Variable Annuity

[DebER]

Hi,
I have a variable annuity that I purchased in 2000 that started out with American Skandia, but was sold to Prudential several years ago.
How I wish I had not purchased this, but I was conned by a "financial advisor" that I trusted at the time.
Long story short, I invested 28K and, no matter how I move, I cannot get the value past a little over $15K.
Should I roll over what I have left into my new retirement account at work? I just opened a Guided Portfolio program with Valic that I will fund through payroll deduction. Or do you have other suggestions on how I can begin to recoup some of the loss.
The reason I bought this annuity is because I was wrongly told by the "advisor" that it was "guaranteed to double in 10 years".
I've learned a lot since then, but I'm on the fence as to roll it and take a large loss or keep it as my insurance policy since my beneficiary will at least get the 28K. However, I do not have children and have more than enough to leave my husband and charity. Thanks so much for your thoughts!

 

[LOL!]

Valic is well-known for being a poor choice for investments. Did you have other options?

Some folks do something called 1035-exchange into a Vanguard variable annuity which has some of the lowest expenses for a variable annuity in the industry.

 

[haha]

Hi,
I have a variable annuity that I purchased in 2000 that started out with American Skandia, but was sold to Prudential several years ago.
How I wish I had not purchased this, but I was conned by a "financial advisor" that I trusted at the time.
Long story short, I invested 28K and, no matter how I move, I cannot get the value past a little over $15K.
Should I roll over what I have left into my new retirement account at work? I just opened a Guided Portfolio program with Valic that I will fund through payroll deduction. Or do you have other suggestions on how I can begin to recoup some of the loss.
The reason I bought this annuity is because I was wrongly told by the "advisor" that it was "guaranteed to double in 10 years".
I've learned a lot since then, but I'm on the fence as to roll it and take a large loss or keep it as my insurance policy since my beneficiary will at least get the 28K. However, I do not have children and have more than enough to leave my husband and charity. Thanks so much for your thoughts!

One thought I have is that it is usually better to think of your entire financial position, rather than trying to recoup a particular loss.

As to exactly what might be best for you with this one investment, I have no idea. But good luck in whatever you decide.

Ha

 

[Animorph]

Isn't the one great thing about a VA is that they can't lose money? What kind of VA loses half its value? Is that just early termination costs? I'd try to understand all the relevant fine print before bailing on it. Sometimes the costs of doing that are higher than just waiting it out.

 

[REWahoo]

Isn't the one great thing about a VA is that they can't lose money?

As evidenced by the OP's situation, this is a complete falsehood propagated by annuity sales 'professionals'. Variable annuities are invested in the market and those investments can and do lose money.

What kind of VA loses half its value?

A typical VA charges fees in the range of 3% to 4% annually. Your underlying investments have to overcome those headwinds each and every year to grow in value. Losing value is easy.

Is that just early termination costs?

No - see above.

I'd try to understand all the relevant fine print before bailing on it.

The time to learn all the relevant fine print is before, not after, forking over your money to the insurance company.

This thread is timely in that some friends just asked me to review a variable annuity they were thinking about purchasing. I'd never given more than a cursory glance to these products, enough to have a "no thanks, way too costly" reaction. After spending some time with all the fine print contained in the 120 page prospectus I was absolutely appalled at the complexity and costs layered throughout the "guarantees". As is frequently said, the only guarantees are that the salesman and insurance company will make money.

My friends are intelligent people and had thankfully developed some serious doubts about the VA before I met with them. After our discussion they developed serious doubts about the motivation of the individual who offered to sell them this great product.

They are now investigating Vanguard and 'pssst' Wellesley...

 

[DebER]

http://www.smartmoney.com/retirement/planning/whats-wrong-with-variable-annuities-9512/

This is a very good article on VA's

 

[Snowx800]

Hi if you went with a vanguard VA after say 20 years the taxes would be your ordinary income. When you start to take out .Is this correct.

 

[DebER]

Hi if you went with a vanguard VA after say 20 years the taxes would be your ordinary income. When you start to take out .Is this correct.

I inherited a fixed annuity from my father. It was taxed as ordinary income.

 

[Bestwifeever]

...
Long story short, I invested 28K and, no matter how I move, I cannot get the value past a little over $15K....

I don't understand this--were you able to (and did) change what the annuity was invested in?

 

[DebER]

As evidenced by the OP's situation, this is a complete falsehood propagated by annuity sales 'professionals'. Variable annuities are invested in the market and those investments can and do lose money.

A typical VA charges fees in the range of 3% to 4% annually. Your underlying investments have to overcome those headwinds each and every year to grow in value. Losing value is easy.

No - see above.

The time to learn all the relevant fine print is before, not after, forking over your money to the insurance company.

This thread is timely in that some friends just asked me to review a variable annuity they were thinking about purchasing. I'd never given more than a cursory glance to these products, enough to have a "no thanks, way too costly" reaction. After spending some time with all the fine print contained in the 120 page prospectus I was absolutely appalled at the complexity and costs layered throughout the "guarantees". As is frequently said, the only guarantees are that the salesman and insurance company will make money.

My friends are intelligent people and had thankfully developed some serious doubts about the VA before I met with them. After our discussion they developed serious doubts about the motivation of the individual who offered to sell them this great product.

They are now investigating Vanguard and 'pssst' Wellesley...

I have an investment in Wellesley and if I surrender will most likely open an IRA with Vanguard.

 

[Snowx800]

I inherited a fixed annuity from my father. It was taxed as ordinary income.

So if I was 65 and was in a 15% tax bracket that is all I would have to pay

 

[DebER]

I don't understand this--were you able to (and did) change what the annuity was invested in?

Yes I have a few times. Once I even had a "financial advisor" pick the funds for me. That's one of the reasons I don't understand why I cannot gain on this thing.

 

[nun]

If you have access to TIAA-CREF I'd go with them for a variable annuity. Where I work they offer Valic, Lincoln and TIAA. The TIAA fees are around 0.5%

 

[DebER]

So if I was 65 and was in a 15% tax bracket that is all I would have to pay

That would be my understanding, but of course I'm no expert. Since I took a lump sum distribution on my father's annuity it put me in a higher tax bracket.

 

[DebER]

If you have access to TIAA-CREF I'd go with them for a variable annuity. Where I work they offer Valic, Lincoln and TIAA. The TIAA fees are around 0.5%

I, just this week, opened up an account with Valic that I will begin contributing to. So, I may consider that.

 

[Bestwifeever]

Yes I have a few times. Once I even had a "financial advisor" pick the funds for me. That's one of the reasons I don't understand why I cannot gain on this thing.

I don't know nothing 'bout annuities, but I wonder if that's a big reason why you cannot gain--more fees every time you make a change, I bet.

 

[REWahoo]

The TIAA fees are around 0.5%

Have you read their VA prospectus in detail to confirm this number?

Edit: I'll save you the need to respond. Here's a screen shot of their fees/costs associated with their "Intelligent Variable Annuity". Looks more like 3.5% than 0.50% to me...

 

[nun]

Have you read their VA prospectus in detail to confirm this number?

Edit: I'll save you the need to respond. Here's a screen shot of their fees/costs associated with their "Intelligent Variable Annuity". Looks more like 3.5% than 0.50% to me...

My VA is a 401a group annuity as part of a state retirement plan, so the fees are considerably less that the "Intelligent Variable Annuity"

 

[73ss454]

Ah yes, the "intelligent variable annuity". Oxymoron?

 

[REWahoo]

My VA is a 401a group annuity as part of a state retirement plan, so the fees are considerably less that the "Intelligent Variable Annuity"

That's good, but I doubt the OP would be eligible to purchase that product, correct?

 

[friar1610]

Here is how taxation of a variable annuity works:
- If you have a VA and you make withdrawals from it, you are considered to be withdrawing any gain in value first and then the basis (what you paid for it.) You will be charged at your regular tax rate for any withdrawals made from the gain. You will be charged no tax on withdrawals from the basis since you already paid tax on that money.
- If you annuitize the VA, a portion of each monthly check is considered to be gain and a portion to be basis. The insurance company sends you a statement telling you how much of each. You pay tax at your regular rate on the portion which is gain and nothing on the portion which is return of basis.
- If you inherit a VA it does not "step up" as after-tax stocks and mutual funds do. If you inherit one, you will pay tax on all the gain at your regular rates.

 

[nun]

That's good, but I doubt the OP would be eligible to purchase that product, correct?

The OP mentioned "retirement accounts" and as my account is also a tax deferred retirement account I thought the numbers on my TIAA-CREF deferred variable annuity retirement account I get through the state would be of interest. Valic seems to be offered by quite a few universities and states along with TIAA-CREF. If the OP has access to TIAA-CREF I'd go with them. He won't be able to buy exactly what I have unless he works for Massachusetts.

 

[Independent]

That would be my understanding, but of course I'm no expert. Since I took a lump sum distribution on my father's annuity it put me in a higher tax bracket.

Nobody has mentioned it yet, but if you simply surrender the VA today you'll have a taxable loss. That would go through this year's tax return and reduce your ordinary taxable income.

If you do a 1035 exchange to another annuity, that will defer taxes until you eventually take money out of that contract.

Googling a little, there seems to be an uncertainty about where to report the loss on the 1040. It could be a "Miscellaneous loss" in the itemized deductions, or it could be an investment loss (but not subject to capital gains treatment). The first seems "safer", but the second avoids a 2% exclusion.

I have no knowledge of your current or future tax situation, but it is something to think about.

 

[Animorph]

Was there an insurance component of this VA? Is it possible that the value of the VA is down but insurance guarantees a minimum payout if you annuitize or hold for a period of time or whatever? I'm all for gettting out of it, but not if you can take advantage of insurance to make up that loss.