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Q re Dividends
Old 12-23-2006, 09:46 AM   #1
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Q re Dividends

Just recently found this forum & have been lurking & learning! I have a question re dividends:

I have a 403(b) account with Ameriprise. Nov. 14 I exchanged $100,000 from my RiverSource Equity Value Fund (EVF) to purchase a RiverSource Deferred Variable Annuity. The EVF has $20,000 or so remaining in it. The EVF dividends reinvested were just posted (Dec 20) to the sum of $1,000+. At the time of the exchange I had asked my Ameriprise FA if I shouldn't wait until the dividends were posted in Dec, then purchase the VA. He said "no" & something like... "they don't pay dividends like that any more, blah, blah". (All I understood was the "no".)

Now I compare this EVF to another fund in my Ameriprise account, RS Diversified Equity Income Fund, that has $90,000-some in it which has the Dec. dividends reinvested to the sum of $8,000+.

I am questioning whether or not I just lost out on a few thousand $'s of dividends by purchasing the VA just a month before the dividends were paid on the EVF? Should I have waited a month?

Thanks for any/all input!
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Re: Q re Dividends
Old 12-23-2006, 10:46 AM   #2
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Re: Q re Dividends

Quote:
I have a 403(b) account with Ameriprise.
I'm sorry to hear that.


Quote:
I have a 403(b) account with Ameriprise. Nov. 14 I exchanged $100,000 from my RiverSource Equity Value Fund (EVF) to purchase a RiverSource Deferred Variable Annuity
I'm curious why you purchased a product (VA) that is, by defination deferred, in your 403(b) account , which is also deferred? You can not be double-deferred. You seem to be jumping from one costly product (anything Amerprise sells) into a more costly product (Deferred VA).

Did you make this decision to move $100k to the VA on the advice of your Ameriprise guy? If so, you really made his/her Christmas as he will make a nice $6000 or so commission on that sale alone.

Just to make it clear, that $6000 that he made was paid directly from your funds.
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Re: Q re Dividends
Old 12-23-2006, 10:57 AM   #3
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Re: Q re Dividends

I can't think of one reason for anyone to buy a variable annuity. Inside a 403(b), reeks of "breach of fudiciary responsibility." Unfortunately, they really don't have any.

You have my sympathies on the VA. I see it's your first post so I will temper my comments appropriately. I have been chastised in the past for being rather forceful in my comments regarding annuities of any type.

You've lost a lot more than a few thousand dollars in dividends although if EVF is a traditional mutual fund the distribution/dividends was in the sales price when you sold it. When the dividend would have paid, your share price would have fallen by the same amount. Since it's in a tax deferred account, when and if a dividend was to be paid would not have been a consideration.

As for the VA, can you reverse it? At what cost? You are undoubtedly paying astronomical fees and may have paid an upfront load. If you provide the numbers, I and others on this forum will give you some comments and suggestions. I will say this now -- whatever the cancellation charges are you are probably better off eating them now and moving on to better investments.
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Re: Q re Dividends
Old 12-23-2006, 11:24 AM   #4
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Re: Q re Dividends

You have not lost out on any dividends. In a tax-deferred account I don't think it really matters when or if a dividend is paid or not. Dividends do NOT increase the value of your holdings per se since the value drops by the amount paid out.

Example you have 1000 shares at $10 a share for a total value of $10,000. It pays out $2000 in dividends on Monday. That does not mean you have $12,000 on Tuesday. It means that on Monday, the share price drops to $8 a share as $2 per share in dividends go out. You use the $2000 in dividends to buy 250 additional shares. So on Tuesday you have 1250 shares at $8 a share for a total value of $10000 which is right back where you started.

Since you have tens of thousands of dollars in these, you must have been doing this for years and years. Look back over your statements and see this happening every dividend payout.
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Re: Q re Dividends
Old 12-23-2006, 11:28 AM   #5
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Re: Q re Dividends

Bram,

Welcome. Keep reading & asking questions, although the answers may lower your holiday cheer. No tax impact for thee transfer but a VA in a 403b is worse than a belt & suspenders. I used to just not like Ameriprise but this is so bad I almost want to cancel me AmEx card.Look at the 403bwise.com website for specific 403b information. My wife retired from teaching this spring and her 403b was not a good deal but at least she had Fidelity Contrafund wrapped up in a too high fee umbrella program from her 403b provider. But a VA inside a 403b is a "not suitable" investment IMHO and should be challenged to see if you can get out of it without cost/fee.

Just chalk this up to learning, some folks here are smarter investors mostly because they paid similarly high dues.
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Re: Q re Dividends
Old 12-23-2006, 12:56 PM   #6
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Re: Q re Dividends

The reality is that almost all 403(b) have only variable annuities in them. Consider one of the best 403(b) providers in the nation: TIAA-CREF. The CREF stock fund is a variable annuity and millions of educational employees use it. TIAA-CREF does not have the high fees and high surrender charges of typical variable annuities.

Full disclosure: I have a 403(b) with TIAA-CREF.
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Re: Q re Dividends
Old 12-23-2006, 01:00 PM   #7
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Re: Q re Dividends

Wahhhh! Well here goes..... I'm certain I'm going to further expose my ignorance & naivete' in investing, & things financial.

Quote:
I'm curious why you purchased a product (VA) that is, by defination deferred, in your 403(b) account , which is also deferred? You can not be double-deferred. You seem to be jumping from one costly product (anything Amerprise sells) into a more costly product (Deferred VA).

Did you make this decision to move $100k to the VA on the advice of your Ameriprise guy? If so, you really made his/her Christmas as he will make a nice $6000 or so commission on that sale alone.
Yes, on his advice. Why? The FA's pitch was that the purchase of the VA would "secure" a portion of my overall account. "God forbid, if the market tanks. If we have another drop like 2001(?) you won't lose this money." (Yes, I recognize he was playing fear tactics.)

I guess I don't understand why it would be a bad move to go from 1 deferred product to another within a 403(b)? Do these facts make a difference:... I didn't have to pay any sales charge for the transfer out. I don't think I even paid a load when the shares were purchased over the years of my employment. They were Class A shares @ the time of the transfer.

If the FA got a $6K commission, from what I can see, it didn't get subtracted from my $.

Quote:
I can't think of one reason for anyone to buy a variable annuity. Inside a 403(b), reeks of "breach of fudiciary responsibility." Unfortunately, they really don't have any.

You have my sympathies on the VA. I see it's your first post so I will temper my comments appropriately. I have been chastised in the past for being rather forceful in my comments regarding annuities of any type.

You've lost a lot more than a few thousand dollars in dividends although if EVF is a traditional mutual fund the distribution/dividends was in the sales price when you sold it. When the dividend would have paid, your share price would have fallen by the same amount. Since it's in a tax deferred account, when and if a dividend was to be paid would not have been a consideration.

As for the VA, can you reverse it? At what cost? You are undoubtedly paying astronomical fees and may have paid an upfront load. If you provide the numbers, I and others on this forum will give you some comments and suggestions. I will say this now -- whatever the cancellation charges are you are probably better off eating them now and moving on to better investments.
Thank you for not being "too forceful" 2B.
I think you're right about the dividends in the sale price as when I checked on-line the account values had been reduced by the amount of the dividends, then once the dividends were posted the value went back up. (Not that I understand the whys/wherefores of that.)

Here's what I understand about the VA:
°No up front load.
°The $100K is invested in mod. aggressive mutual funds & I can lock in gains each anniversary. But the VA's value would never go below $100K (minus any future withdrawals) even if the market is down.
°My beneficiary can take a lump sum or continue annual withdrawals from the balance (if any) at my death.
°They gave me "$2,000 bonus" for a 10 year waiting period.
°Annual charge: $30
°Annual Rider fees are taken from market gains:
Guaranteed Min Accumulation Benefit(GMAB) 0.60%
Mortality & Expense Risk (M&E) 0.85%
°Surrender charges: 8% yrs 0-2, then graduates down to 0% 10 years after purchase.

So...... do you think this looks really, really bad? I must admit, that I DID actually have some misgivings before taking this plunge, but I let him sell me on the "security" angle. Also while not extremely risk adverse, I don't feel confident at all in making an intelligent alternative choice.

Thanks for your response!
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Re: Q re Dividends
Old 12-23-2006, 01:04 PM   #8
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Re: Q re Dividends

Quote:
Originally Posted by yakers
I used to just not like Ameriprise but this is so bad I almost want to cancel me AmEx card.
No need to. American Express got rid of Ameriprise. I like to think that even AmEx
was offended by their reps behaviour.
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Re: Q re Dividends
Old 12-23-2006, 01:24 PM   #9
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Re: Q re Dividends

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If the FA got a $6K commission, from what I can see, it didn't get subtracted from my $.
You sold a big chunk ($6K to $30K) of your future gains to your FA just for a guarantee that you would not lose money. Well, you weren't gonna lose money over the long term anyways and neither is Ameriprise. That's one reason there is that huge early surrender charge.
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Re: Q re Dividends
Old 12-23-2006, 01:31 PM   #10
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Re: Q re Dividends

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If the FA got a $6K commission, from what I can see, it didn't get subtracted from my $.
Do you honestly think that he helped you for free? All annuities are sold on a commission basis, usually 5-6% however, they vary a great deal. The commission is generally hidden from the person who is having their money stolen invested.


Quote:
°Annual charge: $30
°Annual Rider fees are taken from market gains:
Guaranteed Min Accumulation Benefit(GMAB) 0.60%
Mortality & Expense Risk (M&E) 0.85%
°Surrender charges: 8% yrs 0-2, then graduates down to 0% 10 years after purchase.
It's probably wrapped up in this mess.

I'm sorry that I have been so hard on you, but I see so much of the BS that I really get mad at the industry that I spent over 30 years in and things like this.

I would ask them to reverse the entire transaction and put it all back like it was prior to this action. There are a lot of ways to do this but it is worth your while to at least attempt to get it reversed.


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Re: Q re Dividends
Old 12-23-2006, 02:20 PM   #11
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Re: Q re Dividends

Thanks LOL! for the explanation about the dividends. That helps & I understand.
Thanks Yakers for the welcome & I'm going to check out the 403bwise link.
No, Mickeyd I didn't think he'd do this for free just that it's not evident looking at the statement, that the commission came from my initial lump of money. $100K out, $100K in (plus the $2k "bonus")

Quote:
I would ask them to reverse the entire transaction and put it all back like it was prior to this action. There are a lot of ways to do this but it is worth your while to at least attempt to get it reversed.
So, it would cost me $8000 to do this? But I still am not clear on WHY or HOW this VA is SO BAD?? I realize that this VA is not going to make the potential gains of regular mutual funds. First, because the Fees are skimmed off the top. But my $ in the VA is still invested, as I said in mod aggressive funds, so it can gain in value. I'm not trying to be oppositional to your suggestion, I just want to understand. Is it because of the fees decreasing the amount of gain? What sort of arguement must I have for cancelling & "put it all back like prior"? I appreciate you comments & insight. Thanks!
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Re: Q re Dividends
Old 12-23-2006, 02:29 PM   #12
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Re: Q re Dividends

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So, it would cost me $8000 to do this?
No, if the transaction were reversed your account would look the same as the day before it was changed and the funds were moved to the VA. Not sure where you got the $8000 figure, but you would be made whole. That is the main thing.

Maybe this piece from the SEC may help you with how VAs' work

http://www.sec.gov/investor/pubs/varannty.htm
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Re: Q re Dividends
Old 12-23-2006, 02:35 PM   #13
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Re: Q re Dividends

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Originally Posted by Bram
? But I still am not clear on WHY or HOW this VA is SO BAD??
Let me put very simply. You will be paying annual fees on this VA of roughly 3% a year, all in, most likely for below-market performance before the fees are even deducted. If you had stuck the money in a low cost mutual fund or variable annuity, you would have been paying around .3% annually in fees. So the Ameriprise piece of trash is priced TEN TIMES what you should be paying.
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Re: Q re Dividends
Old 12-23-2006, 02:41 PM   #14
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Re: Q re Dividends

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What sort of arguement must I have for cancelling & "put it all back like prior"?
How about the fact that you were lied to by the salesman when he said;

Quote:
He said "no" & something like... "they don't pay dividends like that any more, blah, blah". (All I understood was the "no".)
...and probably many other times.

This is the part that you have to come up with as you were the one that he lied to, or at least, misled.
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Re: Q re Dividends
Old 12-23-2006, 03:18 PM   #15
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Re: Q re Dividends

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Not sure where you got the $8000 figure, but you would be made whole. That is the main thing.
8% surrender fee the first year.

Brewer, my calculations for the fees are 1.45% (.6% +.85%) for the riders. ... ~5 x's more. But couldn't we perhaps be talking apples/oranges? I mean, all annuities aren't the same? Low cost... would they have any guarantees or potential for increased value, death benefit?

Ok, so I'll check out the sec link & try to learn more about how I was lied to or misled. Then, since I'm reading here how dispicable Ameriprise is ( or at the very least expensive), I'd better figure out where I should go with my funds instead of Ameriprise. I had no idea. They were just the company that my employer had as an option for payroll deferred retirement $.
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Re: Q re Dividends
Old 12-23-2006, 03:22 PM   #16
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Re: Q re Dividends

OK Bram... let's get it in numbers you might get...

Yes, 1.45%.... but this is ONLY your annuity charges... how much is their management fee Likely 1.25%.. and maybe more with their expenses... so 1.25 + 1.45 = 2.7%... plus $30 a year... plus maybe more than 1.25%...

Yes, see if you can unwind it instead of moving it out and costing you the $8,000 cancellation fee.. And go to the guys manager... and if need be thier internal controls people... you can say that he sold you something he did not explain properly...

BTW, how long ago did you do this If it was months... probably can not unwind..
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Re: Q re Dividends
Old 12-23-2006, 03:26 PM   #17
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Re: Q re Dividends

Quote:
Originally Posted by Texas Proud
OK Bram... let's get it in numbers you might get...

Yes, 1.45%.... but this is ONLY your annuity charges... how much is their management fee Likely 1.25%.. and maybe more with their expenses... so 1.25 + 1.45 = 2.7%... plus $30 a year... plus maybe more than 1.25%...
That's what I was thinking. Most of these products are north of 3% fees, all-in.
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Re: Q re Dividends
Old 12-23-2006, 03:34 PM   #18
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Re: Q re Dividends

As you can see, the devil is, as always, in the details. You need to look at the total fees. That would be both in the annuity, with the management company and the fund itself. It's not unusual for a variable annuity to get fees up over 4%.

There is a big sales commission involved or why would they have a surrender fee? If there is an 8% surrender fee, it must be a big one. You made your "FA" very happy.

There is another issue to consider. You said that "you couldn't lose" if the market goes down. These types of VAs frequently also seriously limit any possible gains with a clause like "80% of any monthly gain up to a maximum of 5%." The sales pitch is that "hey if the market goes up 60% are you still happy with 48%?" The problem is that the market goes up a lot in a few months of the year and down a few months. The other months are flat. These types of contracts limit your good months but let the bad months run. Many VAs with these clauses make next to nothing even in good years.

I am not familiar with 403b plans and whether VAs must be part of the plan. I know that it is a continuing scandal in Texas that the teachers union gives certain annuity companies access to the teacher's 403b plans. The returns are terrible. I don't know if they can be avoided. If a company has truly low fees, it's ok. If you must get tied up in a typical VA, I think it would be better for a teacher to skip the 403b altogether.
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Re: Q re Dividends
Old 12-23-2006, 03:51 PM   #19
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Re: Q re Dividends

Quote:
Originally Posted by Bram
Wahhhh! Well here goes..... I'm certain I'm going to further expose my ignorance & naivete' in investing, & things financial.

Here's what I understand about the VA:
°No up front load.
°The $100K is invested in mod. aggressive mutual funds & I can lock in gains each anniversary. But the VA's value would never go below $100K (minus any future withdrawals) even if the market is down.
°My beneficiary can take a lump sum or continue annual withdrawals from the balance (if any) at my death.
°They gave me "$2,000 bonus" for a 10 year waiting period.
°Annual charge: $30
°Annual Rider fees are taken from market gains:
Guaranteed Min Accumulation Benefit(GMAB) 0.60%
Mortality & Expense Risk (M&E) 0.85%
°Surrender charges: 8% yrs 0-2, then graduates down to 0% 10 years after purchase.

So...... do you think this looks really, really bad? I must admit, that I DID actually have some misgivings before taking this plunge, but I let him sell me on the "security" angle. Also while not extremely risk adverse, I don't feel confident at all in making an intelligent alternative choice.

Thanks for your response!

Sorry to be the bearer of bad tidings but yes it is really bad, perhaps even really really bad, without knowing the fine print, it is hard to say.

I'll give you two pieces of investment advice upfront, first take mickeyd suggestion and try like hell to get this reversed. If necessary threaten to go to the plan adminstrator or the union, and raise a stink. There generally is a cooling off period for annuities, although perhaps only a couple of days. Don't agree to pay more than several hundred dollars in fees to reverse. (I.e. don't pay the 8%) Second advice is make a new year's resolution to spend 2 hours a week this year learning about financial investments. After 100 hours of learning (if not before) you'll be able to give advice on this board, you'll be earning more than $100 hour tax free in saving, by investing in your financial education. 403bwise.com, the Motley Fool, and Vanguard.com are all good places to start.

I know that .6% and .85% don't sound like a lot but that add up to 1.45% on $100,000 =$1450 a year and raising to due to compounding. Basically you don't need any of this life insurance stuff certainly not in a 403B. Unfortunately this isn't the only fees you will be paying, see your $100K is invested in moderately agressive mutual funds. To me the words moderately agressive mean this is an actively managed mutual fund (as a opposed to a passively managed index fund). Mutual funds have fees on average 1.5 % and active funds, especially Advisor funds like Ameriprise sell often exceed 2%.
For round numbers lets say your fees are 1.5% for the annuity and 1.5% for the mutual fund or 3% a year. On $100,000 that is $3,000 in fees for your first year.

Let's do some comparison, most 401Ks and some 403Bs provide an option for a guarrantee income (like a Certificate of Deposit (CD)) investment. Right now now long-term 5 or 10 years CDs are right about 5%, the same yield as are good money markets. Over 10 years a 5% interest rate will be worth $163,000. Now this is 100% safe investment alternatively you could stick your money into a money market and accomplish almost the same thing.

Most people expect the stock market to return between 8%-11% over the next 10 years. (including dividends of 1.8% a year) Note this is lower than historical market returns which are over 11%. If your 403B has a mutual fund option with a low cost index fund (which have expenses as low as .1%) that would mean your $100K would be worth $216K to $284K at the end of 10 years. Unfortunately with a 3% yearly expense in your variable annuity the expected value of your investment ranges between 163K and 216. So over 10 years, I'd say that there is excellent chance that this salesman cost you more than $50,000 . BTW when you can easily see the hugh impact of fees due to compounding. The future value of an investment is
FV = 1+ (expected returns - expense) ^ (Number of Years). Or 1+(11%-3%)^10 Use the Y^X function on any financial or scientific calculator.

If you can get out of this do. Depending on your other options available for you in the 403B it may even make sense to pay the surrender charges, but the board would need a lot more information to give you advice about that.

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Re: Q re Dividends
Old 12-23-2006, 04:58 PM   #20
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Re: Q re Dividends

Quote:
Originally Posted by clifp

Sorry to be the bearer of bad tidings but yes it is really bad, perhaps even really really bad, without knowing the fine print, it is hard to say.

I'll give you two pieces of investment advice upfront, first take mickeyd suggestion and try like hell to get this reversed. If necessary threaten to go to the plan adminstrator or the union, and raise a stink. There generally is a cooling off period for annuities, although perhaps only a couple of days. Don't agree to pay more than several hundred dollars in fees to reverse. (I.e. don't pay the 8%) Second advice is make a new year's resolution to spend 2 hours a week this year learning about financial investments. After 100 hours of learning (if not before) you'll be able to give advice on this board, you'll be earning more than $100 hour tax free in saving, by investing in your financial education. 403bwise.com, the Motley Fool, and Vanguard.com are all good places to start.

I know that .6% and .85% don't sound like a lot but that add up to 1.45% on $100,000 =$1450 a year and raising to due to compounding. Basically you don't need any of this life insurance stuff certainly not in a 403B. Unfortunately this isn't the only fees you will be paying, see your $100K is invested in moderately agressive mutual funds. To me the words moderately agressive mean this is an actively managed mutual fund (as a opposed to a passively managed index fund). Mutual funds have fees on average 1.5 % and active funds, especially Advisor funds like Ameriprise sell often exceed 2%.
For round numbers lets say your fees are 1.5% for the annuity and 1.5% for the mutual fund or 3% a year. On $100,000 that is $3,000 in fees for your first year.

Let's do some comparison, most 401Ks and some 403Bs provide an option for a guarrantee income (like a Certificate of Deposit (CD)) investment. Right now now long-term 5 or 10 years CDs are right about 5%, the same yield as are good money markets. Over 10 years a 5% interest rate will be worth $163,000. Now this is 100% safe investment alternatively you could stick your money into a money market and accomplish almost the same thing.

Most people expect the stock market to return between 8%-11% over the next 10 years. (including dividends of 1.8% a year) Note this is lower than historical market returns which are over 11%. If your 403B has a mutual fund option with a low cost index fund (which have expenses as low as .1%) that would mean your $100K would be worth $216K to $284K at the end of 10 years. Unfortunately with a 3% yearly expense in your variable annuity the expected value of your investment ranges between 163K and 216. So over 10 years, I'd say that there is excellent chance that this salesman cost you more than $50,000 . BTW when you can easily see the hugh impact of fees due to compounding. The future value of an investment is
FV = 1+ (expected returns - expense) ^ (Number of Years). Or 1+(11%-3%)^10 Use the Y^X function on any financial or scientific calculator.

If you can get out of this do. Depending on your other options available for you in the 403B it may even make sense to pay the surrender charges, but the board would need a lot more information to give you advice about that.

I annoint you "associate anti-annuity troll." Great post.
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