My first post and it's a dumb question!

[Tailgate]

Greetings from Texas (Y'all)!

Found the forum a few days ago and have enjoyed it, been somewhat educated by it, but mostly baffled with the amount and depth of financial info that's way over my head. I know that in time, I'll learn a little by osmosis.

Question coming, but here are the bullets:

1. DW is 58 and taking ER from education at the end of August
2. I'm 62 and started 'what iffing' when she announced she was done with work
3. I've run the numbers, including Firecalc, and they seem to say we'll be ok for me to pull the pin at the end of this year.
4. We have 2 pensions, my SS and a 401k, and a couple of 457b's.

I know with my traditional investments through a financial advisor there have always been sales charges to buy and fees to pay along the way. I've never been able to crack the secret codes on how to research the actual numbers other than the upfront sales charge that I'm told is a one-time charge to play the game.

Now Dumb Question #1 (I'm going to start numbering them, 'cause there will be more)

DQ#1? When we start to draw down on the annuities, will we be paying additional fees, surrender charges or other hidden tolls, gratuities or ransoms to Franklin Templeton, Hartford, Great Western or the other financial gangs.... and if so, how in the world do I get straight answers or mitigate those handouts?

Thanks in advance for your input... If I can finally figure out the rules of the game they are playing, I think I can make an informed decision to go self-directed and play in a different way.

 

[pb4uski]

Are these annuities in your 401k or 457b's? or outside? What specifically are they?

If they are deferred annuities you may have the option to surrender them (if you have had them for a long time presumably the surrender charge period is over) or annuitize them (have them start paying you monthly income).

I think your first step is to get a better handle on just what it is that you own.

 

[Rich_by_the_Bay]

Welcome.

I would (indeed, did) read the Boglehead book, the archives here, any of several books by Solin, and one or two by Malkiel and similar references. You could browse Lucia's work but it is a bit gamey and annuity-friendly for me. Within a couple of months you'll get the gist of it.

The big deal for me was when I fired my financial advisor and immediately saw my investments expenses drop ike a lead balloon as my returns beat hers ever since then. Don't be intimidated by doing it yourself, but don't sweat working with a good advisor if it puts you at ease, at least temporarily so you can keep an eye on things.

Hope that helps.

 

[RunningBum]

Welcome to the forum. I dunno the answer, I suspect you won't have any more explicit expenses unless you actually surrender the annuity early, but there are management fees every year that you don't really see but that eat into your returns. It's tough to say since we don't even know what kind of annuities these are. You mentioned some other investments but then asked about annuities. It's not clear if you've bought an annuity or are being pushed into one, or what.

I'd think that even if you can't figure out the rules of their game, you'd still want to educate yourself and go self-directed.

And please put a summary of the actual question in your thread titles as you post more, if you are going to start new threads. You might better attract people who know the answers that way, it makes it easier for people to browse the forums to find topics they are interested in, and it makes searching easier for people who might have the same questions in the future. Thanks.

 

[Independent]

I'm assuming your annuities are in the 457b. They are probably "deferred" annuities that many people treat like ordinary saving/investing accounts.

There may or may not be surrender charges. That depends on the policy. I'd expect you should have gotten some disclosure at the time you started it. Did you save any paper?

If it's a variable annuity (it looks like a stock or bond mutual fund) there will be explicit ongoing management, administration, and "MRC" fees. If it's a "fixed" annuity (it looks like a CD), then fees other than the surrender fee are typically buried in the spread between when the company pays you and what it earns (e.g. what you see is what you get).

In the individual market, it's common to allow modest withdrawals every year without a surrender charge, even if a complete termination would trigger a surrender charge. I don't know about 457b annuities.

According to this chart http://www.irs.gov/pub/irs-tege/rollover_chart.pdf you should be able to roll your 457b into a traditional IRA at some other company. If you'd rather not work with Templeton, etc. going forward, you can consider simplifying your life and rolling everything to one firm.

 

[Tailgate]

good points on posting and knowing what exactly it is that I own.. I don't have all the details, but will pull the paperwork and will post a more educated question.

I know we have an IRA, 403b, 457, 401k and a variable annuity, but it sounds like there are different flavors of each.

I have the Bogglehead book and have skimmed it.. guess I need to go back and read closely.

Thanks for the replies thus far. I have a long way to go..

 

[yakers]

For the 403b and 457 you can get a lot of useful information at 403bwise.com. DW's 403s were almost criminal in structure, rolled them over to Vanguard when she retired. You may have better ones, do check into contingent defered fees and the like.

 

[Elbata]

Tailgate, I don't know the answer to your question, but I wonder what it means when someone says, "I have a dumb question".

Because my dumb questions aren't nearly as smart as your question Sometimes I think my questions really are dumb, so I just don't ask.

 

[hlfo718]

A side question. What the hell do 403bs have all these def annuities in them? 403b is already tax def so why have tax def investment in a tax def account? Are these sales people that persuasive or are the HR people that ignorant or both?

My wife has a few def annuities in her 403b but thank god she also has Vanguard. So I have her max it to Vanguard.

 

[Tailgate]

Better question- about variable annuity

Ok, I have a better handle on what we have. Still don't understand most of it, but at least it's a start...maybe this is a better question than yesterdays..

Account is Hartford 403b that says it's eligible to rollover to qualified IRA. Account was closed to new premiums and investors in Jan 2008 by Hartford, so it's been 6 years. In 2 more years there are no surrender charges according to prospectus. Annual maintenance fee is waived because it has 175k. Looks like only a 1.25% mortality risk expense associated with the account.

Is there something else I should look for? Account has been performing ok lately and I can rebalance it so it's self directed (am I right assuming that?).

Should I consider moving to an IRA at some point? I know nothing about variable annuities, but I'm more comfortable with the cost since I've read the paperwork.

Thanks from this noobie...

 

[eytonxav]

One thing to learn, there are no dumb questions. The tough thing with annuities is deciphering the fine print so you fully understand how it works. Many folks on here shy away from annuities due to that and their associated high expenses.

 

[FinanceDude]

A side question. What the hell do 403bs have all these def annuities in them? 403b is already tax def so why have tax def investment in a tax def account? Are these sales people that persuasive or are the HR people that ignorant or both?

My wife has a few def annuities in her 403b but thank god she also has Vanguard. So I have her max it to Vanguard.

Because most companies that concentrate on 403Bs are insurance companies, and many of them have been in bed with universities and hospitals for many years. TIAA-Cref is one of the good ones. Principal and Great Western and ING? Not so much...........

 

[FinanceDude]

Ok, I have a better handle on what we have. Still don't understand most of it, but at least it's a start...maybe this is a better question than yesterdays..

Account is Hartford 403b that says it's eligible to rollover to qualified IRA. Account was closed to new premiums and investors in Jan 2008 by Hartford, so it's been 6 years. In 2 more years there are no surrender charges according to prospectus. Annual maintenance fee is waived because it has 175k. Looks like only a 1.25% mortality risk expense associated with the account.

Is there something else I should look for? Account has been performing ok lately and I can rebalance it so it's self directed (am I right assuming that?).

Should I consider moving to an IRA at some point? I know nothing about variable annuities, but I'm more comfortable with the cost since I've read the paperwork.

Thanks from this noobie...

Hartford will also have sub account charges that might be close to 1% or so extra. Also may have a rider charge for death benefit or living benefit.

Also Hartford is doing a buyout for old annuity clients. Not sure if 403B is covered but does not hurt to ask.

 

[sheehs1]

Hartfords position on their annuity holders was in WSJ Friday.
New Pressure on Annuity Holders - WSJ.com

Blurb:
But Hartford's new move may be the first that could result in owners inadvertently losing their long-held guarantees. The company is exercising what it says is a contractual right to impose new investing restrictions in order for owners to maintain guarantees, according to a letter dispatched last month by Hartford to annuity holders. It is requiring at least 40% of clients' money to be in fixed-income funds. If clients don't allocate their holdings accordingly by Oct. 4, the guarantee "WILL BE REVOKED," the letter declared in bold type.

I'm sure the 403b manager knows about this already...

 

[Animorph]

Hartfords position on their annuity holders was in WSJ Friday.
New Pressure on Annuity Holders - WSJ.com

Blurb:
But Hartford's new move may be the first that could result in owners inadvertently losing their long-held guarantees. The company is exercising what it says is a contractual right to impose new investing restrictions in order for owners to maintain guarantees, according to a letter dispatched last month by Hartford to annuity holders. It is requiring at least 40% of clients' money to be in fixed-income funds. If clients don't allocate their holdings accordingly by Oct. 4, the guarantee "WILL BE REVOKED," the letter declared in bold type.

I'm sure the 403b manager knows about this already...

That's pretty funny with all the doom and gloom over fixed income future returns. Serve them right to make this move and then have to cover additional losses. Go equities!

 

[jazz4cash]

Because most companies that concentrate on 403Bs are insurance companies, and many of them have been in bed with universities and hospitals for many years. TIAA-Cref is one of the good ones. Principal and Great Western and ING? Not so much...........

Thanks for that input, FD. I was wondering the same thing. My daughter started teaching last year and she signed up for a Principal annuity in her 403b. She also has a mutual fund option from Fidelity (but Fido does not send sales reps to the teachers lounge) and I am pushing her to switch.

 

[Mulligan]

Thanks for that input, FD. I was wondering the same thing. My daughter started teaching last year and she signed up for a Principal annuity in her 403b. She also has a mutual fund option from Fidelity (but Fido does not send sales reps to the teachers lounge) and I am pushing her to switch.

In my state anyways, I do not know why teachers buy 403b's even to begin with. As they will retire with a pension that is in a higher tax bracket than what they make salary wise for over half their career, minimum. Your daughter's state may not have as good as pension plan, but teachers still buy them here anyways. I am sure the salesmen says "It is a great deal to delay paying taxes from the 15% bracket, so you can withdraw an pay from the 25% bracket along with absorbing the costs of our onerous fees each year."

 

[yakers]

Its as bad a Mulligan says. Teachers are remarkably bad in financial matters. The insurance agents push these products, should be illegal. My wife had a 403b that included an inhouse (Nationwide Insurance) fund which was supposed to mimic the Fidelity Contrafund (held the same assets). Over the years she held it she had a 9.7% return, if she had held this directly with Fidelity the return was 13.4% for the same period. There are a few places with decent 403bs but most teachers I know have terrible ones.

 

[RobLJ]

Its as bad a Mulligan says. Teachers are remarkably bad in financial matters. The insurance agents push these products, should be illegal. My wife had a 403b that included an inhouse (Nationwide Insurance) fund which was supposed to mimic the Fidelity Contrafund (held the same assets). Over the years she held it she had a 9.7% return, if she had held this directly with Fidelity the return was 13.4% for the same period. There are a few places with decent 403bs but most teachers I know have terrible ones.

Texas ERS is pretty good and decently funded. For higher ed you have to opt between ERS and ORP (the 403b) the first 60 days. Since my wife was an accountant I took the 403b, was with Valic the first 3 years, then shifted to a self-directed Fidelity. Contrafund and Low-Priced fund served me very well, so far. Last year I shifted to the self-directed Fidelity brokerage option to gain access to non-Fidelity funds. Valic didn't have many choices at the time, hence the shift to Fidelity (that was the early 90s).

 

[clifp]

Because most companies that concentrate on 403Bs are insurance companies, and many of them have been in bed with universities and hospitals for many years. TIAA-Cref is one of the good ones. Principal and Great Western and ING? Not so much...........

+1
403B.com has/had some interesting background on the history. I think TIAA maybe the only good one. I should add in some (but certainly not all) the unions get kickbacks, and the employers,hospitals, schools etc typicalyl get "free" plan administration from insurance companies. But of course TANSTFL and the employees pay the really high costs.

 

[TuborgP]

I have followed 403b plans for years and love 403bwise. Everything you have heard negative is true. Insurance companies lobbied congress and got them to change accounting and paperwork rules to make it more difficult for school districts to offer multiple vendors.

 

[Forrest]

Congrats on your wife retiring - my wife retired 4 years ago but I'm still working. A couple of helpful tips:
1. If you haven't already done so, check with state's pension plan office and have them detail how her and your health benefits will change in retirement.
2. Is she entitled to be paid for unused sick days? If so, this may be a sizable windfall and may push you into a higher tax bracket for this year. What will you do with the money? If you haven't done so - check into the benefits of a Roth IRA - you may want to put some of this windfall into the Roth IRA
3. Tax wise, it's may be simpler to delay your retirement until next year - say March or April. You can bump up your 401K % for those last few months, and you'll have a low gross income that year - which will be a perfect time (tax wise) to convert some of your IRA to a Roth IRA.
4. Good luck on the annuity. Given the choice - I would wait 2 years and convert to an IRA. I've tried reading thru my wife's annuity prospectus - it's really confusing. With an IRA - I'm in control and have a better understanding of the fees.

 

[ERD50]

I have followed 403b plans for years and love 403bwise. Everything you have heard negative is true. Insurance companies lobbied congress and got them to change accounting and paperwork rules to make it more difficult for school districts to offer multiple vendors.

DW works in admin at a school district, and I was glad to see they had Fidelity as one of the options for her 403B. All the rest were annuity type places.

DD is a teacher, and her paperwork was filled with all these annuity offers, but Fidelity was on a list somewhere deep into the document. When she tried to find out, it seemed she was steered towards the annuities by whoever she talked to. I need to follow up with her.

I'll check out 403bwise, thanks.

-ERD50

 

[TuborgP]

Thanks for that input, FD. I was wondering the same thing. My daughter started teaching last year and she signed up for a Principal annuity in her 403b. She also has a mutual fund option from Fidelity (but Fido does not send sales reps to the teachers lounge) and I am pushing her to switch.

Part of the problem is the sales person in the lounge allows to ant teachers to think they now have a financial adviser just like the rich guys. It can be worse in small school districts when the guy in the lounge is related to someone on the board of education etc.