Can a variable annuity be the right choice?

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fsrph
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Can a variable annuity be the right choice?

Post by fsrph » Tue Feb 11, 2020 6:02 pm

With Vanguard exiting selling annuities, I have been looking for an alternative. The best I could find is the Fidelity Personal Retirement Annuity. Base fee is 0.25%. Some of the fund expenses are reasonable - S&P 500 (0.10%), TSM (0.12%), Bond index (0.14%). No surrender fees.

Why am I considering this? I plan to retire soon and, of course, health insurance costs are a concern. If I can defer some income in the annuity I probably could stay below the ACA cliff.

The money funding the annuity would come from various CD's coming due. I would hold mostly bond funds in the annuity as I have no desire to pay stock gains as regular income. After I'm on Medicare I could simply close the annuity with no surrender fee. Or keep it. I could also execute this strategy by buying no dividend stocks, like Berkshire, but I don't really want more stock exposure.

I think most are skeptical of annuities (high fees) but is mine a case where a low cost annuity is appropriate?
"Success is getting what you want. Happiness is wanting what you get." | Dale Carnegie

Jeff Albertson
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Re: Can a variable annuity be the right choice?

Post by Jeff Albertson » Tue Feb 11, 2020 6:42 pm

This may be helpful. Note it is from 2001.
"A Limited Case for Variable Annuities" by Bill Bernstein
http://efficientfrontier.com/ef/701/annuity.htm

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nedsaid
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Re: Can a variable annuity be the right choice?

Post by nedsaid » Tue Feb 11, 2020 7:30 pm

There are states where you might get liability protection from lawsuits by sticking assets in a Variable Annuity. With capital gains tax rates so low, the case for Variable Annuities is much harder to make.
A fool and his money are good for business.

retired@50
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Re: Can a variable annuity be the right choice?

Post by retired@50 » Tue Feb 11, 2020 7:35 pm

After reading the linked William Bernstein page, I'm wondering how many years between your retirement and starting Medicare? 5, maybe 10? You might need to ignore the money inside the annuity for over 15 to 20 years to reach a positive outcome.

Best of luck.

Regards,
Boggle - a game from Parker Brothers. Bogle - investor, founder of Vanguard.

pascalwager
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Re: Can a variable annuity be the right choice?

Post by pascalwager » Tue Feb 11, 2020 8:19 pm

fsrph wrote:
Tue Feb 11, 2020 6:02 pm
With Vanguard exiting selling annuities, I have been looking for an alternative. The best I could find is the Fidelity Personal Retirement Annuity. Base fee is 0.25%. Some of the fund expenses are reasonable - S&P 500 (0.10%), TSM (0.12%), Bond index (0.14%). No surrender fees.

Why am I considering this? I plan to retire soon and, of course, health insurance costs are a concern. If I can defer some income in the annuity I probably could stay below the ACA cliff.

The money funding the annuity would come from various CD's coming due. I would hold mostly bond funds in the annuity as I have no desire to pay stock gains as regular income. After I'm on Medicare I could simply close the annuity with no surrender fee. Or keep it. I could also execute this strategy by buying no dividend stocks, like Berkshire, but I don't really want more stock exposure.

I think most are skeptical of annuities (high fees) but is mine a case where a low cost annuity is appropriate?
I have the Vanguard VA, but doubt that a VA is ever efficient compared to a regular taxable account. But the tax rate will be the same for bonds or stock sub-account units when they're sold out of the VA. Then, when only the cost basis amount remains, withdrawals will be tax-free.
Retired, pension, no SS | 55/45, S/B | 50/50, US/int'l | tilts: large value, small | cash 1%

Topic Author
fsrph
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Joined: Sun Jul 26, 2009 7:54 pm
Location: Pa.

Re: Can a variable annuity be the right choice?

Post by fsrph » Fri Feb 14, 2020 11:06 am

retired@50 wrote:
Tue Feb 11, 2020 7:35 pm
After reading the linked William Bernstein page, I'm wondering how many years between your retirement and starting Medicare? 5, maybe 10? You might need to ignore the money inside the annuity for over 15 to 20 years to reach a positive outcome.

Best of luck.

Regards,
Thanks everyone for your thoughts. It would be four years between retirement and Medicare. By using a low cost variable annuity for these four years I'd qualify for a $8500 ACA subsidy. That has to be considered. Generally here's what I'm thinking:

1. Place enough $$ in the annuity to defer 3 or 4k in income.
2. Collect ACA subsidy.
3. Sign up for Medicare at 65.
4. Could close annuity in four years with no surrender fee and pay tax.

Francis
"Success is getting what you want. Happiness is wanting what you get." | Dale Carnegie

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