45 - Want to Retire - Nervous - Have Questions! (Vanguard, Insurance, Home)

[PennStateCLJ]

Just for future use- I think the only kind of annuity you ever "need" to buy is the SPIA- Single Premium Immediate Annuity. You give insurance company X dollars in a lump sum and they pay you $xxx.xx monthly for life. Kind of like creating your own pension. There are many hidden costs in variable and fixed annuities that really just extract more money from you. The same applies to cash value life insurance- also called whole life/universal life/variable universal life/permanent life insurance. Unlike mutual fund companies, insurance companies are not required to list all their costs. Insurance companies have been called invisible bankers because they control as much money as banks but are much less regulated. Expensive educations hurt. I know because I started one of these without knowing what I was really buying. I encountered a similar surrender penalty. Lesson learned.

 

[PennStateCLJ]

Also the reason I give for paying off the house is your mandatory monthly cash outflow- $9k. I'm guessing the mortgage is a big part of that and since you have more than enough cash on hand you could pay it off, reduce your cash outflows and re-allocate the rest of the cash in your existing portfolio. You'd also be mortgage free so if you do decide to move, you could wait for a good price on your house versus carrying two mortgages while waiting for it to sell. Plus if there is a capital gain on selling it,, the first $500k of gain is tax-free for a married couple. Any taxable investing will be subject to tax year after year.

 

[Gatordoc50]

Well more great news (Not)...It turns our our RiverSource account mentioned is an Annuity that can not be moved without a $17K surrender fee. It has to be held for 10 years before that surrender fee is gone. It was started in 2006 with $100K. It seems that the timer resets when more money is put into it. The planner added money to it in February of this year. Total current value $290K apx.

Boy, this is really starting to become an expensive education.

I would check the fees inside the annuity. Wouldn't be surprised if it's 2% or more. So you're paying about 6k a year in unnecessary fees. Over ten years that is 60k plus the earnings are taxed at ordinary income. I would look closely at the taxes and penalties that would be due if you sold and firecalc the resulting balance vs. Firecalc of the existing annuity. I think you will find that bailing on the annuity now is the better option.

 

[Nathan72]

The Good, The Bad and The Ugly

The Good, The Bad and The Ugly

Well, my wife and I took the important time to total out the costs etc to try to see what is what. The attachment below is based on today's figures. We based it all on 12 months. (The cost of each fund for 1 year.) We also tossed in the over all 12 month return rate just for kicks.

The Good... It looks like we made money. (But nope) So the Good is we did this.
The Bad... The costs of the fund management.
The Ugly... When you consider the Front Load...we actually lost a great deal of $.

Based on the front load fees, we have actually lost a good deal of money. I did not event want to run that figure. It hurts to much.

What have we done! You trust someone and look at what happens. I am totally beside myself really and this is only the Mutual Funds!

The best thing we have done here is opened our eyes. We can not go back, we can only move forward and this education is a costly one. The good news is that it seems we only have 1 find that will cost us to exit. All the others we already paid for. (up the you know what.)

Thanks again all. I need to go lay down.

THE ATTACHMENT BELOW IS A GOOD EXAMPLE OF WHY YOU NEED TO
UNDERSTAND WHERE YOUR MONEY GOES. WE HAVE LEARNED THE HARD WAY.

Please Note...What this DOES NOT SHOW is that we also were being charged .45% management fee of the current $1.5m portfolio that was being handled (only $1M shown above) and $700 a year to talk with our adviser. Together that added another $7,450 a year on top of all the fund charges we were already paying. I guess my point is that you need to consider ALL THE COSTS.

 

[Midpack]

Based on the front load fees, we have actually lost a good deal of money. I did not event want to run that figure. It hurts to much.

What have we done! You trust someone and look at what happens. I am totally beside myself really and this is only the Mutual Funds!

The best thing we have done here is opened our eyes. We can not go back, we can only move forward and this education is a costly one. The good news is that it seems we only have 1 find that will cost us to exit. All the others we already paid for. (up the you know what.)

Thanks again all. I need to go lay down.

It hurts, but many of us here started out paying brokers "up the you know what" before we wised up, you're not alone by any means. And you've figured it out now, most people never do or there wouldn't be [-]billions[/-] trillions (mis)managed by slick brokers and FAs. You'll be money ahead going forward. [Yes there are certainly outstanding brokers and FAs, but they're outnumbered and very hard to find, and you can do just as well if not better DIY].

Your Ameriprise rep didn't do you any favors, that seems to be a common outcome with them...

 

[Gatordoc50]

The Good, The Bad and The Ugly

Well, my wife and I took the important time to total out the costs etc to try to see what is what. The attachment below is based on today's figures. We based it all on 12 months. (The cost of each fund for 1 year.) We also tossed in the over all 12 month return rate just for kicks.

The Good... It looks like we made money. (But nope) So the Good is we did this.
The Bad... The costs of the fund management.
The Ugly... When you consider the Front Load...we actually lost a great deal of $.

Based on the front load fees, we have actually lost a good deal of money. I did not event want to run that figure. It hurts to much.

What have we done! You trust someone and look at what happens. I am totally beside myself really and this is only the Mutual Funds!

The best thing we have done here is opened our eyes. We can not go back, we can only move forward and this education is a costly one. The good news is that it seems we only have 1 find that will cost us to exit. All the others we already paid for. (up the you know what.)

Thanks again all. I need to go lay down.

THE ATTACHMENT BELOW IS A GOOD EXAMPLE OF WHY YOU NEED TO
UNDERSTAND WHERE YOUR MONEY GOES. WE HAVE LEARNED THE HARD WAY.

I believe that I am the poster child for poor market returns. Bad, expensive advice along with a number of bubbles and some emotional trades. But we just kept at it and learned along the way and most importantly LBOM. We lost 3K on our first home but it was so inexpensive it allowed us to sock it away. You have obviously made many great financial decisions so I wouldn't sweat over this stuff. Just correct it and move on. Best of luck.

 

[travelover]

Well more great news (Not)...It turns our our RiverSource account mentioned is an Annuity that can not be moved without a $17K surrender fee. It has to be held for 10 years before that surrender fee is gone. It was started in 2006 with $100K. It seems that the timer resets when more money is put into it. The planner added money to it in February of this year. Total current value $290K apx.

Boy, this is really starting to become an expensive education.

I'm truly sorry to hear this. I read somewhere that the surrender fee = the commission for the person that sold it to you. So in case you are feeling bad about leaving...........

 

[Ed_The_Gypsy]

Breath in. Breath out. Move on.

You are doing fine. You have done a great job accumulating and you have just learned a lot in a short time.

 

[FinanceDude]

I think you will find that bailing on the annuity now is the better option.

He will owe a 10% penalty plus ordinary income on any gains in the contract, since he is under 59 1/2.........

 

[flyfishnevada]

In regard to... ''I can't comment without more information.". I am totally at a loss. Was that meant as a joke? Sorry...new here.

Around here, everything that's not said in all seriousness is a joke. In other words, maybe.

About the NY home. If you can afford it and you really love it, keep it. You could save a lot of money moving to another state for sure. You could save even more selling the place and full-timing in the RV. Considering you're only living in the house half the year, the cost is even more a lot of nothing as you put it. Six months a year of all those costs and you're not even there to enjoy it.

If you are attached, you could always rent the place out while you RV and let someone else make the mortgage payment for a while. Just some thoughts. I'm not one of those frugal for the sake of being frugal types. If you've got the cash and it makes you happy, keep the house and enjoy it.

By the way, I had diverticulitis when I was 40. My colon almost abscessed and three month later I had 10 inches removed. Changed my outlook too. I went from taking my pension and working for an engineering consultant for a while to just taking my pension and making due. Life is short and money isn't all that important when compared to living a full and happy life. Whatever you do, good luck!

 

[MichaelB]

Breath in. Breath out. Move on.

You are doing fine. You have done a great job accumulating and you have just learned a lot in a short time.

+1

 

[Nathan72]

Well we are reading and learning and we have a call today at 3PM with a Vanguard person to help us get started. He said we will need to sign off on some items as Ameriprise will not release some of the funds without doing so. The entire process will take like two weeks. (So much for the age of connectivity.)

At this time Ameriprise will end up keeping the REITs and the Annuity. I did look at our annuity contract and can not seem to find a any mention of a year maintenance fee. So I will need to make a call to them on that. For as GatorDoc50 mentioned, it may be costing me more than I know. And also FinanceDude mentioned something about a penalty. I am not sure if that is the $17K it would cost me to exit or something else all together. It may end up being something I kind of set aside and forget about until later in life. It just seems so convoluted.

We are also weighing paying off the home or not. 3.5% $200K 14 years left. I would think the $200 should be able to do better than 3.5% over the years. Thoughts?

 

[travelover]

......... Thoughts?

It might be worth your while to post at Bogleheads to get some additional ideas on how to unwind Ameriprise at the minimal cost to you.

I wonder if the theme song at Ameriprise is Hotel California?

 

[pb4uski]

Well more great news (Not)...It turns our our RiverSource account mentioned is an Annuity that can not be moved without a $17K surrender fee. It has to be held for 10 years before that surrender fee is gone. It was started in 2006 with $100K. It seems that the timer resets when more money is put into it. The planner added money to it in February of this year. Total current value $290K apx.

Boy, this is really starting to become an expensive education.

In addition to looking into the penalty free withdrawal provisions mentioned by FinanceDude you might want to double check on how the surrender penalty works. In many contracts, the surrender fee schedule applies to that specific deposit rather than the account as a whole. I've never heard of a contract where a new deposit restarts the surrender schedule for the entire account balance - that doesn't mean that it doesn't exist - it just would be unusual (and outrageously onerous) in my experience. Check the contract and don't rely on what the planner says.

 

[FinanceDude]

In addition to looking into the penalty free withdrawal provisions mentioned by FinanceDude you might want to double check on how the surrender penalty works. In many contracts, the surrender fee schedule applies to that specific deposit rather than the account as a whole. I've never heard of a contract where a new deposit restarts the surrender schedule for the entire account balance - that doesn't mean that it doesn't exist - it just would be unusual (and outrageously onerous) in my experience. Check the contract and don't rely on what the planner says.

Nearly all annuity contracts have a DECLINING surrender charge, and a penalty-free amount that usually accrues. OP could conceivable be able to move a fairly substantial chunk out, depending on what the contract says.......

 

[Nathan72]

Hi All...

Well, the process has begun! It took us 1.5 hours, but the process is now in the hands of Vanguard. My wife and I got though the signup and then all the digital signatures and paperwork that is needed to move all the funds over except for the REITs and the Annuity. We will be working on both of them and see what options we have, but for now, Vanguard can not help with those.

All in all, if they stay where they are, I do not see how it would really hurt us. Their is no fees involved with either. The only thing, unless I am incorrect, is that the Ameriprise planner we used would still receive .45% service fee be year based on the value of those items. (I think you know what I mean as I am not sure on the term.)

So we are off. Once the funds get over to Vanguard, we will then cash them out and move them all into Vanguard funds to save future costs. This will be interesting.

Thanks for sticking with us!

 

[Gatordoc50]

He will owe a 10% penalty plus ordinary income on any gains in the contract, since he is under 59 1/2.........

Yes, on earnings. Assume they pay 50k in taxes and penalties. Assume the fees are 2% higher in the annuity. If the returns are similar over ten years then the end amount is nearly identical. However, you switch from ordinary income to capital gains and you get a stepped up basis for your heirs by withdrawing. Not a fan of annuities in general but maybe a rollover to an immediate annuity to pay for recurring expenses would be ok.

 

[Gatordoc50]

Yes, on earnings. Assume they pay 50k in taxes and penalties. Assume the fees are 2% higher in the annuity. If the returns are similar over ten years then the end amount is nearly identical. However, you switch from ordinary income to capital gains and you get a stepped up basis for your heirs by withdrawing. Not a fan of annuities in general but maybe a rollover to an immediate annuity to pay for recurring expenses would be ok.

My Calculation included 10 % penalty on withdrawals and tax on earrings. 29k penalty, 4k tax on earnings and 17k surrender charge. 50k total. Basically I'm saying there is a number that I would withdraw on and that would be if I could walk with anything greater than 240k.

 

[devans0]

Seeing that you have an rv and want to travel with it, what are the NY tax rules of finding a new home in a tax friendly state for slightly more than six months of the year? Have your cake and eat it too.

 

[Nords]

Thanks again all. I need to go lay down.
THE ATTACHMENT BELOW IS A GOOD EXAMPLE OF WHY YOU NEED TO
UNDERSTAND WHERE YOUR MONEY GOES. WE HAVE LEARNED THE HARD WAY.

Wow. And ouch.

FWIW, you're not the only one to be led down this primrose path.
Update on DFA-approved advisors -- Who'll save the World from Mark Matson?

 

[urn2bfree]

Not all DFA approved advisors are equal....especially with bigger portfolios (over $2M) sticking with low FIXED cost NOT Assets Under Management Fee Advisors or doing it yourself if you have the time and inclination makes the most sense.

 

[FinanceDude]

Wow. And ouch.

FWIW, you're not the only one to be led down this primrose path.
Update on DFA-approved advisors -- Who'll save the World from Mark Matson?

Matson is a marketing guy, an oeverpriced marketing guy. I'll bet he hasn;t sat down with a real client in years, much like Susie Orman.......

 

[Nathan72]

Just an update that things are in motion. I guess the only question I would have now is what is the recommended Vanguard funds to invest in? You know, the good mix. As soon as the funds have been moved in, we will liquidate them and buy new.

Thanks again all.

 

[Midpack]

Just an update that things are in motion. I guess the only question I would have now is what is the recommended Vanguard funds to invest in? You know, the good mix. As soon as the funds have been moved in, we will liquidate them and buy new.

Thanks again all.

Congrats. Start by gauging your risk tolerance and therefore appropriate asset allocation. Try this https://personal.vanguard.com/us/FundsInvQuestionnaire if you haven't already. But that's just a first step. Your Vanguard contact can walk you through the process with less confusion than all of us, maybe start there. If you want to share their AA and fund recommendations with us, we might be more helpful.

Again, it's very important you understand the choices yourself. Asking us for "the recommended funds to invest in...you know, the good mix" is a lot like blindly trusting an Ameriprise rep. It's not rocket science, you have time to learn before deploying the cash.

 

[Nathan72]

Good point and well taken on this end of things after what we have learned.