Playing Fido

[doneat54]

Had a nearly 1.5 hour Zoom call with the Fido rep today. DW and I were pleasantly surprised at many levels. I had sent him the previous day a portfolio summary that showed him that ~75% of it was outside Fidelity. He is following multi step program process and this first phase was "Discovery" where he asked about non financial goals and priorities. Asked about family priorities and took a lot of notes. Then asked us to prioritize from a list of risks like SWR, longevity, medical costs, etc. Lastly he shared his screen and showed us the expense workbook we might work with (I already have a spreadsheet which I just updated.)

I cautioned DW prior to the call about the Wealth management "product", and the likelihood that he might suggest moving the Prudential holdings in to Fidelity, but that never came up. It was a good discussion that allowed him to fill in lots of fields in their account tool that ultimately will allow him to come up with a suggested withdrawl plan for us to start in '22. He has been with Fido since 1999.

Will get him some expense guestimates before our next Zoom in a couple weeks.

 

[doneat54]

Had the second Zoom call with the FIDO rep today. We finished putting expected expense data into their tool and looked at projections. We did SS estimates for both 67 and age 70 for both of us and we liked 70's best. That will leave us a gap of 7 years between when DW retires and she starts drawing SS. She is 2.5 years old than I. Once we both are drawing SS, the picture looks very good, with SS paying for 100% of our "essential" expenses, and nearly half of the discretionary.

The rep suggested a 7 year annuity that would cost around $0.5M and would buy us immunity from market volatility for those 7 years. I asked what would be the difference between just putting that amount of the portfolio into cash holdings, and drawing from that? He gave a couple different answers, that even seemed to contradict themselves.

So I am interested in insights on this. Current AA is around 38/62 and I favor being at 30/70 when DW retires. As I see it:

Cash pile pros: You keep $$ flexibility
Steady draw guaranteed to be there
Cash pile cons: You miss out on any growth on that $$

Annuity pros: Steady draw guaranteed to be there
Some growth (??) He is sending me a quote

Annuity Cons: That $0.5M out lay is now tied up
Fees?

I don't hear much positive about Annuities here, and not leaning toward one, but always looking for perspectives/ideas.

Thoughts??

 

[OldShooter]

I am not an annuity guy either but the first thing I would do is to price shop it at Vanguard. There are also a couple of comparative shopping sites that the annuity boffins here like. Someone will be here soon with the links, I expect.

Another consideration is where this amount of money fits with your overall assets and your plan for them. The insurance company will make money and the salesperson will make money, more money will be spent buying that "immunity from market volatility." All money that will come from your $500K payment but does not have to come from the $500K if you keep i.

Something that is always good with prospectuses is to get the PDF and text search for words like "fees," "costs," etc. I would also ask the salesperson (a) Are you a fiduciary? and (b) What commission $$ will you receive for selling this?

Also, you've posed this as an either/or problem. With a 7 year planning horizon there are other options. It might make sense to hold some equities. In some other recent thread, a poster mentioned a mutual fund, VG I think, that held like 10 or 20% in conservative equities. This may suit, especially if you have other assets.

Finally, 7 years is a long time. Not only does life happen, but your actual spending is guaranteed to be different than your plan and probably more lumpy. So the amount of annuity payments to cover it can only be a guess and you'll have to live with that guess.

 

[Out-to-Lunch]

What is the payout with a $500k premium?

I would doubt that this would be a good deal for you. I am not opposed to (simple) annuities for, say, protection against longevity. But with a 7-year annuity at your ages, you will get essentially no help from mortality credits.

How about a bond ladder?

 

[mrfeh]

Had the second Zoom call with the FIDO rep today. We finished putting expected expense data into their tool and looked at projections. We did SS estimates for both 67 and age 70 for both of us and we liked 70's best. That will leave us a gap of 7 years between when DW retires and she starts drawing SS. She is 2.5 years old than I. Once we both are drawing SS, the picture looks very good, with SS paying for 100% of our "essential" expenses, and nearly half of the discretionary.

The rep suggested a 7 year annuity that would cost around $0.5M and would buy us immunity from market volatility for those 7 years. I asked what would be the difference between just putting that amount of the portfolio into cash holdings, and drawing from that? He gave a couple different answers, that even seemed to contradict themselves.

So I am interested in insights on this. Current AA is around 38/62 and I favor being at 30/70 when DW retires. As I see it:

Cash pile pros: You keep $$ flexibility
Steady draw guaranteed to be there
Cash pile cons: You miss out on any growth on that $$

Annuity pros: Steady draw guaranteed to be there
Some growth (??) He is sending me a quote

Annuity Cons: That $0.5M out lay is now tied up
Fees?

I don't hear much positive about Annuities here, and not leaning toward one, but always looking for perspectives/ideas.

Thoughts??

Bummer. I know little about annuities and can't say if this is a good idea or not, but they generally are much better for the person selling them than the customer.

This instantly makes me think the rep is putting his needs ahead of yours.

 

[doneat54]

Got this quote tonight from the FIDO rep for an annuity:

Monthly Income Payment: $5,900.00
Annuity Source of Funds: Traditional IRA
Annuity Option: Period Certain Annuity
Purchase Payment: $478,201.47
Cost Basis: $0.00
Taxable Amount: $5,900.00
Payment Frequency: Monthly
Period Certain: 7 Years
Total of Payments $495,600.00*


So if I am reading this right, I get $495,600.00 in total payments ($5900x84 months) for $478,201.47. So a net gain of $17,398 over 7 years (?). According to Moneychimp's CAGR calculator, that is a 0.51% CAGR.


Its from MassMutual BTW, looks like they rate pretty high.


Ok, some growth, and immunity from market crashes, yes. But the loss of flexibility I'll have bugs me a bit.

And thanks for all the insights above, very helpful.

 

[bada bing]

I am not totally anti-annuity myself, but the proposed 7 year annuity looks like a bad deal. I look at annuities as an insurance product, insuring against living longer than planned. A period certain annuity of 7 years at .5% isn't insuring anything. You can set up a cd ladder and get that return with retained access to the principal.

I have had a different experience with Fidelity because my accounts there are employer sponsored 401K, pension and NQDC. I have a rep, but contact is through a separate phone number and team servicing only my former employer's accounts. There are over 50K employees and the rep I talk to is exclusively assigned to my old employer's employees. I have received exceptional service for the few things I need, but I suspect that there are different rules and incentives (or lack of incentives) for reps working for a specific employer retirement services group.

 

[Out-to-Lunch]

It is entirely possible that I am doing something wrong, but I get your imputed interest rate to be just over 1% using the Excel "rate" function": =RATE(84,5900,-478201.47,0,1)*12

I still agree with your conclusion, however. To be fair, how could they possibly provide you a guaranteed return of either 0.5 or 1% (depending on which of us is correct) in this environment?

 

[Jerry1]

how could they possibly provide you a guaranteed return of either 0.5 or 1% (depending on which of us is correct) in this environment?

They take on risk. I imagine that an insurance company has a return on all fund goal in this market of somewhere around 6%. Again, that’s just a guess, but there’s no doubt that they plan on taking on risk with that money and expect to make more than 1% with it. Of course, they could fail, but that’s what reserves are for. They have a long term horizon on their total book, the OP does not. That provides the opportunity for the insurance company.

 

[copyright1997reloaded]

Got this quote tonight from the FIDO rep for an annuity:

Monthly Income Payment: $5,900.00
Annuity Source of Funds: Traditional IRA
Annuity Option: Period Certain Annuity
Purchase Payment: $478,201.47
Cost Basis: $0.00
Taxable Amount: $5,900.00
Payment Frequency: Monthly
Period Certain: 7 Years
Total of Payments $495,600.00*


So if I am reading this right, I get $495,600.00 in total payments ($5900x84 months) for $478,201.47. So a net gain of $17,398 over 7 years (?). According to Moneychimp's CAGR calculator, that is a 0.51% CAGR.


Its from MassMutual BTW, looks like they rate pretty high.


Ok, some growth, and immunity from market crashes, yes. But the loss of flexibility I'll have bugs me a bit.

And thanks for all the insights above, very helpful.

You make 17398.53 over 7 years on an investment of $478201.47. No thanks. Just selling the securities and going all cash would allow you to withdraw 5692.87 per month, with the flexibility at any time to a) change the amount based on circumstances, b) invest it in something else. For a "cost" of $207 per month, I would want the flexibility.

 

[LarryMelman]

Got this quote tonight from the FIDO rep for an annuity:

Monthly Income Payment: $5,900.00
Annuity Source of Funds: Traditional IRA
Annuity Option: Period Certain Annuity
Purchase Payment: $478,201.47
Cost Basis: $0.00
Taxable Amount: $5,900.00
Payment Frequency: Monthly
Period Certain: 7 Years
Total of Payments $495,600.00*


So if I am reading this right, I get $495,600.00 in total payments ($5900x84 months) for $478,201.47. So a net gain of $17,398 over 7 years (?). According to Moneychimp's CAGR calculator, that is a 0.51% CAGR.

Its from MassMutual BTW, looks like they rate pretty high.

Ok, some growth, and immunity from market crashes, yes. But the loss of flexibility I'll have bugs me a bit.

And thanks for all the insights above, very helpful.

I cannot see anything positive about this idea. Why would you even consider it?

The first year's withdrawal is almost 15%? Do you need $70K income from a 500K portfolio? You have alluded to having assets in multiple places but the overall picture is not clear.

You're already talking about 40/60 and even 30/70 AA's which don't make any sense for someone in their 50's. Annuities make even less sense.

 

[scrabbler1]

While I have been with Fido since 1990 (and have had an account with Mellon, previously called Dreyfus-Mellon), I didn't start increasing my involvement with their local office's reps until 2008, 7 months before I ERed.

I went through a few different reps ("Account Executives") between 2008 and 2010 until I finally got a good one I have been with for the last 10 years. That first rep I dealt with in 2008 helped me set up their RIP program which was helpful in getting a second opinion for my ER planning I had been ramping up for about a year. She soon left the local office but the next rep was also very good, handling my rollover IRA and helping me get my ER started on the right foot.

But that man left the local office in late 2009 and I was handed off to rep #3. But before I could meet with him, another rep called me who was, as I would find out later, trying to poach me. This rep, whom I will call Mr. Pushy, wanted to take over managing my portfolio for a fee. I spent two rather miserable hours meeting with him one afternoon in 2010. By the time I had gotten back to my car, I had already mentally written a letter to his boss, the office manager, detailing my experience with Mr. Pushy and requesting I be switched to another rep. The manager called me after getting my actual letter and switched me back to rep #3, the man I have dealt with ever since. I have met with him every 12-18 months to get his input on things and to update the RIP program's data.

In 2012, after my (snake-bit) friend received a large inheritance, I had him meet with my Fido rep and he is also now a Fido client. I help manage his portfolio which has included consolidating his other investments into Fidelity such as a Roth IRA and a smaller brokerage account held elsewhere. He did get a bonus for some of those moves.

While my experiences with Fido have been good, I have encountered a growing list of small gripes about Fido and its usually good website. A few months ago, the current office manager happened to call me to ask about my experiences with my Fido rep and anything else Fido-related. I let her know about my Fido gripes, which she suggested I let my rep know in writing (I always let him know over the phone or in person later on). I have collected my scattered gripes into a Word file and at some point will formalize them into an email to my rep. Some of those gripes I had told a high-ranking person in the Fido home office over the years which once paid off nicely when they did something big about one of them.

 

[SnowballCamper]

If you run Firecalc for fixed annual income (0%inflation) of 70,800=5,900*12 and 0% in equities you also get 100% success for seven years.

The output states, "The lowest and highest portfolio balance at the end of your retirement was $11,625 to $478,000, with an average at the end of $58,651". So you're paying from $11,625 to $478,000, with an average at the end of $58,651 for that guarantee. Is it worth it to you?

Arguably this isn't the intended use of the calculator, but I think it adds perspective to what you're paying when you buy an annuity.

 

[doneat54]

I cannot see anything positive about this idea. Why would you even consider it?

The first year's withdrawal is almost 15%? Do you need $70K income from a 500K portfolio? You have alluded to having assets in multiple places but the overall picture is not clear.

You're already talking about 40/60 and even 30/70 AA's which don't make any sense for someone in their 50's. Annuities make even less sense.

The $500k is not the whole portfolio, only a decent minority fraction of it. And 40/60 and even 30/70 AA's do make sense when you are already retired in your 50s.

 

[doneat54]

If you run Firecalc for fixed annual income (0%inflation) of 70,800=5,900*12 and 0% in equities you also get 100% success for seven years.

The output states, "The lowest and highest portfolio balance at the end of your retirement was $11,625 to $478,000, with an average at the end of $58,651". So you're paying from $11,625 to $478,000, with an average at the end of $58,651 for that guarantee. Is it worth it to you?

Arguably this isn't the intended use of the calculator, but I think it adds perspective to what you're paying when you buy an annuity.

Yes, and stewing on this for a few days now, and in addition to the insights from this thread, I'm thinking this a non starter. And although we still like this guy, his reaction to when I just say "this is not something we have decided to pursue, let's move on" will determine a lot about our future relationship. He does have a lot of game left here if he wants it, with me moving my Prudential holdings to FIDO if it goes that way. The value that I really see him (potentially) providing is helping us come up with an income stream strategy for the long haul, given all our holdings. Something that I personally haven't given a whole lot of thought to as yet, but this annuity idea he's pitched to bridge us to SS is something that I really can't see much upside for us.

Thanks again for the insights/opinions, they are helpful.

 

[scrabbler1]

The $500k is not the whole portfolio, only a decent minority fraction of it. And 40/60 and even 30/70 AA's do make sense when you are already retired in your 50s.

Certainly makes sense to me. I am 57, have been retired for 12 years, and have an overall AA of 38/62. In taxable, it's a little more tilted toward bonds, in the rollover IRA I can't yet access, it's closer to 50/50.

 

[nwsteve]

Yes, and stewing on this for a few days now, and in addition to the insights from this thread, I'm thinking this a non starter. And although we still like this guy, his reaction to when I just say "this is not something we have decided to pursue, let's move on" will determine a lot about our future relationship. He does have a lot of game left here if he wants it, with me moving my Prudential holdings to FIDO if it goes that way. The value that I really see him (potentially) providing is helping us come up with an income stream strategy for the long haul, given all our holdings. .

We have had to "train" our Fido person whenever we have gotten a new one--usually because our orig one was promoted. The good ones listen and learn. It has not been unusual early in a new relationship to have the new rep suggest an annuity. We make it clear that is not a topic for discussion unless we ask. The good ones may inquire our reason but then quickly move along to better understand what they can do for us. I have found asking the new rep to explain what he knows about their income planning tools and to show them to me. You should get a pretty good idea how equipped they are to be of help.

 

[LarryMelman]

I just don't get why Fidelity pretty much ignores me. I've been with them since the 1980's, at one point I had over $2M with them across several accounts. When I moved over half of it to Schwab, they didn't say anything. I occasionally visit the local office and yes, I take a free cup of coffee but I don't stuff my pockets with sugar packets or etc. No one has ever offered to be "my rep". Years back I attended some seminars advertised on the web site, but they never invite me to anything.

I mean, I suppose I'm glad that no one is pushing product at me, it's never happened. But it's like I'm on Fidelity's naughty list.

 

[bada bing]

I just don't get why Fidelity pretty much ignores me. I've been with them since the 1980's, at one point I had over $2M with them across several accounts. When I moved over half of it to Schwab, they didn't say anything. I occasionally visit the local office and yes, I take a free cup of coffee but I don't stuff my pockets with sugar packets or etc. No one has ever offered to be "my rep". Years back I attended some seminars advertised on the web site, but they never invite me to anything.

I mean, I suppose I'm glad that no one is pushing product at me, it's never happened. But it's like I'm on Fidelity's naughty list.

You may be like me. I suspect I have notes in my files at Fido and Schwab about being a lost cause as a sales lead. I have been to a couple of nice dinners hosted by my Schwab rep, but all we ever talked about was local sports and the micro-brews being served. I'd go again, but there haven't been invites in the last couple years.

There isn't a Fido office anywhere nearby and my assigned Fido rep is 3000 miles away. Nice gal, she just got back from an extended maternity leave last month. I have never heard from her unless I call to do a rollover or something that requires her mouse clicking.

 

[Oilcan]

Yesterday I got a "Have a Happy Holiday" card personally signed from Abigail Johnson. Guess I'm on the special list at Fidelity!

 

[H2ODude]

We're a private client account at Fido, have been with them since 90's. Have a local office that I find a real positive, opened maybe 10-15 years ago. We're on our third "representative." The second one sort of pushed for an annuity to cover DW needs if I go first, my pension stops with me. In reality, there's more than enough for her in the portfolio if I check out as I write this. She's just not interested in managing money. I've appreciated having the reps available, but really not used much other than to confirm that no, I'm not crazy in what I'm doing. Had a pitch last year for them to manage but it just seemed like my set it and forget it was the more productive means to do it.

I've looked at various immediate annuities over the last few years and the payouts are just too low, I assume given the interest rate environment. We have a substantial amount of CD's maturing this December and at this point have no idea what to do with that money. I had it parked there (in tIRA) when MRD's were to kick in at 70 and had figured, meh, will decide what to do then. I guess it will now just go to more Roth conversions, into what in the Roth I don't know. Definitely what one could call first world problems.

 

[PatrickA5]

I just don't get why Fidelity pretty much ignores me. I've been with them since the 1980's, at one point I had over $2M with them across several accounts. When I moved over half of it to Schwab, they didn't say anything. I occasionally visit the local office and yes, I take a free cup of coffee but I don't stuff my pockets with sugar packets or etc. No one has ever offered to be "my rep". Years back I attended some seminars advertised on the web site, but they never invite me to anything.

I mean, I suppose I'm glad that no one is pushing product at me, it's never happened. But it's like I'm on Fidelity's naughty list.

That's nothin'. In order to get a return phone call with my rep I have to make an appointment 3 weeks out for him to call me. Emails take weeks for a response. So, If I need anything I call the main premium line. They've always been quick and give good information.

Even though we have all of our retirement accounts with FIDO, we must be way down the list of the worthy. I'd love to go to a seminar - even if they're just trying to sell me something - just to know they realize I exist. I'll even sit in a separate room for the lesser people (if the food's good).

 

[OldShooter]

I think if you're getting poor service at Fido (or anywhere), you should call the branch manager. Service is what they are selling and any manager with an IQ above room temperature should understand that. The fact that I get excellent service from Schwab is IMO more likely because I lucked out in the rep assignment lottery than because Schwab has major genetic superiority to Fido.

 

[Ready]

I used to have access to a financial advisor at Vanguard for no charge but I recently called them to speak to one and found out they eliminated this benefit. Now they want me to pay them a percentage of assets based fee for their financial advisory services. I can still call them and ask general questions about their funds but I can’t expect someone to review my overall portfolio and provide advice any more unless I pay them.

So at this point it sounds like Fidelity offers the perk of free advice while Vanguard does not. That may be something to consider when deciding which brokerage firm to choose.

 

[pb4uski]

Got this quote tonight from the FIDO rep for an annuity:

Monthly Income Payment: $5,900.00
Annuity Source of Funds: Traditional IRA
Annuity Option: Period Certain Annuity
Purchase Payment: $478,201.47
Cost Basis: $0.00
Taxable Amount: $5,900.00
Payment Frequency: Monthly
Period Certain: 7 Years
Total of Payments $495,600.00*


So if I am reading this right, I get $495,600.00 in total payments ($5900x84 months) for $478,201.47. So a net gain of $17,398 over 7 years (?). According to Moneychimp's CAGR calculator, that is a 0.51% CAGR.


Its from MassMutual BTW, looks like they rate pretty high.


Ok, some growth, and immunity from market crashes, yes. But the loss of flexibility I'll have bugs me a bit.

And thanks for all the insights above, very helpful.

MassMutual is a great company, but the IRR in the annuity is equivalent to about 0.48% as you have concluded. Bad part is that you have $478k tied up. I think you can do the same or better with a CD ladder and you won't have the money tied up. The problem is that the CD ladder isn't as near as good for Fido or your Fido rep as the 7 year annuity.

Actually, even an online bank account would pay 0.5% (could go down or could go up in the future) and be FDIC insured and totally flexible in terms of access to that money.... you could put the $478k in an online savings account, arrange an automatic transfer to your checking account of $5,900 a month and be ahead.

Or if your willing to take on a bit more risk there are other alternatives that would pay more.