Variable annuity

[DebER]

Hi, I purchased a variable annuity from my "advisor" (at the time) back in 2000. I used my retirement funds of $28K. The "advisor" stated time and time again during his presentation that I was "guaranteed to double my money in 10 years" and that I "couldn't lose". Both my father and I had done business with him for several years, so I wrongly trusted him. Long story short, I lost. There was never a guarantee and I now have approx $15K. The annuity never recovered from the huge losses in early 2000.
A new advisor has suggested I roll it over into another retirement account that I have with him and explore my options, which I assume are probably more mutual funds. Does anyone have any suggestions on how to try to recoup my losses after such a long time? The only condolence is that, since this is tied to life insurance, my beneficiary will receive $28K if I die, even if the funds never recover. However, that will not help me.
Thanks for any suggestions.
PS I'm 48

 

[Dimsumkid]

Sorry to hear that you lost money after 10+ years. I'm the same age as you, and bought the same variable annuity product. For a while I was considering dumping my annuity, but I would have to endure the taxes on my gains and the IRS 10% penalty. Mine was through Fidelity, but obviously your returns depended on what you invested in. Since you're showing a loss, I believe you can just withdraw all the money in the annuity. Please check on this to make sure, but I know you won't pay any taxes since you have no gains, but the IRS 10% penalty is the part I'm not sure about. Otherwise, you're restricted to only changing this for another like product, i.e., another annuity. Look into Fidelity or Vanguard as 2 examples that offer low cost annuity products if you decide to stay in one.

 

[73ss454]

Hi Deb, I'd put the money into a money market until you can read and learn why you shouldn't have an "advisor".

You need to learn first before you make any moves with your money. Most "Advisors" will advise you to put your money where they make the most money.

 

[FinanceDude]

You will pay a 10% penalty if you cash out the contract, since you are younger than 59 and a half, and it is qualified money.........

Probably the best thing to do would be to transfer it out of the annuity and into mutual funds..........

 

[DebER]

73ss454,
I can read, but had conducted business with this "gentleman" for quite a long time w/good results. Thought (wrong) that he had my best interest at heart and will never do that again.

 

[Dimsumkid]

DebER,
If you decide to just get out of the annuity, to avoid the IRS 10% penalty, you can do a rule 72Q, pretty much the same as a 72T, but for annuities/insurance products or you can annuitize it. 72Q is an IRS rule that allows withdrawals before 59 1/2 but must be strictly followed. Many people advise getting a tax accountant that has experience with rule 72T/Q. The basic guideline is the withdraw the same amount for the greater of a min of 5 years or until 59 1/2 and it based on your life expectancy. Here's a link to an easy to understand explanation of 72T/Q:

http://tools.callums.com/doclib/files/CALLUMS/33414/AMK-106N 72T Rules.pdf

 

[Rustward]

Why not roll it into an traditional IRA? No penalty or taxes.

There might be a surrender charge though, but no matter what you do, if there is a surrender charge there is no way to avoid the surrender charges other than waiting until the "surrender period" expires.

 

[DebER]

I do want to roll it into a tradional IRA. I have one set up that I can roll it into as my penalty phase is over.
I wasn't sure if I could do that w/a variable annuity, so I'll check w/Prudential. If I can, I'll start looking a some mutual stock funds. I hear that bonds isn't the place to be right now.

 

[chinaco]

I would never trust the advice of a life insurance agent. Do your own homework.

The same goes for the people in banks hawking various annuities.

Chalk the $13k (and lack of gain) up to an education and move on.

 

[73ss454]

Deb, I'm sure Prudential has plenty of Mutual Funds. The problem is that you're going to get killed with fees again. Check with Vanguard and see if they can help you. Stay away from Prudential and the so called advisors.

Maybe go to the library and pick up a few investing books. The Bogleheads Guide to Investing comes to mind.

 

[Nords]

73ss454,
I can read, but had conducted business with this "gentleman" for quite a long time w/good results. Thought (wrong) that he had my best interest at heart and will never do that again.

I think you might be misinterpreting 73's shorthand phrasing. He means "read some books on investing and learn more about the subject".

You're asking us what to do with your money, but that's a trick question. We're not going to tell you that you should buy this or buy that or buy the other thing. We're trying to tell you that you should learn how to handle and invest your money, or else you're gonna have to keep searching for an adviser who's truly worthy of your trust.

Once you read a few books from the recommended reading list, like the "Boglehead's Guide to Investing" or the "Boglehead's Guide to Retirement" then you can figure out what kind of asset allocation you're comfortable with. You can choose a mutual fund company like Vanguard or Fidelity or Schwab. Then you can invest in low-cost index funds which satisfy the asset allocation you've decided on, and periodically check up on those funds to see if they need rebalancing.

But "looking at some stock mutual funds" and "hearing that bonds isn't the place to be right now" is the wrong way to go about managing your finances. That's how financial advisers exploit your ignorance or your lack of time to ... read and learn.

In the meantime it sounds like a great idea to wait until the annuity is out of its penalty phase, and then to cash it out and roll it over to a money market in your IRA. And if you're not happy with the yield that your money is earning in a money market, then consider it the motivation to... read and learn. The sooner you have the knowledge to pick your asset allocation and put the money where you're confident that it belongs, then the sooner your funds will be on the road to recovery.

 

[FinanceDude]

Why not roll it into an traditional IRA? No penalty or taxes.

There might be a surrender charge though, but no matter what you do, if there is a surrender charge there is no way to avoid the surrender charges other than waiting until the "surrender period" expires.

Grand idea, but OP calls the money "retirement funds", and I am not sure if she means it was "401K money" or "money being saved for retirement", clarification may let us help more.........