the most part , the last parent that passed required a decent amount if funds as well as time so it was very draining. When we saw what happened with surviving spouses and SS we learned a bunch about the affects of both.
We elected to return to the employed and reduce our future funds requirements even though we had a decent amount saved at that point - a poor time to be laid off as you are too young to feel ready but too old to easily find employment.
I see SS as delayed receiving your own money as well especially since we put so much in - more than most. But the key differences do make the choice uniquely different than annuities:
- We can delay and take it anytime we like, but we believe we will delay till 70 for me (the older)
- all of SS is not taxed
- It then has a COLA at the higher rate
- my delay will pay out to my younger surviving wife
- I do not pay a fee to get my SS delayed
- the % increase for delaying 8 years is very significant
- at max SS we will have just about all of our required costs covered (required , not desired)

We have modeled the SS delay with both the IORP calculator and the RPM calculator with many possible variables. When we find a run that we really like we also check the outputs with tax software to see what we will keep not just collect. I find that tax part of the equation to be overlooked in some cases and although I do not want the taxes to drive the decisions alone they are important.

"The Sequence of Returns and Events have turned to our favor, and now I am thinking of terminating the GLWB (some stepup guarantees expire in 2018) Retirement Plan to move the funds into taxable "Investing, non-retirement"
Will not there be a tax problem if you terminate the GLWB and move it to a taxable accounts since it resides in the IRA category?

itstoomuch
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Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Sat Nov 25, 2017 11:09 pm

Will not there be a tax problem if you terminate the GLWB and move it to a taxable accounts since it resides in the IRA category?
Yes. It is an alternative choice. Mostly to appease those who say, "terminate all high price annuities," regardless of consequences :twisted:
However, this was a real choice this fall when we had to come up with a very substantial down payment. Wife decided that she would like to live nearer to DS in Seattle area, so I prepared a liquidation sequence that included liquidating IRA's and son returning a subsidy for his home purchase down payment.

Mostly, I believe we will just start GWLB income withdrawals. I have already started withdrawals in the GLWB Fixed-Indexed. (Not the best choice of annuities or retirement Income choices. :x )
YMMV
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

itstoomuch
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Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Sat Nov 25, 2017 11:18 pm

If you have been modeling, you may have discovered, that the more one is able to receive in Percentage % Income from SS, pensions, annuities, the more risks and possible greater rewards from Indexes and other Variable investments thus a larger and safer retirement Income. OP has discovered this, too.
YMMV
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

smitcat
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Re: Variable Annuity - Time to Surrender ?

Post by smitcat » Sun Nov 26, 2017 8:38 am

"The Sequence of Returns and Events have turned to our favor, and now I am thinking of terminating the GLWB (some stepup guarantees expire in 2018) Retirement Plan to move the funds into taxable "Investing, non-retirement" ."

So as the step ups expire and the GLWB begins the challenge is that inflation and time will affect the payments along with the marginal tax rate that these sources produce. The challenge being that taxes work against the literal income and inflation will work away at the fixed payments.
Moving them to taxable will cost tax up front but will allow tax loss and tax gain harvesting as well as lower taxes and selected withdrawal timing as time goes by.
It appears from the outside view that unless you actually 'need' the funds the versatility and lower taxes of after tax will be advantageous over the longer run. In some ways this is similar to Roth conversions when you have high enough taxes and facing higher RMD's.

smitcat
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Re: Variable Annuity - Time to Surrender ?

Post by smitcat » Sun Nov 26, 2017 8:45 am

itstoomuch wrote:
Sat Nov 25, 2017 11:18 pm
If you have been modeling, you may have discovered, that the more one is able to receive in Percentage % Income from SS, pensions, annuities, the more risks and possible greater rewards from Indexes and other Variable investments thus a larger and safer retirement Income. OP has discovered this, too.
YMMV
I have discovered that at higher SS and annuity combined incomes the taxes begin to become significant and the ability to manage those taxes with cap gains and harvesting become more valuable. This also leads to more value for Roth conversions which can (sometimes) lead to advantages of delaying SS and a few other manipulations.
It is also very eye opening when you model one spouse remaining and vary the choices of SS , after tax, Roth and potential annuities.
I am leaning towards selling our own limited annuities as a result of both our modeling and all the posts on this site.

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munemaker
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Re: Variable Annuity - Time to Surrender ?

Post by munemaker » Sun Nov 26, 2017 9:05 am

Mel Lindauer wrote:
Tue Nov 21, 2017 7:44 pm

IMO, there's simply no reason to pay more to put a high-cost, tax-deferred annuity inside an already tax-deferred retirement plan.
Putting a tax-deferred annuity inside an IRA only makes sense to the person selling them.

itstoomuch
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Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Sun Nov 26, 2017 12:00 pm

smitcat,
I'd like to thankyou for your questions. The discussion is helping me focus on the choices.
:beer
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

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Mel Lindauer
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Re: Variable Annuity - Time to Surrender ?

Post by Mel Lindauer » Sun Nov 26, 2017 12:08 pm

munemaker wrote:
Sun Nov 26, 2017 9:05 am
Mel Lindauer wrote:
Tue Nov 21, 2017 7:44 pm

IMO, there's simply no reason to pay more to put a high-cost, tax-deferred annuity inside an already tax-deferred retirement plan.
Putting a tax-deferred annuity inside an IRA only makes sense to the person selling them.
Couldn't agree more. That was my point.
Best Regards - Mel | | Semper Fi

itstoomuch
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Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Sun Nov 26, 2017 12:25 pm

smitcat wrote:
Sun Nov 26, 2017 8:38 am
itstoomuch wrote:The Sequence of Returns and Events have turned to our favor, and now I am thinking of terminating the GLWB (some stepup guarantees expire in 2018) Retirement Plan to move the funds into taxable "Investing, non-retirement.
So as the step ups expire and the GLWB begins the challenge is that inflation and time will affect the payments along with the marginal tax rate that these sources produce. The challenge being that taxes work against the literal income and inflation will work away at the fixed payments.
Moving them to taxable will cost tax up front but will allow tax loss and tax gain harvesting as well as lower taxes and selected withdrawal timing as time goes by.
It appears from the outside view that unless you actually 'need' the funds the versatility and lower taxes of after tax will be advantageous over the longer run. In some ways this is similar to Roth conversions when you have high enough taxes and facing higher RMD's.
I have discovered that at higher SS and annuity combined incomes the taxes begin to become significant and the ability to manage those taxes with cap gains and harvesting become more valuable. This also leads to more value for Roth conversions which can (sometimes) lead to advantages of delaying SS and a few other manipulations.
It is also very eye opening when you model one spouse remaining and vary the choices of SS , after tax, Roth and potential annuities.
I am leaning towards selling our own limited annuities as a result of both our modeling and all the posts on this site.
A couple of other issues with liquidation:
If liquidated, back into self-directed IRA's, I may have a propensity to use the funds in my/hers/ours 'Discretionary Accts." I trade. I trade fairly frequently in tax deferred accounts since I never see the trading fee. :mrgreen:
If I liquidated into taxables, I tend to not trade and put the funds into dividend payers and longterm instruments. I avoid securities that have a potential of losses because I then start to strategize and make theoretical tactical tax decisions.
So question and solution to moving out of the annuities, is What is the next financial product?

Current liquidation value = 465.
Current Income value = 520, 5.5% blended GLWB rate.
Future Income minimum value 2018 anniversary ~ 545
estimated minimum current SWR @4.0% value ~687; estimated minimum SWR @4% future 2018 value ~749.
YMMV
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

smitcat
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Re: Variable Annuity - Time to Surrender ?

Post by smitcat » Sun Nov 26, 2017 1:06 pm

itstoomuch wrote:
Sun Nov 26, 2017 12:00 pm
smitcat,
I'd like to thankyou for your questions. The discussion is helping me focus on the choices.
:beer
Actually - I thank you and the rest of this board for getting me to think.
The most obvious lesson I have learned is that the answer for one person is not the answer for another.
Since we all have different assets , SS benefits, ages, spouses, health and goals they will never be the same.
Even when a mathematical solution on 'income' appears to be equal the results are often not the same due to individual taxes.

itstoomuch
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Re: Variable Annuity - Time to Surrender ?

Post by itstoomuch » Sun Nov 26, 2017 1:58 pm

There are very significant tax quirks with GLWB annuities held within IRAs.
Rev012718; 4 Incm stream buckets: SS+pension; dfr'd GLWB VA & FI anntys, by time & $$ laddered; Discretionary; Rentals. LTCi. Own, not asset. Tax TBT%. Early SS. FundRatio (FR) >1.1 67/70yo

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