Table the variable annuity jihad?

[2B]

Did you ever get your answers?

Not really. My sister is clinging to her story that it has to come out in her name and on her SS number. My other sister thinks the same way I do and lives not far from her. I'm sure she'll get more involved before the payout date.

This will either be next month or January. Of course, that's tentative because my sister controls when.

This annuity (yes, 2B has a VA ) is with American General Life Insurance Company (a subsidiary of American General - what a surprise). I have a form dating from 2000 that supposedly changed the ownership to all of us.

My father originally had it set up with only my youngest sister as beneficiary thinking that she was "in charge" but only part owner. She had all of his POA and financial stuff so it was a natural extension. When he realized he set it up wrong it was changed.

I intend to call the number of the FA (may he burn in hell) that sold the VA to my father. He may actually be fulfilling my wish but he could still be there. If not, someone else may be able to help.

 

[nun]

So effectively the VA's high fees have wiped out any potential gains. In a rapidly appreciating market environment high fees may be easier to swallow, but in a flat-ish market environment, high fees are killers!

The VAs offered by TIAA-CREF seem to be very different from the horror story you describe; low fees and lots of options. Is TIAA-CREF turly a reasonably priced, good performing VA or am I missing something

 

[2B]

The VAs offered by TIAA-CREF seem to be very different from the horror story you describe; low fees and lots of options. Is TIAA-CREF turly a reasonably priced, good performing VA or am I missing something

If your choices are like my daughter's 403b TIAA-CREF options, it's all in the fees. The annuity has a fee although modest compared to many alternatives and the mutual fund choices inside the annuity have high fees. The only thing you are missing is the money. You can either have a higher return with index funds or fund TIAA-CREFs end of year bonus.

 

[FIREd]

The VAs offered by TIAA-CREF seem to be very different from the horror story you describe; low fees and lots of options. Is TIAA-CREF turly a reasonably priced, good performing VA or am I missing something

Good for you!

 

[FinanceDude]

The VAs offered by TIAA-CREF seem to be very different from the horror story you describe; low fees and lots of options. Is TIAA-CREF turly a reasonably priced, good performing VA or am I missing something

TIAA-Cref is fine their expenses are low. I don't think ANY VA or ANY MF is performing well now........

 

[FinanceDude]

What's the most frequently asked question—how & when can I get outta this thing without the surrender charge eating me alive?

Maybe. You have 4 options:

1)All VAs have a "free-look" period, if you cancel the contract within that time frame, it is like it never existed

2)If you are buying one, you can ask the agent if the VA has a "no-surrender" option for the VA. Most VAs have this as an option, but most agents don't tell you about it because the commissions are 75% lower than a 7 year surrender charge option.

3)In rare cases, if you felt you were wronged by the sale (quite hard to prove if you signed all the documents) you might have an arbitration case with the SEC, and get made whole.

4)You can wait it out.

 

[CuppaJoe]

I have a VA, and this is by far my worst "investment". The screams I hear everyday are the sounds of my returns being eaten alive by fees, the investments inside the VA are murky and underperforming at best, I can't take my money out without paying huge penalties, etc... I made a terrible mistake when I bought it. I was stupid, stupid, stupid...

This is what people need to hear when they ask about annuities! Thank you, thank you for telling us.

And thank you, thank you to whoever volunteered to do a FAQ section on this topic.

 

[FIREd]

This is what people need to hear when they ask about annuities! Thank you, thank you for telling us.

You are welcome! For a few years, I went through a period of shame and denial when I would have never admitted having a VA... But I don't care anymore. I freely admit I jumped in on the VA bandwagon because I was too lazy to do my research and too gullible to question our FA's slick and somewhat forceful sales pitch. But no more. The only person who has made money with my VA is... my financial advisor. Enough is enough.

 

[kyounge1956]

Maybe. You have 4 options:

1)All VAs have a "free-look" period, if you cancel the contract within that time frame, it is like it never existed

2)If you are buying one, you can ask the agent if the VA has a "no-surrender" option for the VA. Most VAs have this as an option, but most agents don't tell you about it because the commissions are 75% lower than a 7 year surrender charge option.

3)In rare cases, if you felt you were wronged by the sale (quite hard to prove if you signed all the documents) you might have an arbitration case with the SEC, and get made whole.

4)You can wait it out.

I meant #4—it's too late now for the first three—but I don't know how long to wait. It's inside a Roth IRA which I'm in the process of moving to another custodian. I'd like to move the annuity too and close the old IRA altogether, but the surrender charge at this point would be about 8% of the value of the annuity. I would need to reread the paperwork to be sure, but I think it's another six years before the surrender charge goes away altogether.

Is there any rule of thumb to tell how long to wait or do I just have to decide within my own mind how badly I want out and hence how much I am willing to pay for the priveledge in the form of a surrender charge?

 

[Nords]

And thank you, thank you to whoever volunteered to do a FAQ section on this topic.

I also look forward to seeing specific & concrete rebuttals from annuity sellers... not just "Hey, it may be right for some people" or "We charge less than some!"

 

[freebird5825]

Can we reopen the discussion on "enhancement" products now?

go for it!

 

[2B]

I meant #4—it's too late now for the first three—but I don't know how long to wait. It's inside a Roth IRA which I'm in the process of moving to another custodian. I'd like to move the annuity too and close the old IRA altogether, but the surrender charge at this point would be about 8% of the value of the annuity. I would need to reread the paperwork to be sure, but I think it's another six years before the surrender charge goes away altogether.

Is there any rule of thumb to tell how long to wait or do I just have to decide within my own mind how badly I want out and hence how much I am willing to pay for the priveledge in the form of a surrender charge?

I tried to convince my siblings to cash out after my father died. They didn't want to pay the 5% surrender fee. Since that was about 2 1/2 years ago, that would have just about covered the high fund management fees. We get to cash out in a couple of months without a surrender fee.

I would look at how long the high fees would equal the surrender charge. If you have one year to go with 2% fund expenses it makes more sense to wait rather than paying 8% immediately. You have six years so if your fund fees are over 1% (which they probably are) it seems like a no brainer to bail now.

 

[Dreamweaver]

The NASD who very closely monitors all annuity sales have determined that VA's with living benefits DO have a place in IRA accounts.

The NASD... whose interests do they represent?

 

[CuppaJoe]

.... I would have never admitted having a VA....

Recently someone who was considering buying an annuity PMed me asking why there are so few examples of real-life problems with them here. I only knew of two, my bailed out annuity (not variable) and 2B's story.

 

[2B]

Recently someone who was considering buying an annuity PMed me asking why there are so few examples of real-life problems with them here. I only knew of two, my bailed out annuity (not variable) and 2B's story.

Most people here are either smart enough to have avoided them or won't admit to buying them very often. I know of one poster that bought one, defended it for a few posts and then stopped. I didn't think they were being hammered but they had made their decision. Of course, they may have had time to cancel it without penalty and did but wouldn't admit to it.

My father bought one. He was financially close to illiterate. He never had any real savings. He never owned stocks or mutual funds outside of a thrift plan which I don't know if he ever participated in it. He retired from the post office and lived comfortably on his postal pension and SS. The money that went into the annuity was from a whole life insurance policy that was on my mother. He wanted that to go to their kids when we were near retirement.

My FIL had two. He had no excuse not to be more financially literate. He was a Brig Gen in the air force and a VP with a large company. He had the worst mess for DW and me to clean up. Fortunately, one VA had the penalties cancelled if he was in assisted living so that was cashed out immediately. The other one was old enough that there was only a 3% cancellation fee and the combined annuity fee and fund fees were 3.5%. That was also cashed in ASAP.

There are actually some very few instances where a VA or SPIA might not be a bad idea. One would be for people that have an immense personal liability. They can use the annuity as a shield for their assets. If tax rates should rise soon, very high income individuals might also benefit by deferring income until their mega-salaries are gone. There may be others but I'm not aware of them.

I'm amazed that none of the annuity trolls bring up any reasons for anyone to buy a VA except the bogus "protect from market risk" and the high cost, obtuse life insurance aspect available.

 

[chinaco]

...
There are actually some very few instances where a VA or SPIA might not be a bad idea. One would be for people that have an immense personal liability. ...

There are some legal benefits of these products that apply to the basic product line. In certain cases as you point out, they provide a shield and certain features that might be an advantage to some. The notion of a VA is not bad... but there are plenty of substitute investment options. IMO - If one buys a VA the reason should not be because it is an investment... but the the legal or insurance benefits it provides (as you state).

The tax deferral advantage of a VA has been diminished by the lowering of LT Cap gains.

IMO VAs and SPIAs are a bit of an apples and oranges comparison. I think most people get VA during the accumulation phase. Likewise,
Some people by fixed deferred annuities because they have better rates than CDs during certain economic times... with no intention of annuitizing it.

SPIAs tend to be purchased by people who want a pension like income stream (if they were not completely misled by an agent). I think they have a perfectly legitimate place in the spectrum of options to create an income stream. They really are a good choice for "some people". Especially those that do not know how to manage money. I know that there are many new innovative features that are being added to these products to remove some of the negatives (like lock-in). Of course, you pay for the product... it is not free.

SPIAs are not bad in and of themselves... Insurance Agents that misrepresent them are the problem. As an aside, I know very few insurance agents that are financially savvy. I would not take financial advice from one... that is the real problem. The other issue is buying one from a solid company. IMHO - I would only buy one from the couple of top rated companies (e.g. NorthWestern Mutual). If I were buying big... I would consider splitting the buy between two companies for safety sake (but that would come at the cost of higher fees... many reduce fees based on the amount).

 

[2B]

Chinaco,

An SPIA is generally a poor substitute to a CD or treasury bond ladder. Your frequent use of the word "fee" is the reason. I would almost always argue someone would be better off with having control of their money and the relative safety of "full faith and credit" of the US behind them.

The exception would be if the individual would not have the ability to manage their money. Here it might make sense. A parent or grandparent might want to set something up for a special needs individual knowing that they are likely not to outlive them. Big money would go into a trust but a smaller sum could create a reasonable income stream for them with a SPIA.

 

[chinaco]

Chinaco,

An SPIA is generally a poor substitute to a CD or treasury bond ladder. Your frequent use of the word "fee" is the reason. I would almost always argue someone would be better off with having control of their money and the relative safety of "full faith and credit" of the US behind them.

SPIAs and CD are different vehicles (apples and oranges). They each have certain risks and certain benefits (serve certain purposes). There is some overlap and some non-overlap of benefits and risks of the two. It really depends on what problems you are trying to solve, the risks one would like to mitigate, and how one chooses to try to mitigate the risks. In the end... no one knows the future or your personal longevity. Both are legitimate.

It sounds like you do not think it would be a reasonable choice for yourself. Good for you... you have figured out your approach. However, your situation and others might be different.

The exception would be if the individual would not have the ability to manage their money. Here it might make sense. A parent or grandparent might want to set something up for a special needs individual knowing that they are likely not to outlive them. Big money would go into a trust but a smaller sum could create a reasonable income stream for them with a SPIA.

Yes.... an example of where one might reasonably be apply that type of contract.


SPIAs (the basic product) are not bad... the misunderstanding and misapplication of them often has a poor outcome. Buying one from a weak company could have a poor outcome also. Translation... Do your homework.

 

[nun]

If your choices are like my daughter's 403b TIAA-CREF options, it's all in the fees. The annuity has a fee although modest compared to many alternatives and the mutual fund choices inside the annuity have high fees. The only thing you are missing is the money. You can either have a higher return with index funds or fund TIAA-CREFs end of year bonus.

I have roughly 10 funds to choose from in my VA. Things like Total Equity Index, Global Equities, Real Estate, a Bond Market fund and an Inflation Pritected bond fund, a MM, TIAA-Traditional etc. The expenses run at 0.5%,
not a cheap as Vanguard, but not terrible and I have lots of withdrawal options from buying an annuity, which I won't do, or just taking systematic withdrawals, say at 4%. So my VA has options that make it look just like a Vanguard IRA apart from the 0.5% expenses rather than 0.2%

 

[Dreamweaver]

I'm amazed that none of the annuity trolls bring up any reasons for anyone to buy a VA except the bogus "protect from market risk" and the high cost, obtuse life insurance aspect available.

These reasons make it sound like they're good for everyone.

There are actually some very few instances where a VA or SPIA might not be a bad idea. One would be for people that have an immense personal liability. They can use the annuity as a shield for their assets. If tax rates should rise soon, very high income individuals might also benefit by deferring income until their mega-salaries are gone. There may be others but I'm not aware of them.

These reasons narrow the market wayyyyy down.

 

[2B]

These reasons narrow the market wayyyyy down.

Absolutely. With our current tax structure they make no sense for 99+% of the population.

 

[saluki9]

TIAA-Cref is fine their expenses are low. I don't think ANY VA or ANY MF is performing well now........

I don't know FD. I'm not the worlds biggest fans of them, but they have their place.

I've met some people recently with some large deposits in VAs with living benefit riders and they seem pretty happy with their choice right now.

 

[saluki9]

Chinaco,

An SPIA is generally a poor substitute to a CD or treasury bond ladder. Your frequent use of the word "fee" is the reason. I would almost always argue someone would be better off with having control of their money and the relative safety of "full faith and credit" of the US behind them.

The exception would be if the individual would not have the ability to manage their money. Here it might make sense. A parent or grandparent might want to set something up for a special needs individual knowing that they are likely not to outlive them. Big money would go into a trust but a smaller sum could create a reasonable income stream for them with a SPIA.

How about somebody with one sum of money THAT MUST provide an income stream for the remainder of their life. Until the Treasury begins providing longevity insurance bundled with their bonds the SPIA will still fill that role.

 

[FinanceDude]

I don't know FD. I'm not the worlds biggest fans of them, but they have their place.

I've met some people recently with some large deposits in VAs with living benefit riders and they seem pretty happy with their choice right now.

The income bases are working but the account values are brutal. As long as they are using a large insurer with good ratings they are probably ok.........