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Old 04-08-2008, 11:46 AM   #81
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I don't look at SS as CPI- adjusted,because that adjustment is not reality. What was the "adjustment" this year, 2.9%? Do any of you that collect think that was a true COLA?, because I don't..........
-Well it is exactly CPI adjusted. Whether CPI is realistic is a separate question, and I tend to agree with your take on this issue.

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Old 04-08-2008, 05:06 PM   #82
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I will say that once someone buys and annuity they will be routinely reapproached to buy more. If putting a "small portion" into an annuity is a good idea, why isn't putting all of it in an even better one?
I am way behind on reading this thread, but to answer this one question. The reason not to put all your money into an annuity is because of family emergencies. getting monthly income is great, but it helps little on those rare occasions you need a lump sum.
BTW, something I heard today that did make some sense. The difference between the cost of a VA vs. the mutual fund can be made up by the fact that you can take more risk with the VA, since you do have the insurance to back you up. In an up market, you should make up that cost difference by having less need to diversify with as many bond funds. Just a thought.
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Old 04-08-2008, 05:12 PM   #83
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Was he suffering from dementia when he bought it? The reason I ask is one of my client's father did the same thing. It was in place for 18 months before she knew about it and told me about it. His doctor that diagnosed him with dementia wrote a letter about the severity of it to the insurance commissioner here in Wisconsin. The company ended up releasing the guy from the annuity, and the agent was fined and barred. Good can happen sometimes...........



Virtually every annuity sold in America waives the surrender to the beneficiaries, so you should not have had to pay after his death. Whether spouse or not, the benficiaries don't pay surrender charges.......
My FIL has dementia and probably had early stage Alzheimer's when he bought his VAs. One of them waived the withdrawl fee since he was in assisted living. The other one was had a 3% fee.

My father didn't have dementia. He was just financially ignorant. He just decided one day he had enough income that he wouldn't need any of his savings to live on. He went down and bought a VA in our names. He officially gifted us the money. He then put in a clause that it wouldn't be available until the oldest sibling was 59 1/2. We could get it out but there was a fee. It is a strange VA situation.
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Old 04-08-2008, 05:27 PM   #84
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Various people are saying how much they love their annuities. That's fine if that's what you want. I've run the math on a number of them and have never found one that was "better" than buying laddered, high grade corporates with a nominal 10 year longevity over their mortality table lifespan. The attraction I've seen over and over is the "money for life" where the check automatically arrives. The recipients then have no money management requirement except to spend the money.

The more complicated the structure the lower the IRR of the annuity. For all the little benefits, there is a price to pay in payout rate.

The other common factor amongst annuity buys is their belief they are the one in ten that will bust their longevity table.

Annuities are an option. A SPIA can only make financial sense if someone vastly outlives their mortality table lifespan. Psychologically, they provide a comfort that I personally don't believe justifies their cost. My experience watching my father's VA underperform the market due to high fees and gain limits reinforces my belief they are nothing but a scheme to take money from the gullible.
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Old 04-08-2008, 05:30 PM   #85
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Various people are saying how much they love their annuities. That's fine if that's what you want. I've run the math on a number of them and have never found one that was "better" than buying laddered, high grade corporates with a nominal 10 year longevity over their mortality table lifespan. The attraction I've seen over and over is the "money for life" where the check automatically arrives. The recipients then have no money management requirement except to spend the money.

The more complicated the structure the lower the IRR of the annuity. For all the little benefits, there is a price to pay in payout rate.

The other common factor amongst annuity buys is their belief they are the one in ten that will bust their longevity table.

Annuities are an option. A SPIA can only make financial sense if someone vastly outlives their mortality table lifespan. Psychologically, they provide a comfort that I personally don't believe justifies their cost. My experience watching my father's VA underperform the market due to high fees and gain limits reinforces my belief they are nothing but a scheme to take money from the gullible.
I'm guessing that there is absolutely nothing that can be said to you to convince you that the product has changed tremendously?
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Old 04-08-2008, 05:49 PM   #86
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....
Annuities are an option. A SPIA can only make financial sense if someone vastly outlives their mortality table lifespan. Psychologically, they provide a comfort that I personally don't believe justifies their cost. My experience watching my father's VA underperform the market due to high fees and gain limits reinforces my belief they are nothing but a scheme to take money from the gullible.
My aunt lived to 84. I remember my uncle later saying that an annuity served her well. That always sounded so wrong to me!

2B, you have my emphathy. You're one of the people here who make financial sense.
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Old 04-08-2008, 06:05 PM   #87
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I feel my input on these threads is not to defend or villify annuities, but I have a lot of knowledge about how they work and can clarify things if folks on here want that...........
Hey FDude, I have 3 VA's, total is over $1Mil. I'm not complaining about them, I bought them with my eyes open looking for the tax deferral at the time. They're mostly fully taxable the majority of the money is gains, not principle. I'm not say it was a good decision to buy them but it is what it is. I pay about 0.6% in total fees plus fund fees at Skandia. I know there are some out there with lower fees.

I'm 53 and not banking on a living to 95. Let's just say I expect to live a normal life expectancy. Anything left will go to my kids. I am conservative, if I can make 6-7% a year on my money before taxes I am happy. I plan on spending these down first in retirement, mostly because of the fees and lack of investment choices. I'd be retired now with about a 3.5% SWR but am still working a few more years to cover some college expenses.

Since you are pretty up to date, where would you go with this money if they were yours? I can 1035 exchange them anywhere, no ERF's.

Any advice or new products that would make sense for someone like me? I know about Vanguard and the Fidelity low fee product.
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Old 04-08-2008, 06:20 PM   #88
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Hey FDude, I have 3 VA's, total is over $1Mil. I'm not complaining about them, I bought them with my eyes open looking for the tax deferral at the time. They're mostly fully taxable the majority of the money is gains, not principle. I'm not say it was a good decision to buy them but it is what it is. I pay about 0.6% in total fees plus fund fees at Skandia. I know there are some out there with lower fees.

I'm 53 and not banking on a living to 95. Let's just say I expect to live a normal life expectancy. Anything left will go to my kids. I am conservative, if I can make 6-7% a year on my money before taxes I am happy. I plan on spending these down first in retirement, mostly because of the fees and lack of investment choices. I'd be retired now with about a 3.5% SWR but am still working a few more years to cover some college expenses.

Since you are pretty up to date, where would you go with this money if they were yours? I can 1035 exchange them anywhere, no ERF's.

Any advice or new products that would make sense for someone like me? I know about Vanguard and the Fidelity low fee product.
Vanguard never got into the living benefit riders, as their costs would go over 1%, and they would have a heart attack. Fido has a living benefit with low-cost ER so that is an idea.

Skandia is now Prudential, and if you want guarantees they will be more expensive than your current structure in the VA. If anyone had a 6% fixed rate guaranteed for 5 years or more in a fixed annuity that would be tempting.......I haven't found one yet..........
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Old 04-08-2008, 06:28 PM   #89
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Vanguard never got into the living benefit riders, as their costs would go over 1%, and they would have a heart attack. Fido has a living benefit with low-cost ER so that is an idea.

Skandia is now Prudential, and if you want guarantees they will be more expensive than your current structure in the VA. If anyone had a 6% fixed rate guaranteed for 5 years or more in a fixed annuity that would be tempting.......I haven't found one yet..........
Somehow I just fail to understand the living benefit riders. Can you enlighten me what that would do for me? Is the main benefit a lock of a SWR as long as the insurer remains solvent? I do not want to annuitize and am not planning on living forever. I must be missing something.

I've had these a pretty long time and everytime they came up with a new idea and associated fee rider I just threw it in the trash figuring it wasn't designed for my benefit, maybe I missed something about the living benefit?
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Old 04-08-2008, 11:06 PM   #90
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Somehow I just fail to understand the living benefit riders. Can you enlighten me what that would do for me? Is the main benefit a lock of a SWR as long as the insurer remains solvent? I do not want to annuitize and am not planning on living forever. I must be missing something.

I've had these a pretty long time and everytime they came up with a new idea and associated fee rider I just threw it in the trash figuring it wasn't designed for my benefit, maybe I missed something about the living benefit?
The original "living benefit" riders started about 11-12 years ago by the Hartford. They "guaranteed" a rate of return of 5-6% toward an "income base", which was NOT the account value. The only way to access the income base was to annuitize the contract, in effect, forefeiting your future rights to growth in the asset in return for a guaranteed income stream. This was quite successful because it was the first time a non-pension annuity was "able to do" what traditionally only defined benefit plans like govt or state workers could do, offer a lifetime income stream in a variable product. The annuitization requirement was not well received, but "guaranteed growth" was, particularly in the dark days after the tech bubble collapse.

With the continuing "freezes" and elimination of DB plans at large companies all over the US and the world for that matter, the large insurance companies saw a huge opportunity to grow their businesses in the VA market. Living benefit rider changes came fast and furious with "oneupmanship" happening on a near monthly basis. I could write several more pages of what all happened, but more importantly is what has happened in just the past 2-3 years.

The "required annuitization" guarantees have given way to true "living benefit" riders. That is, actuarily, companies have figured out how to offer a way to guarantee income streams without the client being forced to annuitize. It is a larger risk than they had taken on before, and how it ends up long into the future is anyone's guess. The product is NOT cheap to most folks, but lots of them are sold every year.

If you use large insurers like ING, Pacific Life, John Hancock, and Prudential, there is a reasonable assumption that they can "make good" on their promises. They can't completely mitigate the risk entirely, but have shown the ability to pay claims for many years, so there is that expectation. Here's an example to help illustrate. Others will be along shortly to rip on the product, but here goes.

You are 60 years old, and want a guaranteed stream of income to supplement your retirement income needs. You can use a VA with a living benefit rider that will cost your roughly 2.5-2.75% a year in yearly internal cost. What could you accomplish by doing that? Well:

1)A diversified mix of investments, covering most if not all asset classes, along with the ability to take more or less risk in the portfolios going forward.

2)A guaranteed return of principal regardless of market conditions to the beneficiaries.

3)A lifetime stream of income you can't outlive.

4)The ability to get raises in your monthly income if the market cooperates.

5)The living benefit riders offer an increase in what's called an "income base" (in effect, a contractual amount you can draw from but not take a lump sum of) at a set percentage regardless of market conditions.

6)Tax-deferral for non-qualified monies.

Theoretically, one could see how some folks might be interested in these, particularly those not covered by a solid pension and not into managing their finances and taking the responsibility of managing their own money.

Most companies today are offering a 7% increase in your "income base" for 10 years. What they means is you give them $100,000, and the "income base" will double to roughly $200,000 in 10 years. If the market does better than that on a yearly, quarterly, or daily basis (depending on the company), the income base will adjust upward and you could conceptually get a "raise" in good years, while being provided a "floor" if the market tanks. If you're 60 years old in the above scenario, and you decide to draw income, you would be able to take 5% a year, or $10,000 a year for life, even if your account value is down 50% or even more because the insurer is "guaranteeing" against market risk. If your account value was $150,000 at the end of 10 years (iffy market) and you needed income, well, 5% would be $7500 a year, not $10,000. Most folks would prefer the higher dollar amount. If the account value is greater than $200,000, you could walk away with the lump sum.

The products are expensive because other than Fido, no one else wants to put the promises on there. Fido's product is good but not cutting edge, and has limitations. Vanguard would never put the guarantee on their AIG VA because their ER would have to be above 1%, not going to happen.............

Assuming the insurer remains solvent (I would NEVER get one from anyone other than the 4-5 largest insurers in the world), this could work for some people to help fund retirement. Many on here will argue you can achieve the same thing using a combination of a Treasury or CD ladder and a conservative mutual fund, options, etc, and they are probably right to some degree. Vanguard seems very excited about their guaranteed payout funds. To me, it is a little funny because Vanguard has not "invented" some cutting edge strategy. I believe it is in direct response to the large surge in VA sales. But they would never admit that.........

Sorry for the long diatribe............
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Old 04-09-2008, 12:20 AM   #91
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The 5% commission is NOT an extra internal charge. You are right about the ER and M&E togther being 2.5% or so. The agent gets 5%, but there's not an "extra" internal charge to compensate the advisor. Maybe you will believe me on that, maybe not. But, I do know.........
I believe you, having never bought or sold one an annuity, I know I don't know.

Let me try an example.
Joe is a public employee, and he attends a retirement seminar hosted by those nice folks at Amerprise. In his follow up personal consultation with the Amerprise rep, he strongly advocate that Joe annuitize his 403B.

On average how much less money will Joe have by buying his annuity from Amerprise than from Vanguard or somebody else? I realize that this is hard because often Joe will be put in a Variable , or an EIA vs a SPIA but I think/hope we can arrive at consensus.

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I think my "Rule 1" would be to differentiate between annuities for accumulating money and annuities for paying money out
I agree this sounds like an important distinction. Independent I assume that annuities would be a lousy way for accumulating money, but potentially ok for paying out... I.e. what is the Rule?
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Old 04-09-2008, 05:04 AM   #92
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2B, you have my emphathy. You're one of the people here who make financial sense.
Thanks. I'll have to show it to DW. She'll have a snappy retort to put me back in my place.

I started to quote FinanceDude's long description of the current face of the annuity biz but realized how silly reposting that is. My thanks to FD for his description. I had heard about some of these types of product but had never seen one in detail. The complexity has grown by at least an order of magnitude. I don't know how anyone can figure out the total fees and charges. One thing not mentioned by FD that I'm used to seeing are limitations on the upside of market moves in exchange for the guaranteed principle or payout.

Variable annuity products are so complicated I can't see how anyone truly evaluates them financially before buying them. They must be sold almost entirely on an emotional level.

RockOn may be in the well less than 1% of the population that actually might have a use for annuity products (very high compensation is the first prerequisite). It also appears he has plain vanilla versions which would have the lowest fees. I'm curious as to what the fees are for his individual funds. That's where I've seen some very high numbers (almost 3% in some cases) but sometimes they aren't much different than the standard managed funds (1.5 to 2%).
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Old 04-09-2008, 06:48 AM   #93
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I'm guessing that there is absolutely nothing that can be said to you to convince you that the product has changed tremendously?
No need to "convince" anybody about anything. State the facts (not your opinion) on a subject, and back it up by factual knowledge (not "heresay").

Some people will agree with you - some won't. What's most important is that you receive enough information for you to make a rational decision in your situation.

As the old saying goes (and the title of a book), "What you think of me is none of my business". If you think that what I do (in any phase of my life) dosen't "make sense", well then that's your problem - not mine.

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Old 04-09-2008, 08:05 AM   #94
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I agree this sounds like an important distinction. Independent I assume that annuities would be a lousy way for accumulating money, but potentially ok for paying out... I.e. what is the Rule?
My "rule" was simply that you know there is a difference.

This thread started with an article on immediate (aka payout or income) annuities. But many of the comments seem to relate to deferred (aka accumulation) annuities.

The key is that immediate annuities have a unique feature - an income that you can't outlive. Anybody with SS already has some income like that, it's not clear that we really need more. But it is the core feature that you need to consider with immediate annuities.

Deferred annuities are generally sold as accumulation vehicles. There is nothing unique about them - you could as easily buy a bond or a mutual fund. There may be a different tax situation. You can analyze them just like you analyze other accumulatin vehicles.
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Old 04-09-2008, 08:13 AM   #95
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FD - thanks for the unbiased description. I know nothing about these things and am not particularly interested in getting one but I am curious about what the gobbledegook means. Like 2B I suspect they are designed to confuse.
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Most companies today are offering a 7% increase in your "income base" for 10 years. What they means is you give them $100,000, and the "income base" will double to roughly $200,000 in 10 years. If the market does better than that on a yearly, quarterly, or daily basis (depending on the company), the income base will adjust upward and you could conceptually get a "raise" in good years...
Other than not being able to sell before the minimum period (in this case 10 years) how is this different than a CD or bond that guaranteed 7%? Would you attribute this in your portfolio diversification scheme like bonds/cash?

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The products are expensive because other than Fido, no one else wants to put the promises on there...
If you are buying it to have a "fixed" component of 7% what does it matter what the costs are? They don't come out of your 7%. Sure, you loose the upside potential of the market but if you are treating this as a fixed component so what? Keep another component in regular equity funds. Do any bond funds approach this level of return over time?

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Assuming the insurer remains solvent (I would NEVER get one from anyone other than the 4-5 largest insurers in the world),
That seems to be another issue. But how does it compare to bond risk?
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Old 04-09-2008, 08:49 AM   #96
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FD - thanks for the unbiased description. I know nothing about these things and am not particularly interested in getting one but I am curious about what the gobbledegook means. Like 2B I suspect they are designed to confuse.
Try reading through the prospectuses like I do....... However, it is always fun to call a large insurer and point out typos in their literature, usually the sound is quite deafening.........

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Other than not being able to sell before the minimum period (in this case 10 years) how is this different than a CD or bond that guaranteed 7%? Would you attribute this in your portfolio diversification scheme like bonds/cash?
You can access the money before the 10 year period is up, the company is only agreeing to "build up" the income base for 10 years. They are "betting" that their model portfolios or subaccounts will outperform their crediting rate on the income base..........

You bring up a good point on the 7% bond or 7% CD. Unlike a CD or bond where you GET TO TAKE the interest lump sum or whatever, the 7% credited rate goes to the income base, which you CANNOT TAKE
THE MONEY and walk away. You get a statement that shows three numbers:

1)The amount you put in (cost basis)
2)The current account value (subject to market risk like anything else)
3)The income base (a number that reflects how much was credited to the account)

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If you are buying it to have a "fixed" component of 7% what does it matter what the costs are? They don't come out of your 7%. Sure, you loose the upside potential of the market but if you are treating this as a fixed component so what? Keep another component in regular equity funds. Do any bond funds approach this level of return over time?
See, these products are confusing.......... You're NOT getting a guaranteed rate of return of 7%. You are getting the RIGHT to withdraw against a 7% crediting rate if the market doesn't return 7% average in the time you hold it. In effect, you have two pieces in one.........

Bonds have defualt risk, and insurers have default risk. Keeping US govt securities out of it, I have seen far more bond issues default than insurers default. So, whose "guarantee" is better?
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Old 04-09-2008, 08:58 AM   #97
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One thing not mentioned by FD that I'm used to seeing are limitations on the upside of market moves in exchange for the guaranteed principle or payout.
That is becoming less common. I was trying to hit on all the areas of confusion, but there are too many........

One insurer maintains the right to take folks out of the model portfolios and into cash. That would limit the upside potential because one would question whom is deciding "when" to get back in. A person looking for growth would not like that system.........

For the most part, as an accumulation product, the big thing is when the insurer looks at "stepping up" the contract. Most were done yearly up until a couple years ago, which made folks HOPE that the market was strong when the crediting to their contract was done, otherwise they "missed out" on the upside. Most companies today offer quarterly step-ups and at least one has the potential of daily step-ups (Prudential)...........

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Variable annuity products are so complicated I can't see how anyone truly evaluates them financially before buying them. They must be sold almost entirely on an emotional level.
A lot of agents can't explain them either. They are not as transparent as they could be. There is some movement by FINRA and the NAIC to make them more so, time will tell.

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RockOn may be in the well less than 1% of the population that actually might have a use for annuity products (very high compensation is the first prerequisite).
There is a LOT of interest in the products, as pensions are a thing of the past for most folks. Whether that interest is right or wrong is another debate..........
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Old 04-09-2008, 09:03 AM   #98
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I believe you, having never bought or sold one an annuity, I know I don't know.

Let me try an example.
Joe is a public employee, and he attends a retirement seminar hosted by those nice folks at Amerprise. In his follow up personal consultation with the Amerprise rep, he strongly advocate that Joe annuitize his 403B.

On average how much less money will Joe have by buying his annuity from Amerprise than from Vanguard or somebody else? I realize that this is hard because often Joe will be put in a Variable , or an EIA vs a SPIA but I think/hope we can arrive at consensus.



I agree this sounds like an important distinction. Independent I assume that annuities would be a lousy way for accumulating money, but potentially ok for paying out... I.e. what is the Rule?
Most likely the payout will be the same. The Ameriprise guy might use a lower quality company than AIG (which Vanguard uses for SPIAs) but assuming the same quality company the payout will be the same.

Also, don't think that Vanguard doesn't get a commission. They're getting the same 2.5-3% everybody else gets on SPIA's
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Old 04-09-2008, 09:40 AM   #99
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Hey FDude, I have 3 VA's, total is over $1Mil. I'm not complaining about them, I bought them with my eyes open looking for the tax deferral at the time. They're mostly fully taxable the majority of the money is gains, not principle. I'm not say it was a good decision to buy them but it is what it is. I pay about 0.6% in total fees plus fund fees at Skandia. I know there are some out there with lower fees.

I'm 53 and not banking on a living to 95. Let's just say I expect to live a normal life expectancy. Anything left will go to my kids. I am conservative, if I can make 6-7% a year on my money before taxes I am happy. I plan on spending these down first in retirement, mostly because of the fees and lack of investment choices. I'd be retired now with about a 3.5% SWR but am still working a few more years to cover some college expenses.

Since you are pretty up to date, where would you go with this money if they were yours? I can 1035 exchange them anywhere, no ERF's.

Any advice or new products that would make sense for someone like me? I know about Vanguard and the Fidelity low fee product.
Just from the info you provided, I'd be inquiring about AXA, because they will pay you 6 1/2% with a 6 1/2% death benefit to replace the money to your kids. I'd look into Allianz Vision, because this product has the best chance to get increases in income (in my opinion) and when you attain age 60, 70, 80 you will get automatic increases. I'd also check out American Legacy if your money is non qualified as they have some patented tax benefits to their withdrawals worth looking into.
If your goal is to pass money along to the next generation, I saw an interesting example where you name yourself the owner, your child the beneficiary, and you grandchild as the annuitant. With certain products this can create income for life for three generations. Interesting concept and cheaper than creating a family trust.
To be clear, I'm not suggesting you purchase any of these products. They are just worth looking into when discussing options with your own financial advisor.
One problem you may have is in doing partial 1035's if you wanted to move the money to more than one company from one contract. You don't want to create a taxable event.
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Old 04-09-2008, 10:04 AM   #100
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Originally Posted by saluki9 View Post
Most likely the payout will be the same. The Ameriprise guy might use a lower quality company than AIG (which Vanguard uses for SPIAs) but assuming the same quality company the payout will be the same.
Teue.........

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Also, don't think that Vanguard doesn't get a commission. They're getting the same 2.5-3% everybody else gets on SPIA's
Yeah, they just don't "share".......
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