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What to do with an annuity? question
Old 01-13-2018, 12:49 PM   #1
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What to do with an annuity? question

OK. first let me say I posted this question on another popular site and it didn;'t go so well. lol

so, right off the bat, my wonderful old guy is deceased, telling me he was "stupid" for purchasing an annuity or that I was "stupid" because he handled the investments and I didn't know every detail, isn't really helpful. Yes I know I'm asking for opinions but what is done is done. so while I'm usually thick skinned, I really don't like hearing how stupid he was for being "suckered" into buying an annuity.

lol, yeah I know it's a public forum..

It's probably the only thing I've just let ride and not paid any attention too mainly because It said that if I tried to surrender it before maturity I would pay a penalty.

Anyhoo, I inherited a variable annuity from the old guy. He purchased it a year before he died and in November I can "surrender" it out without a penalty.

Its with AXA equitable variable annuity. the current account value is 503K. when I called, the representative said if I turned on payments at 60 (2 years) it would pay 20,000 a year. he said it's invested in Moderate growth strategy

it does have a guaranteed minimum death benefit of 400,000.

Couple of questions.

I know annuities are supposedly expensive, where can I find the expense ratio. I asked the representative and he said he would email me a prospectus but haven't gotten it yet?

Would you surrender? I admit that having a guaranteed 20,000 a year is attractive.

What other considerations should I be rolling around the noggin?

How can I plug this in firecalc?
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Old 01-13-2018, 01:04 PM   #2
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As far as calling anyone stupid over an annuity, they would be wrong. As you said, it was done and you want to move forward. What are your expenses? I view the guaranteed portion of your income (SSI, Annuities, Pensions) as an important piece of the retirement puzzle. If the annuity, SSI and any pension cover all of your non-discretionary spending, then it is fine, keep the annuity, look at your other investments as the source of your "fun" money. If the guaranteed portion is over your total spending, then you should consider surrendering some or all of the annuity. If the total is in between, then it is a preference decision as to how much you are willing to "risk" your heirs inheritance by playing in the markets.

Just my 2 cents.
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Old 01-13-2018, 01:05 PM   #3
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I'll take a shot at a couple of questions:

You should be able to find a copy of the prospectus online. AXA has a number of variable annuities so you will need to know the exact name of the one you have to find it. You will have to go through the prospectus with a fine-tooth comb to locate all the fees and costs.

You should be able to model it in FIRECalc by including it as $20,000 income on the "other income/spending" tab, starting in 2020.
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Old 01-13-2018, 01:11 PM   #4
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If you find that the annuity's expenses are too high you can do a 1035 exchange into a Vanguard annuity. They have a Moderate Allocation Variable Annuity (60% stocks/40% bonds) that has an expense ratio of 0.45%.

Note that you can't take any money out of the annuity until you're 59 1/2.

I know all this because I made an annuity mistake too
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Old 01-13-2018, 01:22 PM   #5
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I know very little about annuities

Is the payout have any inflation safeguards?

If not check out immediateannuities.com - you could take the surrender value of $400,000 and get $22,000 annual payout. Note these are not inflation protected annuities.
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Old 01-13-2018, 01:31 PM   #6
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Actually, golfnut I believe the surrender value is the account value which is $503K.

bclover - I would find out if that's the case. Also find out what type of capital gains hit you would face if you took the entire proceeds. If it's not too bad then you can exchange it for low-cost mutual funds (again, once you're 59 1/2), or buy an immediate annuity IF you feel you need the income.

Getting $20K/year from $503K doesn't seem like a great deal to me, unless you feel you are going to live a long time.
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Old 01-13-2018, 01:40 PM   #7
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Is the $20K/year payout correct? That seems low for an annuity that is now worth $503K. I think you would get quite a bit more from a SPIA for that amount.
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Old 01-13-2018, 01:41 PM   #8
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Originally Posted by Trooper View Post
Actually, golfnut I believe the surrender value is the account value which is $503K.

bclover - I would find out if that's the case. Also find out what type of capital gains hit you would face if you took the entire proceeds. If it's not too bad then you can exchange it for low-cost mutual funds (again, once you're 59 1/2), or buy an immediate annuity IF you feel you need the income.

Getting $20K/year from $503K doesn't seem like a great deal to me, unless you feel you are going to live a long time.
Thanks, evidently I can't read too well. A $503,000 annuity investment with withdrawals starting in Jan. 2019 produces a lifetime annual inc. of $29,400. for a 60 year old female. Doesn't sound bad to me.

https://www.immediateannuities.com/
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Old 01-13-2018, 01:56 PM   #9
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The company should give you the expenses, in writing.

Nothing at all wrong with a guaranteed payout for life.

You can go on-line and reach (i.e. Vanguard) what your expenses payouts would be with other annuities if you did a 1035; and also plug in the numbers to Immediate Annuity.com.

Also check for any surrender fees, and what would trigger them.
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Old 01-13-2018, 02:03 PM   #10
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The rep should be giving you all the options; I'm not sure they have. Some of I'm about to say depends on whether the annuity is qualified or non-qualified, and whether your "wonderful old guy" had begun taking payments. I'm assuming this was your spouse, and since my experience was non-spousal, some of this could be different. You have research to do, I believe.

I inherited a non-qualified annuity from DF last year, and the choices were to do a 1035 conversion to a different annuity (as mentioned above, this could be to a different company), take it as an annuity based on your age (you can sit on it as long as you like before doing this if it hasn't been annuitized yet), take it immediately as a lump sum, or take it out over a period of up to five years. I believe a spouse also has the option of continuing the annuity as their own. If it has a death benefit that could be another choice.

I chose the 5-year plan so as to stretch out the payments for tax purposes. There is no step-up in basis as with an IRA, and the gains are taxed as ordinary income. The basis of the investments is non-taxable; that money has already been taxed. So my plan is to take 20% of the remaining gains per year for five years, and take the basis out at the end.

My annuity is with Pacific Life and boy was it hard to figure out what the expense ratios were on their proprietary investments! I finally had to get the broker to do it and give me the information over the phone. At last I chose a stock index fund with an ER of 0.28%, which the broker told me was "impressively low." Yeah, right, given their choices anyway.

So be sure to do your own due diligence.
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Old 01-13-2018, 02:16 PM   #11
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If it's a variable annuity typically the return is a return of principal and returns. At some point these can be reduced.

The devils in the details, how much the fees are and what your upside is limited to. Those contracts aren't known as light reading, but AXA should answer all your questions. When you find out the correct numbers I think you'll understand what to do.
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Old 01-13-2018, 02:17 PM   #12
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Thanks all. some answers

Galaxyboy, yes the "old guy" was my husband. lol, he was about 10 days older than me and me being the lovely wife had to remind him that he was still the senior. LOL. No we were not taking payments

Zinger I'll double check. I reading from a quarterly statement I received yesterday as of 12/31 about 12 lines on it with different figures.

Guaranteed minimum income Benefit 500057.55
Guaranteed annual withdrawal amount 21876.48
then it has the death benefits.
does not say anything about inflation protection. It does say my Annual roll-up rate for the GMIB is 4.2% and that the rate is subject to change every anniversary date on 11/19
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Old 01-13-2018, 03:48 PM   #13
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Note that the GMIB is probably a contract "rider". If so, it will have its own form (probably a couple pages) and it will create another fee.

Somebody should have delivered a contract when the old guy bought the annuity. People usually put those contracts (aka policies) in some "safe place". Have you found it?

And, 1035 exchanges are available for an exchange into an SPIA, not just for and exchange into another variable annuity.
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Old 01-13-2018, 04:15 PM   #14
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The problems with variable annuities are not only are they expensive but they are typically very opaque... and annuity salespeople make things worse with a lot of double-talk.

I like the idea of once the surrender charges expire doing a 1035 exchange to Vanguard and then starting monthly benefits.

In terms of getting in idea on costs.... good luck with that... the only thing I could think of is to do a deep dive into your statements to see how the value changes from one period to the next... typically there will be some redemption of units to pay for fees so you should be able to follow it... it is like a mutual fund account in a lot of ways.

Needless to say... be skeptical of anything that doesn't make sense to you. These annuity companies are not well known for their integrity.
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Old 01-13-2018, 04:18 PM   #15
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Originally Posted by pb4uski View Post
The problems with variable annuities are not only are they expensive but they are typically very opaque... and annuity salespeople make things worse with a lot of double-talk.

I like the idea of once the surrender charges expire doing a 1035 exchange to Vanguard and then starting monthly benefits.

In terms of getting in idea on costs.... good luck with that... the only thing I could think of is to do a deep dive into your statements to see how the value changes from one period to the next... typically there will be some redemption of units to pay for fees so you should be able to follow it... it is like a mutual fund account in a lot of ways.

Needless to say... be skeptical of anything that doesn't make sense to you. These annuity companies are not well known for their integrity.
I'm leaning toward surrendering just from the fact that it does seem difficult to get an idea of the cost.
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Old 01-13-2018, 04:26 PM   #16
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Is this VA in a tax-deferred account or stand alone? If the latter, you should ask what the gain on surrender will be... it is the excess of the surrender value over the premius... paid.

I helped a friend surrender hers... what is a little different from other investments is that amounts withdrawn are first gains and the principal. What worked out best for her was to spread the withdrawals over 2 years to spread the taxable income over 2 tax years.

So for example, let's say her surrender value was $100k and the gain was $40k.... she took out $20k in late December of one year and the remaining $80k a week or so later in January... she had $20k of gain in each year... in her case her situation was such that by spreading the gain over two years we were able to avoid taxes entirely.
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