Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Please advise-Fidelity Personal Retirement Annuity
Old 12-27-2013, 09:58 PM   #1
Dryer sheet wannabe
 
Join Date: Dec 2013
Posts: 11
Please advise-Fidelity Personal Retirement Annuity

Upon recommendation of my Fidelity advisor I invested into FPRA last April after continuing to max out my SEP IRA each year. It seems "annuity" is an ugly word but was told this one was different for it has no surrender charge and annual fee is .25%. I keep feeling conflicted as if this was a good idea or not. Looking for independent advice on this. Beginner here so please reply as if you writing a "Investing for Dummies" chapter . 51 yrs old. Thanks in advance.
__________________

__________________
filmguyinla is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 12-27-2013, 10:02 PM   #2
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,065
Have you read the entire annuity contract? Nothing short of doing that will tell you what costs, fees, charges, commissions, and penalties you've agreed to.
__________________

__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
No other charges
Old 12-27-2013, 10:06 PM   #3
Dryer sheet wannabe
 
Join Date: Dec 2013
Posts: 11
No other charges

I have read it and got that reconfirmed from two other so called Fidelity Annuity experts on their 800 number and my advisor. I did ask exactly that multiple times. Are ALL annuities evil? Do most experienced investors avoid ALL of them at all costs?
__________________
filmguyinla is offline   Reply With Quote
Old 12-27-2013, 10:07 PM   #4
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,359
An annuity will always be more expensive than an equivalent mutual fund. The underlying life insurance for all annuities must be founded by additional fees.

My question for you is.... What exactly is the .25% charge ?
__________________
MasterBlaster is offline   Reply With Quote
Old 12-27-2013, 10:26 PM   #5
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,359
Just a couple comments on annuities.

Higher fees than plain Jane mutual funds

Profits realized at normal (less favrable) income tax rates rather than (favorable) capital gains rates

Death benefit for your heirs not you. You have to die for anyone to collect guarantee on initial investment.

Collection of benefits subject to the financial strength of the insurer perhaps many years hence.
__________________
MasterBlaster is offline   Reply With Quote
.25% is annual fee
Old 12-27-2013, 10:28 PM   #6
Dryer sheet wannabe
 
Join Date: Dec 2013
Posts: 11
.25% is annual fee

They list this as it's Key Features:
Tax-deferred growth potential of investment
Low annual annuity costs
Any earnings not taxed until withdrawn
No surrender charge
The ability to invest as much as you want—no IRS contribution limits3
After the initial investment, you can make automatic monthly contributions.4
Array of 55+ funds, many rated 4 or 5 stars by Morningstar®5
__________________
filmguyinla is offline   Reply With Quote
Master - agree with your points...
Old 12-27-2013, 10:33 PM   #7
Dryer sheet wannabe
 
Join Date: Dec 2013
Posts: 11
Master - agree with your points...

That is exactly why I posted for advice. Is the tax deferred annuity worth it or should I have just put money into my individual account? Or maybe open a Roth IRA?
__________________
filmguyinla is offline   Reply With Quote
Old 12-27-2013, 10:37 PM   #8
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,359
If you can qualify for a Roth IRA, I would fund that way before ever thinking about annuities.

For me, I just don't see how I can come out ahead with an annuity rather than investing in broad based, very low cost mutual funds.
__________________
MasterBlaster is offline   Reply With Quote
Old 12-27-2013, 10:38 PM   #9
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Quote:
Originally Posted by MasterBlaster View Post
Profits realized at normal (less favrable) income tax rates rather than (favorable) capital gains rates
To me, the above is the big gotcha. it isn't clear to me why tax efficient index investments in a taxable account would not be far superior to even the most "benign" VA.
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
Old 12-27-2013, 10:45 PM   #10
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,065
Quote:
Originally Posted by filmguyinla View Post
Array of 55+ funds, many rated 4 or 5 stars by Morningstar®5
What are expense ratios on those funds? Any front end loads?
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
That .25% is expense ratio
Old 12-27-2013, 10:49 PM   #11
Dryer sheet wannabe
 
Join Date: Dec 2013
Posts: 11
That .25% is expense ratio

As far as I understand it. No front load fee.
__________________
filmguyinla is offline   Reply With Quote
Old 12-27-2013, 10:54 PM   #12
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas Hill Country
Posts: 42,065
Quote:
Originally Posted by filmguyinla View Post
As far as I understand it. No front load fee.
OK, what about expense ratio? An ER of 1% or more is typical of many funds. Add in the .25 fee and you may be paying 6X what you'd pay for a Vanguard or Fidelity fund. That adds up to a substantial cost/drag on your return over time.
__________________
Numbers is hard

When I hit 70, it hit back

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
This is a Fidelity fund.
Old 12-27-2013, 11:01 PM   #13
Dryer sheet wannabe
 
Join Date: Dec 2013
Posts: 11
This is a Fidelity fund.

So the .25 is on top of what else is inside it. For example I have Contrafund at .67% so with the .25 equals to just below 1%.
__________________
filmguyinla is offline   Reply With Quote
Old 12-27-2013, 11:10 PM   #14
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
brewer12345's Avatar
 
Join Date: Mar 2003
Posts: 16,391
Quote:
Originally Posted by filmguyinla View Post
So the .25 is on top of what else is inside it. For example I have Contrafund at .67% so with the .25 equals to just below 1%.
So you are paying something like 10 times the fees of an index fund and getting less favorable tax treatment to boot. Sound like a good deal?
__________________
"There are three kinds of men. The one that learns by reading. The few who learn by observation. The rest have to pee on the electric fence for themselves."



- Will Rogers
brewer12345 is offline   Reply With Quote
No that sure doesn't good...
Old 12-27-2013, 11:13 PM   #15
Dryer sheet wannabe
 
Join Date: Dec 2013
Posts: 11
No that sure doesn't good...

But could explain further about it being less favorable tax wise? Please keep it in simple terms. Thanks.
__________________
filmguyinla is offline   Reply With Quote
Old 12-27-2013, 11:34 PM   #16
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,615
What is your marginal income tax bracket?

If you are in the 25% tax bracket, then any gains in this VA will be taxed at 25% when you withdraw much like an IRA. But it is worse than an IRA since you paid taxes on the money before you put it in the VA.

OTOH, if you had invested tax-efficiently in a taxable account with index funds, you could pay as little as 0% tax on the gains or at most about 15% tax on the gains.

The math should be compelling: Which tax rate on gains is better? 0%, 15%, or 25%?

Investing tax efficiently in a taxable account also gets you tax-deferral. Unrealized capital gains are not taxed. The taxes are deferred until you realize the gains.

Or investing in a Roth IRA account would be better, too.

Some annuities make sense, but you haven't described any reason whatsoever why this one would make sense. If you were extremely wealthy with high income and had made all possible contributions to IRAs, 401(k)s, etc, and wanted to have more fixed income assets and would invest for 30 years, then a VA might make sense, but even then a low-cost muni-bond fund would probably be better.

Get thee over to bogleheads.org in order to learn about investing in a tax-efficient low-cost way.

With no withdrawal penalty, it may be time to get out of the VA at Fidelity and do something else with the money. However, there is no rush. Don't jump out of one thing into a worse thing.
__________________
LOL! is offline   Reply With Quote
Old 12-27-2013, 11:46 PM   #17
Thinks s/he gets paid by the post
MasterBlaster's Avatar
 
Join Date: Jun 2005
Posts: 4,359
LOL...

Perhaps a simple way to look at the issue is this....

You pay approximately twice the tax (with caveots) under ordinary income tax rates compared to capital gains.
__________________
MasterBlaster is offline   Reply With Quote
Old 12-27-2013, 11:47 PM   #18
Dryer sheet wannabe
 
Join Date: Dec 2013
Posts: 11
Thanks. Confused where you said...If you are in the 25% tax bracket, then any gains in this VA will be taxed at 25% when you withdraw much like an IRA. But it is worse than an IRA since you paid taxes on the money before you put it in the VA....No taxes paid before for this is a retirement account. Also I may be in 15% tax bracket this year.
__________________
filmguyinla is offline   Reply With Quote
Old 12-27-2013, 11:52 PM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: Jun 2005
Posts: 8,615
If you are in the 15% tax bracket, then long-term capital gains and qualified dividends are taxed at 0%. There is really no need for a VA.

And when you said there were no taxes paid before the money was deposited into this account since this is a retirement account, then that's even worse. There is no need to use a VA if this is a true retirement account. Somehow, I don't think that this is a retirement account like your SEP-IRA though.
__________________
LOL! is offline   Reply With Quote
Old 12-28-2013, 12:00 AM   #20
Dryer sheet wannabe
 
Join Date: Dec 2013
Posts: 11
Well if it's possible you or anyone wants to look at specs....https://www.fidelity.com/annuities/F...nuity/overview
I was told it is very similar to my SEP and very common for those that max out their IRA's and want to put more away. But that is why I joined here to get some other opinions.
__________________

__________________
filmguyinla is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 06:42 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.