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Lincoln Choice Plus Variable Assurance annuity vs Vanguard
Old 02-03-2010, 03:48 PM   #1
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Lincoln Choice Plus Variable Assurance annuity vs Vanguard

I did my share of agressive equities when I was younger. Now counting down to ER. $1.3M in assets, no debts. I'm a very conservative and risk adverse these days.
I've had fairly good luck with zero coupon DJ linked FDIC insured CDs for my equitiey exposure.

I was looking at $100k in a Lincoln Choice Plus Variable Assurance (class A)
variable annuity... This has a guaranteed 5% minimum appreciation or better depending on market performance. 3.5% upfront with 1.6%/yr fee from account balance (supposedly not effecting payout amt). I wouldn't touch it for at least 5-7 years or more.

Has anyone looked at these? Any suggested equivalent Vanguard annuities?

Thanks
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Old 02-03-2010, 04:07 PM   #2
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I assume that you are talking about a variable annuity product.

Can't help you with detailed knowledge about Lincoln or their products.

However beware of the following with annuities in general:

1) What happens after the 5-7 years - do you get a crappy renewal rate ? That is the pattern I have seen. the first term just drags you in.

2) Are you forced to annuitize your balance (at a crappy rate) to actually get the promised rate ? If that's the case they are just playing number games with you.

3) Surrender charges

4) You do realize that you are actually buying a life insurance policy. There is no way this policy can have the same returns as an equivalent index fund.

In general this forum doesn't think much about variable annuities. Also don't confuse them with immediate annuities - which some on this forum they may be a decent idea for part of your retirement stash
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Old 02-03-2010, 04:12 PM   #3
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I don't have any specific knowledge of Vanguard Variable annuities (other than the sales force isn't on commission which is a good think in my opinion.) Here is a link

Variable annuities are less popular than a colonoscopy on this forum. For good reason the SEC actually has pretty good write up on variable annuities

Do you approach Lincoln looking buy one of these or did a salesman approach you?
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Old 02-03-2010, 06:45 PM   #4
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I am generally not a fan of the strategy, but if you do a search of the forum you will find a thread where I describe in detail how to replicate an equity indexed annuity on your own and avoid all the fees embedded in the product. Its a way to get some equity market participation while having zero downside.

If you need a BA to make the idea of equity market exposure palatable, stick with fixed income and other products.
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Old 02-03-2010, 06:59 PM   #5
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but if you do a search of the forum you will find a thread where I describe in detail how to replicate an equity indexed annuity on your own and avoid all the fees embedded in the product.
Brewer: I remember that thread, one of your highlights !

How to replicate an equity-indexed annuity (EIA)
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Old 02-03-2010, 07:28 PM   #6
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Brewer: I remember that thread, one of your highlights !

How to replicate an equity-indexed annuity (EIA)
The scary thing is that I cannot tell you how to replicate a VA. Anything that complicated is either an awful deal for the consumer or mispriced by the insurer (or both). In the case of the latter, you would really have to wonder about solvency risk.
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Old 02-03-2010, 09:56 PM   #7
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The scary thing is that I cannot tell you how to replicate a VA. Anything that complicated is either an awful deal for the consumer or mispriced by the insurer (or both). In the case of the latter, you would really have to wonder about solvency risk.

Don't feel bad Brewer, Alan Greenspan said the same thing about variable annuities and other structured investment products on the CNBC show "House of Cards" Alan even said that he was a pretty good at doing heavy math.

Although, I bet the commission structure for the salesman isn't that complicated. A lot up front and more every year they stay in it.
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Old 02-03-2010, 10:06 PM   #8
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In general, I wish insurers would not sell guaranteed VAs and that consumers would not buy them. Buy the product isn't illegal and life is all about choices...
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Old 02-04-2010, 03:36 AM   #9
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Thank you, MasterBlaster, for finding Brewer's thread for us.
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Old 02-04-2010, 12:27 PM   #10
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Thanks for all the info. I'm still digesting it. So far, my gut says, "BEWARE!"
It seems rather expensive at 1.6% / yr expense + 3.5% to buy in.
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Old 02-04-2010, 01:14 PM   #11
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Go with your gut. In addition to the 1.6%/yr expense there can also be additional fees for the various investment choices. One of these VA I looked at in addition to charging 1.5% fee would charge the regular Expense Ratio for the mutual funds, so actual expenses (unless you invested only in the money market) were actually closer to 2.5-3%.
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Old 02-04-2010, 01:28 PM   #12
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Go with your gut. In addition to the 1.6%/yr expense there can also be additional fees for the various investment choices. One of these VA I looked at in addition to charging 1.5% fee would charge the regular Expense Ratio for the mutual funds, so actual expenses (unless you invested only in the money market) were actually closer to 2.5-3%.
That's right there are the life insurance charges and also the underlying fund management fees. Most VA's that I have seen have whopper fees for both.
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Old 02-04-2010, 01:50 PM   #13
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Originally Posted by Rascal View Post
I did my share of agressive equities when I was younger. Now counting down to ER. $1.3M in assets, no debts. I'm a very conservative and risk adverse these days.
I've had fairly good luck with zero coupon DJ linked FDIC insured CDs for my equitiey exposure.

I was looking at $100k in a Lincoln Choice Plus Variable Assurance (class A)
variable annuity... This has a guaranteed 5% minimum appreciation or better depending on market performance. 3.5% upfront with 1.6%/yr fee from account balance (supposedly not effecting payout amt). I wouldn't touch it for at least 5-7 years or more.

Has anyone looked at these? Any suggested equivalent Vanguard annuities?

Thanks
Why not do an immediate annuity instead?
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Old 02-05-2010, 02:20 PM   #14
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Thanks for all the info. I'm still digesting it. So far, my gut says, "BEWARE!"
It seems rather expensive at 1.6% / yr expense + 3.5% to buy in.
There are several fixed annuities with good income riders if that's what you're looking for. What's the specific reason you are looking at annuities?
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Old 02-05-2010, 03:35 PM   #15
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There are several fixed annuities with good income riders if that's what you're looking for. What's the specific reason you are looking at annuities?
I was looking for a way to get some equity exposure with minimal risk.
I've had some zero coupon DJ indexed CDs, FDIC insured from HSBC that did modestly well. I still have a couple of those.

I'm afraid I'm turning into my father, who had CDs all over town, each no larger than FDIC limits.
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Old 02-05-2010, 03:40 PM   #16
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Fair enough. Have you looked at the fixed index to compare with what you're looking at now? Caps today aren't what they used to be a year or two ago, but it eliminates the risk and still gives you the potential for returns, no annual fees (income riders usually require ~0.4-0.5% annual fee, but made up for with premium bonus).

Example: 10 year income annuity, 8% premium bonus, 7.2% guaranteed roll-up rate, strong lifetime withdrawal percentages. Make sure you understand how the "guaranteed minimum appreciation" works. It is probably not the way that you are thinking it is...
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Old 02-07-2010, 02:09 PM   #17
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Fair enough. Have you looked at the fixed index to compare with what you're looking at now?
FIA sounds like what I should look at. It could be the piece of my overall strategy to provide a backup-backup plan. I'll be looking very closely at those.
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Old 02-07-2010, 02:48 PM   #18
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Rascal, do not fall for the snake oil of EIAs. If you want that sort of strategy, roll your own as I have described on the forum. That way you avoid the costs of these things and maintain flexibility and transparency.
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Old 02-07-2010, 03:38 PM   #19
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Rascal, do not fall for the snake oil of EIAs. If you want that sort of strategy, roll your own as I have described on the forum. That way you avoid the costs of these things and maintain flexibility and transparency.
What if he is aiming for a guaranteed income for life? Sounds like that's what he is interested in based on the first post.
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Old 02-07-2010, 03:58 PM   #20
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If he wants gtd income for life, he should buy a SPIA from a large, strong mutual.
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