Mom's IRA

[Darryl]

Mom has $75,000 in traditional IRA, owns two American Funds.

19% in CWGIX
81% in CAIBX

She just started drawing SS at 62 and is still working a little part time (little enough it is not affecting benefits). She wants to get out of these funds and states her risk tolerance is a willingness to lose zero principal. The FA at her credit union has her interested in a product called lifetime 5 by American Skandia (think I spelled that correctly). Guarantee's a 5% return and a chance to share in the gains of the market. A variable Annuity in an IRA. Annual fees are 1.65% for the M&E annuity part plus whatever the fund charges I believe it will be close to another 1%.

I did catch a similar thread a few nights ago and found two good links (Thank You) I was able to send her. She's asking for my feedback but I'm getting that she wants this product (Does not want to lose a cent of principal). At this point I think the only way I get her off this is by putting another great alternative right next to it so she might pick option B.

What do you think guys for safety with any chance at a return.

 

[FinanceDude]

I wouldn't get the VA. If she has had the American Funds long enough, I would reallocate those.

CWGIX (Capital World Growth and Income) is a nice fund and has done extremely well. However, if she is in the phase where she wants "zero" principal fluctuation it might not be the best bet.

American Funds are very low cost funds, although certainly not as low as Vanguard, and you pay a load to get in, but being that she has already paid the fee, she might as well stay in as they are a conservative fund family.

They (American) has a 3-pronged strategy called Income Foundation. It has 3 equal allocations in the following: Capital Income Builder, Income Fund of America, and Bond Fund of America. You said it's in an IRA, so you could exchange the funds to the new allocation, cut the volatility by a good margin, and give her a portfolio that has averaged about 9% a year for the last 10 years with a yield of about 3.5% blended. Also, the ER on this portfolio would be around 57-60bp a year, not bad..........

 

[crazy connie]

Check fatwallet for 5% CD's if she has zero tolerance.

 

[Bikerdude]

Have her read this.

http://www.dallasnews.com/sharedcon...N-burns_15bus.ART.State.Edition1.3658432.html

Check out the part about a 20% transfer of wealth to the insurance company.

 

[Darryl]

Well guys thanks for the help.

Mom came most of the way off the ledge.

Rather than putting $75,000 into the VA she is going to do $25,000. She is leaving $25,000 in the American Funds and putting the other $25,000 in to a Money Market fund.

 

[jIMOh]

Mom has $75,000 in traditional IRA, owns two American Funds.

19% in CWGIX
81% in CAIBX

She just started drawing SS at 62 and is still working a little part time (little enough it is not affecting benefits). She wants to get out of these funds and states her risk tolerance is a willingness to lose zero principal. The FA at her credit union has her interested in a product called lifetime 5 by American Skandia (think I spelled that correctly). Guarantee's a 5% return and a chance to share in the gains of the market. A variable Annuity in an IRA. Annual fees are 1.65% for the M&E annuity part plus whatever the fund charges I believe it will be close to another 1%.

I did catch a similar thread a few nights ago and found two good links (Thank You) I was able to send her. She's asking for my feedback but I'm getting that she wants this product (Does not want to lose a cent of principal). At this point I think the only way I get her off this is by putting another great alternative right next to it so she might pick option B.

What do you think guys for safety with any chance at a return.

I think this is a case where VA's allow more flexibility. At age 62, I think we could agree she needs some market exposure, but at same time the 75k is the primary savings this person has. The guarantee comes at a cost, but 5% guaranteed return, with possible higher returns, is something this investor needs at this point.

I would review fees
I would review withdraw rules
I would suggest an option which was not a VA, and show same withdraw rules and same costs.

If mother makes an educated decision, looks good to me.

 

[FinanceDude]

I think this is a case where VA's allow more flexibility. At age 62, I think we could agree she needs some market exposure, but at same time the 75k is the primary savings this person has. The guarantee comes at a cost, but 5% guaranteed return, with possible higher returns, is something this investor needs at this point.

I would review fees
I would review withdraw rules
I would suggest an option which was not a VA, and show same withdraw rules and same costs.

If mother makes an educated decision, looks good to me.

If she's adamant about the VA, choose a share class that matches her expectation. Most companies have no surrender, short surrender, and long surrender options. Also, make sure the company has an automatic step-up feature so she can lock in gains in good years automatically..............