Annuity buy out offer

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Kelly
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Annuity buy out offer

Post by Kelly » Thu Nov 07, 2019 12:56 pm

HI all,

I'm helping out a friend on a annuity buyout offer. I'd appreciate any comments on my thinking.

In 2007 he put $105,000 into a variable annuity with a guaranteed minimum income benefit (GMIB). It was with ING and is now with Voya. Contract value is now $137,000. He's 51. If he were to exercise the GMIB at age 65 it would pay him $825/month for life; 10 years certain. He could buy the same thing today at Schwab for $102,000.

The insurer is offering $24,000 on top of the contract value if he surrenders ($161,000 total). My simple thinking is that he he could take the buy out, pay $102,000 for the same thing at Schwab and pocket the $59,000 difference. What am I missing? I'm wondering if there's some other option in the contract that they want to avoid.

Any idea why the insurer wants out? The are selling him an annuity with a market value of $102,000 compared to the $137,000 he's got into it.

Thank you

Kelly

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David Jay
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Re: Annuity buy out offer

Post by David Jay » Thu Nov 07, 2019 1:02 pm

I suspect one or more of your numbers is off. I don’t know which one but ING would not be offering such a rich buyout if the annuity was not “upside down” on ING’s books.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: Annuity buy out offer

Post by Dottie57 » Thu Nov 07, 2019 1:07 pm

Your friend needs toconfirm the exact total payout. They also need to know the taxable amount.

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Kelly
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Re: Annuity buy out offer

Post by Kelly » Thu Nov 07, 2019 1:21 pm

David Jay wrote:
Thu Nov 07, 2019 1:02 pm
I suspect one or more of your numbers is off. I don’t know which one but ING would not be offering such a rich buyout if the annuity was not “upside down” on ING’s books.
Interesting. I have buyout letter. Those are the numbers. The "enhanced surrender adjustment" is $23,863. The cash surrender without the option is $137,114.
Last edited by Kelly on Thu Nov 07, 2019 1:25 pm, edited 1 time in total.

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Re: Annuity buy out offer

Post by Silk McCue » Thu Nov 07, 2019 1:22 pm

Is this VA in a Taxable account or an IRA? If the offer is correct it appears very generous considering the purchase date of 2007 after which the market began a big slide and with the throttled gains that can actually be achieved with these complex products.

In 2016/2017 after finding Bogleheads I cashed in my one and only VA purchased in 2007 that was worth less than what I had put into it. I am glad that I made that move. It was a well thought through decision.

Cheers

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Kelly
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Re: Annuity buy out offer

Post by Kelly » Thu Nov 07, 2019 1:26 pm

It's a taxable contract, not an IRA.

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Re: Annuity buy out offer

Post by RickBoglehead » Thu Nov 07, 2019 1:34 pm

Just to point out, ING = Voya. They were required to change the name when cutting ties to the global company.
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Re: Annuity buy out offer

Post by not4me » Thu Nov 07, 2019 1:34 pm

I would start by calling either Vanguard or Fidelity. They both have annuity "specialists" who are familiar with VAs from many companies & should provide some objective advice; likely helping figure out a gotcha.

I suspect that this buy out offer does not include the option to do a 1035 exchange for that bumped up value. If it doesn't, then your numbers don't reflect the tax hit.

I did a quick search & saw where Voya exited the VA business last year, except for certain types. You may want to research that some more...

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Re: Annuity buy out offer

Post by bberris » Thu Nov 07, 2019 2:17 pm

Kelly wrote:
Thu Nov 07, 2019 12:56 pm
HI all,

I'm helping out a friend on a annuity buyout offer. I'd appreciate any comments on my thinking.

In 2007 he put $105,000 into a variable annuity with a guaranteed minimum income benefit (GMIB). It was with ING and is now with Voya. Contract value is now $137,000. He's 51. If he were to exercise the GMIB at age 65 it would pay him $825/month for life; 10 years certain. He could buy the same thing today at Schwab for $102,000.

The insurer is offering $24,000 on top of the contract value if he surrenders ($161,000 total). My simple thinking is that he he could take the buy out, pay $102,000 for the same thing at Schwab and pocket the $59,000 difference. What am I missing? I'm wondering if there's some other option in the contract that they want to avoid.

Any idea why the insurer wants out? The are selling him an annuity with a market value of $102,000 compared to the $137,000 he's got into it.

Thank you

Kelly
More to the point, why wouldn't the insurer just by an annuity to cover their obligation? I think the annuity may be paying him more that the GMIB if he keeps it.

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Re: Annuity buy out offer

Post by David Jay » Thu Nov 07, 2019 2:19 pm

Kelly wrote:
Thu Nov 07, 2019 1:21 pm
David Jay wrote:
Thu Nov 07, 2019 1:02 pm
I suspect one or more of your numbers is off. I don’t know which one but ING would not be offering such a rich buyout if the annuity was not “upside down” on ING’s books.
Interesting. I have buyout letter. Those are the numbers. The "enhanced surrender adjustment" is $23,863. The cash surrender without the option is $137,114.
I am not talking about those numbers, I was thinking of the payout number, perhaps it does not include the additional guaranteed income base growth between now and age 65. Or there is likely a large difference between liquidation value and income value, and someone (your friend?) is calculating the lifetime benefit on liquidation value instead of income value. Or that you can purchase an identical lifetime benefit from Schwab for $102,000. Or... Or...

These things are so complex and have so many moving parts that it is difficult to compare apples-or-apples. It is widely believed that this is “by design”. But pre 2007 the lifetime benefit riders were much better “deals”. Insurance companies invest in bonds (by law?) and you know where bond rates have gone since 2007. So they are trying to get your friend’s annuity off of their books. I would run all the numbers again before I accepted the offer.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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David Jay
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Re: Annuity buy out offer

Post by David Jay » Thu Nov 07, 2019 2:27 pm

The real question is: Does your friend want a lifetime annuity payout? If not, then take the offer. It is a good way to get out of the annuity and the taxable income is only $32,000.

If he would purchase a replacement annuity from another company then spend some time digging into the numbers, especially the “income value” and its continuing growth.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: Annuity buy out offer

Post by Watty » Thu Nov 07, 2019 2:28 pm

Kelly wrote:
Thu Nov 07, 2019 12:56 pm
What am I missing?
You may be missing taxes.

I don't have a clue how annuities like this would be taxed but I would assume that all of the gain would be taxed in one way or another.

That could put him into a higher tax bracket and also trigger phase outs of income based tax credits and maybe IRMAA medicare taxes.

The would likely be state taxes too and if he is getting an ACA healthcare subsidy he might lose that.

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Re: Annuity buy out offer

Post by 123 » Thu Nov 07, 2019 3:03 pm

It would be a good idea to carefully review the annuity contract, there could be something in it that is potentially very adverse to the annuity provider. Granted that could be a very tedious process.

As a tangent discussion it could just be that the annuity company wants to get that particular annuity contract off it's books for not directly financial reasons. For a time I worked for a insurance company (in the home office) and the marketing people came up with all kinds of twists and turns in the life insurance and annuity products the company sold, each variation was a different product. Some sold well and others had very limited sales, for whatever reason brokers weren't interested in "moving" some products. As a result there were some products that had only a handful of sales (some only 1 or 2). A product that sold very poorly generally required about the same actuarial and accounting effort as one that sold very well. Of course if the product was a true "dud" for the customer hopefully the brokers would move the customer on to something else in a few years (motivated by new policy commission). Nevertheless there were some products which had such low sales volume that I always thought they should be bought back from the customer to reduce the company's overhead over the potential 20 - 50+ year time frame the company would have to support the policy. Automation was great for policies/contract with wide sales but becomes very expensive for oddball products with only a few sales. Perhaps Voya is just weeding out contracts that are particularly tedious to maintain.

In some way of other it's about the money, it always is.
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Kelly
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Re: Annuity buy out offer

Post by Kelly » Thu Nov 07, 2019 4:20 pm

Thanks. This is all very helpful.

The difference between the $105,000 premium and the $161,000 surrender is taxable as income unless some of it is 1035'd into something else.

The max income base is capped. So the max monthly payment is $825 if started at age 65.

The internal rate of return looks terrible. With a $161,000 buy today and 825 starting at age 65 the IRR is 2% at age 92.

Kelly

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Re: Annuity buy out offer

Post by Stinky » Thu Nov 07, 2019 4:36 pm

Kelly wrote:
Thu Nov 07, 2019 4:20 pm
Thanks. This is all very helpful.

The difference between the $105,000 premium and the $161,000 surrender is taxable as income unless some of it is 1035'd into something else.

The max income base is capped. So the max monthly payment is $825 if started at age 65.

The internal rate of return looks terrible. With a $161,000 buy today and 825 starting at age 65 the IRR is 2% at age 92.

Kelly
What happens to the Voya annuity when your friend dies at (say) age 80? That is, after he has begun taking payments and after the "certain" period.

I know that the Schwab annuity would expire with no value. But I suspect that the Voya annuity would have treated the $825 monthly payments as withdrawals from the contract, and residual value (if any) remaining at age 80 (death) would revert to the beneficiaries named by the annuitant.

If I'm correct, then comparing the Schwab and Voya annuities is comparing apples to oranges.
It's a GREAT day to be alive - Travis Tritt

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Re: Annuity buy out offer

Post by Kelly » Thu Nov 07, 2019 4:48 pm

Stinky wrote:
Thu Nov 07, 2019 4:36 pm
Kelly wrote:
Thu Nov 07, 2019 4:20 pm
Thanks. This is all very helpful.

The difference between the $105,000 premium and the $161,000 surrender is taxable as income unless some of it is 1035'd into something else.

The max income base is capped. So the max monthly payment is $825 if started at age 65.

The internal rate of return looks terrible. With a $161,000 buy today and 825 starting at age 65 the IRR is 2% at age 92.

Kelly
What happens to the Voya annuity when your friend dies at (say) age 80? That is, after he has begun taking payments and after the "certain" period.

I know that the Schwab annuity would expire with no value. But I suspect that the Voya annuity would have treated the $825 monthly payments as withdrawals from the contract, and residual value (if any) remaining at age 80 (death) would revert to the beneficiaries named by the annuitant.

If I'm correct, then comparing the Schwab and Voya annuities is comparing apples to oranges.
They are both single life with 10 yr certain. Yes, I suspect but haven't verified yet, that the payments reduce the contract value on a dollar for dollar basis. That's the methodology of other contracts I've seen. He'll likely not get the schwab annuity. I was just using it as a price reference. Agreed that it's not a perfect comparison.

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Re: Annuity buy out offer

Post by Stinky » Thu Nov 07, 2019 5:01 pm

Kelly wrote:
Thu Nov 07, 2019 4:48 pm
Stinky wrote:
Thu Nov 07, 2019 4:36 pm
Kelly wrote:
Thu Nov 07, 2019 4:20 pm
Thanks. This is all very helpful.

The difference between the $105,000 premium and the $161,000 surrender is taxable as income unless some of it is 1035'd into something else.

The max income base is capped. So the max monthly payment is $825 if started at age 65.

The internal rate of return looks terrible. With a $161,000 buy today and 825 starting at age 65 the IRR is 2% at age 92.

Kelly
What happens to the Voya annuity when your friend dies at (say) age 80? That is, after he has begun taking payments and after the "certain" period.

I know that the Schwab annuity would expire with no value. But I suspect that the Voya annuity would have treated the $825 monthly payments as withdrawals from the contract, and residual value (if any) remaining at age 80 (death) would revert to the beneficiaries named by the annuitant.

If I'm correct, then comparing the Schwab and Voya annuities is comparing apples to oranges.
'

They are both single life with 10 yr certain. Yes, I suspect but haven't verified yet, that the payments reduce the contract value on a dollar for dollar basis. That's the methodology of other contracts I've seen. He'll likely not get the schwab annuity. I was just using it as a price reference. Agreed that it's not a perfect comparison.
No, it's definitely not a perfect comparison. Or, really, even a useful one (sorry to sound so harsh).

Just to throw some numbers at you - if your friend's $137k grew by 5% per year for 14 years, it would be $271k when he reaches age 65. At that point, he would start drawing $825 per month ($9.9k per year), which is only a 3.65% withdrawal rate based on $271k. So, if the value continues to increase by 5% per year, the annuity would probably continue to grow after age 65 and would be worth more than $271k at his death.

That being said, I would probably take the money now and run. ING/Voya, along with a number of other companies, wrote some policies with GMIB provisions that were extremely underpriced in the days before the financial crisis. They are now being killed by the reserves required by regulators on these extremely underpriced policies, and they're trying to buy their way out of it. I would take the buyout offer now and invest the proceeds according to my asset allocation - or maybe roll the proceeds into an extremely low cost annuity from Vanguard to avoid the huge fees in the Voya contract.
It's a GREAT day to be alive - Travis Tritt

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Kelly
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Re: Annuity buy out offer

Post by Kelly » Thu Nov 07, 2019 5:13 pm

Stinky wrote:
Thu Nov 07, 2019 5:01 pm
Kelly wrote:
Thu Nov 07, 2019 4:48 pm
Stinky wrote:
Thu Nov 07, 2019 4:36 pm
Kelly wrote:
Thu Nov 07, 2019 4:20 pm
Thanks. This is all very helpful.

The difference between the $105,000 premium and the $161,000 surrender is taxable as income unless some of it is 1035'd into something else.

The max income base is capped. So the max monthly payment is $825 if started at age 65.

The internal rate of return looks terrible. With a $161,000 buy today and 825 starting at age 65 the IRR is 2% at age 92.

Kelly
What happens to the Voya annuity when your friend dies at (say) age 80? That is, after he has begun taking payments and after the "certain" period.

I know that the Schwab annuity would expire with no value. But I suspect that the Voya annuity would have treated the $825 monthly payments as withdrawals from the contract, and residual value (if any) remaining at age 80 (death) would revert to the beneficiaries named by the annuitant.

If I'm correct, then comparing the Schwab and Voya annuities is comparing apples to oranges.
'

They are both single life with 10 yr certain. Yes, I suspect but haven't verified yet, that the payments reduce the contract value on a dollar for dollar basis. That's the methodology of other contracts I've seen. He'll likely not get the schwab annuity. I was just using it as a price reference. Agreed that it's not a perfect comparison.
No, it's definitely not a perfect comparison. Or, really, even a useful one (sorry to sound so harsh).

Just to throw some numbers at you - if your friend's $137k grew by 5% per year for 14 years, it would be $271k when he reaches age 65. At that point, he would start drawing $825 per month ($9.9k per year), which is only a 3.65% withdrawal rate based on $271k. So, if the value continues to increase by 5% per year, the annuity would probably continue to grow after age 65 and would be worth more than $271k at his death.

That being said, I would probably take the money now and run. ING/Voya, along with a number of other companies, wrote some policies with GMIB provisions that were extremely underpriced in the days before the financial crisis. They are now being killed by the reserves required by regulators on these extremely underpriced policies, and they're trying to buy their way out of it. I would take the buyout offer now and invest the proceeds according to my asset allocation - or maybe roll the proceeds into an extremely low cost annuity from Vanguard to avoid the huge fees in the Voya contract.
I was hoping that someone would offer a view as to why the insurer wants to get out of it. Thank you stinky.

The 5% return (that's about Vanguard's 2018 Outlook expected return for 60/40) would be eroded by the fees which I didn't look into yet but would expect to see 2% to 3%. But I do see your point. Ultimately it's the 2% IRR that says run.

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Re: Annuity buy out offer

Post by Mr.BB » Thu Nov 07, 2019 5:17 pm

I don't know much about annuities, but I do know that if a insurance company wants to buy out a contract, the original contract probably benefits the buyer more then the insurance company and they want to try to get out of it.
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Re: Annuity buy out offer

Post by Stinky » Thu Nov 07, 2019 5:19 pm

Kelly wrote:
Thu Nov 07, 2019 5:13 pm

I was hoping that someone would offer a view as to why the insurer wants to get out of it. Thank you stinky.
I'll guarantee you that's why the insurer wants out.

Until the financial crisis, the insurance company actuaries were giving away guarantees on variable annuities like they were going out of style. There was a total lack of sound rigorous pricing in certain companies (trust me, I know this from the inside perspective).

When the financial crisis hit and stock values declined so much so quickly, the insurers saw what the real cost of the guarantees were. And they realized that they had underpriced a whole generation of VA riders. Policy provisions were tightened, fees were raised on new policies, but there wasn't a lot that insurers could do on existing policies.

Then the regulators came along with strengthened reserving requirements, which further compounded the insurers' problem.

That's why your friend is getting a buyout offer. Along with many others that have been offered in the past few years.
It's a GREAT day to be alive - Travis Tritt

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Kelly
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Re: Annuity buy out offer

Post by Kelly » Thu Nov 07, 2019 5:35 pm

Stinky wrote:
Thu Nov 07, 2019 5:19 pm
Kelly wrote:
Thu Nov 07, 2019 5:13 pm

I was hoping that someone would offer a view as to why the insurer wants to get out of it. Thank you stinky.
I'll guarantee you that's why the insurer wants out.

Until the financial crisis, the insurance company actuaries were giving away guarantees on variable annuities like they were going out of style. There was a total lack of sound rigorous pricing in certain companies (trust me, I know this from the inside perspective).

When the financial crisis hit and stock values declined so much so quickly, the insurers saw what the real cost of the guarantees were. And they realized that they had underpriced a whole generation of VA riders. Policy provisions were tightened, fees were raised on new policies, but there wasn't a lot that insurers could do on existing policies.

Then the regulators came along with strengthened reserving requirements, which further compounded the insurers' problem.

That's why your friend is getting a buyout offer. Along with many others that have been offered in the past few years.
Fascinating to get an inside view of this. Question: when I run the IRR starting with a $105,000 premium at age 37 (when he bought it) and $825/mo starting at age 65, the IRR is only 2% at age 91. That doesn't strike me as overly generous??? What am I missing.

Also, the buyout letter only references the GMIB. Could there be something else buried in the contract that they want out of?

Thank you

Kelly

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Re: Annuity buy out offer

Post by Silk McCue » Thu Nov 07, 2019 5:49 pm

Kelly wrote:
Thu Nov 07, 2019 5:35 pm

Fascinating to get an inside view of this. Question: when I run the IRR starting with a $105,000 premium at age 37 (when he bought it) and $825/mo starting at age 65, the IRR is only 2% at age 91. That doesn't strike me as overly generous??? What am I missing.

Also, the buyout letter only references the GMIB. Could there be something else buried in the contract that they want out of?

Thank you

Kelly
[Edit - errant assertion removed]. In 2007 when I foolishly purchased my John Hancock Annuity they were still lousy products with misleading references to S&P500, caps and fee heavy. I have no idea why they want out but the offer being made here appears very good to me. I couldn't care less why they might be wanting to sweeten the pot to stop servicing this Annuity if it were mine. As I mentioned earlier I cashed mine out 3/4 years ago and got less than I had put in. I knew that I wanted to invest Boglehead style and all my other holdings were already switched over to that.

Cheers
Last edited by Silk McCue on Thu Nov 07, 2019 7:05 pm, edited 1 time in total.

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Re: Annuity buy out offer

Post by Stinky » Thu Nov 07, 2019 6:32 pm

Kelly wrote:
Thu Nov 07, 2019 5:35 pm

Fascinating to get an inside view of this. Question: when I run the IRR starting with a $105,000 premium at age 37 (when he bought it) and $825/mo starting at age 65, the IRR is only 2% at age 91. That doesn't strike me as overly generous??? What am I missing.

Also, the buyout letter only references the GMIB. Could there be something else buried in the contract that they want out of?

Thank you

Kelly
The "mispricing" occurred on the GMIB rider itself. The premium for the rider proved to be inadequate to cover the benefits and reserves associated with the rider. The same mispricing occurred on GMWB (guaranteed minimum withdrawal benefits), and to a much less extent on GMDB (guaranteed minimum death benefits.

A reason that the IRR is so low is the most VAs, Voya included, are really larded up with both explicit fees ("mortality and expense") and high fees on the mutual funds. Those fees are a primary reason why most Bogleheads avoid most variable annuities (excluding those from low-cost providers like Vanguard).
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Re: Annuity buy out offer

Post by Stinky » Thu Nov 07, 2019 6:34 pm

Silk McCue wrote:
Thu Nov 07, 2019 5:49 pm

I respectfully disagree with Stinky on this. In 2007 when I foolishly purchased my John Hancock Annuity they were still lousy products with misleading references to S&P500, caps and fee heavy. I have no idea why they want out but the offer being made here appears very good to me. I couldn't care less why they might be wanting to sweeten the pot to stop servicing this Annuity if it were mine. As I mentioned earlier I cashed mine out 3/4 years ago and got less than I had put in. I knew that I wanted to invest Boglehead style and all my other holdings were already switched over to that.

Cheers
I'm not sure what you're disagreeing with me about.

I suggested that she take the money and run.

It sounds like that's what you did. So I'm confused. :confused
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Kelly
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Re: Annuity buy out offer

Post by Kelly » Thu Nov 07, 2019 6:43 pm

Stinky wrote:
Thu Nov 07, 2019 6:32 pm
Kelly wrote:
Thu Nov 07, 2019 5:35 pm

Fascinating to get an inside view of this. Question: when I run the IRR starting with a $105,000 premium at age 37 (when he bought it) and $825/mo starting at age 65, the IRR is only 2% at age 91. That doesn't strike me as overly generous??? What am I missing.

Also, the buyout letter only references the GMIB. Could there be something else buried in the contract that they want out of?

Thank you

Kelly
The "mispricing" occurred on the GMIB rider itself. The premium for the rider proved to be inadequate to cover the benefits and reserves associated with the rider. The same mispricing occurred on GMWB (guaranteed minimum withdrawal benefits), and to a much less extent on GMDB (guaranteed minimum death benefits.

A reason that the IRR is so low is the most VAs, Voya included, are really larded up with both explicit fees ("mortality and expense") and high fees on the mutual funds. Those fees are a primary reason why most Bogleheads avoid most variable annuities (excluding those from low-cost providers like Vanguard).
Very helpful. I volunteer at a non profit financial education foundation where I teach personal finance to lower income folks. I try to expose the BS buried in these VAs. You are answering the questions I've always wondered about. Thank you.

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Re: Annuity buy out offer

Post by Silk McCue » Thu Nov 07, 2019 6:48 pm

Stinky wrote:
Thu Nov 07, 2019 6:34 pm
I'm not sure what you're disagreeing with me about.

I suggested that she take the money and run.

It sounds like that's what you did. So I'm confused. :confused
My sincere apology Stinky. I obviously got turned around somehow on this. Evidently I shouldn’t post while preparing dinner with my wife. :)

Thanks for not kicking my rear harshly.

Cheers

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Re: Annuity buy out offer

Post by Stinky » Thu Nov 07, 2019 7:01 pm

Silk McCue wrote:
Thu Nov 07, 2019 6:48 pm

My sincere apology Stinky. I obviously got turned around somehow on this. Evidently I shouldn’t post while preparing dinner with my wife. :)

Thanks for not kicking my rear harshly.

Cheers
Apology accepted.

Enjoy your dinner. And have a good evening. :sharebeer
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Re: Annuity buy out offer

Post by Kenkat » Thu Nov 07, 2019 7:14 pm

I will second what Stinky is saying here. Many insurers priced these wrong when they were first released and now they are open liabilities for the insurance companies that issued them. I am guessing what is currently available from Schwab is different in some way.

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Re: Annuity buy out offer

Post by nedsaid » Fri Nov 08, 2019 5:52 am

My instinct is that if you are offered a buyout for your annuity that you should have a high degree of skepticism. The principal and/or income guarantees issued on Variable Annuities before the 2008-2009 crash were too generous and now the insurance companies want out. The insurance company does not necessarily have your best interest in mind. These are complex instruments, it might be worth it to have an expert to look at this before you make a decision. Problem is, it is hard to know who to trust. Some time back, I do remember there was a company with a pretty good website that evaluated these and there were good comments about it on the forum. Perhaps somebody could research if that company/website is still around. Mel Lindauer is a good source here, perhaps he could point you in the right direction. Taylor Larimore also worked in the insurance industry and has knowledge here as well. I would send them a personal message and ask for advice as to who to turn to for an evaluation.
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Re: Annuity buy out offer

Post by gd » Fri Nov 08, 2019 8:28 am

not4me wrote:
Thu Nov 07, 2019 1:34 pm
I would start by calling either Vanguard or Fidelity. They both have annuity "specialists" who are familiar with VAs from many companies & should provide some objective advice; likely helping figure out a gotcha.
"Should", yeah. I recently annuitised a Vanguard/Transamerica VA account, and had one conversation with the Vanguard annuity specialist where he repeatedly pushed keeping it in their investments rather than annuitising, although I had made clear I had no interest in doing so. Not a huge deal, but by far the most unimpressive Vanguard transaction in 30+ years.

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Kelly
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Re: Annuity buy out offer

Post by Kelly » Fri Nov 08, 2019 9:15 am

I've looked at many VAs. You really need a CFA or experienced CFP to understand these things. Not sure if the guy on the phone at Vanguard could help.

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David Jay
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Re: Annuity buy out offer

Post by David Jay » Fri Nov 08, 2019 9:29 am

Kelly:

Post up the in-force illustration and a link to the prospectus, maybe the forum can take a look.
Last edited by David Jay on Fri Nov 08, 2019 10:32 am, edited 1 time in total.
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Re: Annuity buy out offer

Post by bsteiner » Fri Nov 08, 2019 9:47 am

Stinky wrote:
Thu Nov 07, 2019 6:32 pm
...
A reason that the IRR is so low is the most VAs, Voya included, are really larded up with both explicit fees ("mortality and expense") and high fees on the mutual funds. Those fees are a primary reason why most Bogleheads avoid most variable annuities (excluding those from low-cost providers like Vanguard).
Even the Vanguard ones have some costs, and turn the qualified dividends and capital gains into ordinary income and give up the basis step-up at death.

Might a low-cost one such as Vanguard's make sense for tax-inefficient assets (such as taxable bonds at a time of high interest rates) held for a long period of time? Of course, that assumes that interest rates will be consistently high over a long period of time.

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Stinky
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Re: Annuity buy out offer

Post by Stinky » Fri Nov 08, 2019 9:52 am

bsteiner wrote:
Fri Nov 08, 2019 9:47 am
Stinky wrote:
Thu Nov 07, 2019 6:32 pm
...
A reason that the IRR is so low is the most VAs, Voya included, are really larded up with both explicit fees ("mortality and expense") and high fees on the mutual funds. Those fees are a primary reason why most Bogleheads avoid most variable annuities (excluding those from low-cost providers like Vanguard).
Even the Vanguard ones have some costs, and turn the qualified dividends and capital gains into ordinary income and give up the basis step-up at death.

Might a low-cost one such as Vanguard's make sense for tax-inefficient assets (such as taxable bonds at a time of high interest rates) held for a long period of time? Of course, that assumes that interest rates will be consistently high over a long period of time.
Agreed.

Even if a VA is purchased from a low-fee provider, one still has the tax inefficiency of all “income” being taxed as ordinary. That makes a VA less than optimal for holding assets, such as stocks, that would get the benefit of qualified dividends and capital gains tax rates if the assets were held in a taxable account.
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