Getting out of an annuity

[ferco]

My "financial advisor" with a bunch of credentials behind the title placed about 200k of my retirement into an annuity w/ usalliance about 2 years ago and this is inside of a sep-ira. This was during my period of naivete (?sp); there's a 7 year period of early surrender charges, so I'm stuck for another 5 years. I'm currently 50, and have a separate sep-ira with vanguard (70% stock 30%bonds). I can shift 10% annually out of the usalliance sep but before I do anything want to get some feed back on this conundrum .....any suggestions, short of firing the CFP for the poor advice.

 

[preben]

Not knowing your costs in the annuity, your choices of investments and the redemptions fees makes it hard to give specific advise. Meanwhile often the fees in the annuity(incl. the crappy funds w high costs) makes it worthwhile to bite the bullet and pay the redemption fees. Cheers!

 

[Mr._johngalt]

My "financial advisor" with a bunch of credentials behind the title placed about 200k of my retirement into an annuity w/ usalliance about 2 years ago and this is inside of a sep-ira. This was during my period of naivete (?sp); there's a 7 year period of early surrender charges, so I'm stuck for another 5 years. I'm currently 50, and have a separate sep-ira with vanguard (70% stock 30%bonds). I can shift 10% annually out of the usalliance sep but before I do anything want to get some feed back on this conundrum .....any suggestions, short of firing the CFP for the poor advice.

I'd shoot the SOB!

JG

 

[saluki9]

I've never hear of US alliance, are you sure it isn't US Allianz?

If so, let me know, we deal with them on other things and I'm sure I could get some info from them. Let me know the contract name? They usually have some fancy name for the contract, that will tell me what I need to know.

 

[ferco]

Saluki9,
The contract is a USAllianz Alterity Flexible Payment Deferred Variable Annuity B. The annual mortality and expense chare is 2.25% and the annual administrative charge is 0.15%. There is also a Guaranteed Minimum Income Benefit attached to the contract.

Is there ANY silver lining to this cloud ??

 

[Mr._johngalt]

Saluki9,
The contract is a USAllianz Alterity Flexible Payment Deferred Variable Annuity B. The annual mortality and expense chare is 2.25% and the annual administrative charge is 0.15%. There is also a Guaranteed Minimum Income Benefit attached to the contract.

Is there ANY silver lining to this cloud ??

You are still alive to bitch about it?

JG

 

[brewer12345]

Saluki9,
The contract is a USAllianz Alterity Flexible Payment Deferred Variable Annuity B. The annual mortality and expense chare is 2.25% and the annual administrative charge is 0.15%. There is also a Guaranteed Minimum Income Benefit attached to the contract.

Is there ANY silver lining to this cloud ??

Holy crpa!!! Hope you got kissed, cause you sure got...

How much is the surrender charge? I am guessing here, but your total expense ratio is likely on the order of 3% a year. We'd have to know a bit about the surrender charge, but it shouldn't be too hard to figure out whether the best decision is to leave it for 5 years, pull the 10% a year, or yank it all at once and pay up.

I hate to say it, but I would also strongly consider suing your advisor for inappropriate investment advice. What idiot recommends putting an annuity inside a tax sheltered account? Probably one that got paid a fat commission for doing so.

 

[wildcat]

What idiot recommends putting an annuity inside a tax sheltered account? Probably one that got paid a fat commission for doing so.

American Express maybe ...oh that was below the belt. Doubt that guy is still around though

 

[saluki9]

Ok, I just talked to the people at US Allanz

here's the deal....

My company doesn't deal with ANY variable annuities, but from what the rep told me.

1. The way the contract is set up, you will be guaranteed a 7% return on your investments IF you stay invested, and eventually want to annuitize.

2. The expenses he gave me were a little lower than what you indicated, 1.45% to 2.4% depending on what death benefit options are on the contract.

3. In addition, investment expenses range from .5% to 1.8% depending on what sub account you choose

4. The good news is that the surrender charge is ONLY on for 6 years. I've heard of some that last 15 years. It's a sliding scale of 7,6,5,4,3,2,0

Let me know if you need any more info

 

[saluki9]

I hate to say it, but I would also strongly consider suing your advisor for inappropriate investment advice. What idiot recommends putting an annuity inside a tax sheltered account? Probably one that got paid a fat commission for doing so.

Almost every account application has an arbitration agreement on it which waives your right to sue. The best you could hope to do is file an arbitration claim (which the brokers usually win)

 

[brewer12345]

Ok, I just talked to the people at US Allanz

here's the deal....

My company doesn't deal with ANY variable annuities, but from what the rep told me.

1. The way the contract is set up, you will be guaranteed a 7% return on your investments IF you stay invested, and eventually want to annuitize.

2. The expenses he gave me were a little lower than what you indicated, 1.45% to 2.4% depending on what death benefit options are on the contract.

3. In addition, investment expenses range from .5% to 1.8% depending on what sub account you choose

4. The good news is that the surrender charge is ONLY on for 6 years.  I've heard of some that last 15 years.  It's a sliding scale of 7,6,5,4,3,2,0

Let me know if you need any more info

OK, so using the midpoint of your figures, you are paying something like 3% annually for a mediocre mutual fund with an income benefit you aren't using. If you bail out, you forfeit 5% of the fund value. If you reinvest in index funds with an average expense ratio of .2%, you make up the surrender charge in about two years. Sounds like a no-brainer to me.

 

[saluki9]

Not so fast. I'm not clear as the whether this is IRA money or not?

If it isn't you could wind up paying taxes and penalties if you surrender. You could do a 1035 exchange into a Vanguard variable annuity.

 

[ferco]

1035 exchange question:
Could I go from the usallianz sep-ira annuity into a vanguard sep-ira w/o the annuity portion? I understand that I'd still have to pay the surrender charge to usallianz.
I've done quite a bit of reading since this posting and I think there are several interesting points. Granted the CFP didn't do me any FAVORS !, I think given the fact that he was dealing w/ a high income self-employed individual who'd maxed out his sep-ira each year he was attempting to place more money in tax deferred status , ie., tax deferred annuity.

In retrospect, and this involves the ethics of the CFP (is that an oxymoron), I would have suggested the vanguard or tiaa annuity with the low fees and more liberal surrender fee options. I'm going to contact Vanguard since I already have an account there and see what the options are.

Does anyone know how usallianz compares to pacific life as insurance companies. Also is there a web site to find this comparative information

 

[brewer12345]

Just to be clear, ferco: If I understand you correctly, the allianz annuity is inside an SEP-IRA, right? If this is the case, you can surrender the annuity within the SEP-IRA (i.e. don't take any withdrawals from the IRA account, just "sell" the annuity within it) and then move the account to Vanguard. You don't need to put the money in an annuity; a mutual fund will do fine.

Pacific Life is an excellent insurance company, but like most, their variable annuities are way overpriced. They are very competitive on life insurance, though. Much more stable/safe than allianz.

 

[saluki9]

Yeah, you could surrender it because there ins't going to be a tax penalty in the IRA.

As for rating the companies, both a very good, with pacific life being slightly better. My company does some very large Variable life plans where people dump millions into insurance policies for tax and liability reasons. We have software here that combines the major ratings agencies into an index.

On a scale of 100, Pac life is a 95 and alliance is an 87

 

[cute fuzzy bunny]

You could send your financial advisor a copy of a movie that has as its theme a guy who goes crazy and shoots up his financial advisors office after the advisor gets him involved in a bad set of investments. Tell him you enjoyed it and think he might too.

Maybe he gets the hint and figures out how to extricate you from the mess he put you in

Had I been able to find such a movie, I would have posted it. Best I could come up with was a movie about a serial killer who was murdering people that had the same jobs as "the village people", in the order they stood in while performing. I dont think that would have the same effect.