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Author: snafflekid Big red star, 1000 posts Old School Fool Global Fool Mission Olympia 2 Motley Fool One Everlasting Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 74759  
Subject: variable annuity question Date: 1/8/2004 7:59 PM
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I didn't know where to ask this but I figured this board would know the most about variable annuities.

My sister's husband died last year and his insurance left her $125,000. She took the guidance of a local banker and bought a variable annuity from him for $50,000. She does not work and has a 6 year old son. She has no retirement vehicles She recently went back to college to finish her bachelor's degree and is living off the insurance.

I'm thinking a Roth IRA would have better served her but she does have a big chunk of money to deal with. I looked at the annuity (New York Life) 50% invested in a fixed account earning 3%, 45% in a junk bond fund and 5% in an international stock fund. Yikes right away I hated it but she is worried about loosing money. I've already made recommendations on rebalancing but it's her money.

This fixed account which I don't remember the exact name only allows 20% to be transferred to investment funds per year! AND the total fund management fees average around 2.1% each making it expensive. So was this the best choice considering her circumstances?

snafflekid
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Author: MadCapitalist Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38426 of 74759
Subject: Re: variable annuity question Date: 1/8/2004 8:05 PM
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So was this the best choice considering her circumstances?

Sure, it was the best choice -- for the local banker. Variable annuities are more often than not a bad deal for investors, but they are very profitable for the company selling them.

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Author: buzman Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38427 of 74759
Subject: Re: variable annuity question Date: 1/8/2004 8:19 PM
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So was this the best choice considering her circumstances?

No, far from it.

Contact TIAA-CREF and see if you can exchange it.

The suurrender charges will be high, but the lower annual expenses may negate the charges.

www.tiaa-cref.org

Tell 'em the buzman sent you!

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Author: cliff666 Big funky green star, 20000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38428 of 74759
Subject: Re: variable annuity question Date: 1/8/2004 8:38 PM
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I looked at the annuity (New York Life) 50% invested in a fixed account earning 3%, 45% in a junk bond fund and 5% in an international stock fund. Yikes right away I hated it but she is worried about losing money.

That banker S.O.B. should have his gonads removed without anaesthetic. I would think she is in great danger of losing her money in these funds. If interest rates go up (Wanna bet they won't?), her money will vanish like smoke in the air on a windy day. Sadly, she likely can't do anything about it at this point.

Her best bet is to complain to the bank management, and threaten a lawsuit. I don't have a clue about how to redress this, but that banker was only thinking of his commission. Where is The Badger?

cliff


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Author: jesserivera67 Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38432 of 74759
Subject: Re: variable annuity question Date: 1/8/2004 10:12 PM
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As you can see from all the posts your instincts are right on.

First, If she's just recently done this tell her to immediately find out the "Free Look" period. This is typically in most VA contracts and allows the her to examine the policy and essentially change her mind and get her money back. The period is usually ten days but some will let it go as long as it doesn't go beyond 30 days. I would do this right away.

If the period is up, the next step is where it gets more complex. She undoubtedly has signed an agreement which is what the bank will have over her head...but there are ways...

First is to politely threaten to complain to the following organizations:

NAIC - National Association of Insurance Commissioners
www.naic.org

NASD - National Association of Security Dealers
https://www.nasdr.com/secure/complaints/ComplaintCenter.asp

SEC - Securities and Exchange Commission
http://www.sec.gov/investor/pubs/howoiea.htm

This should get the bank very concerned. Banks are extremely concerned with bad press these days and she can use this to her advantage. The bank will hopefully respond with her getting her money without any surrender fees or at least negotiate the fee so that she doesn't pay the full amount (typically 7-10%).

If they still don't budge she'll have to move from the threatening to actual filing of a complaint. It's long and arduous as they will ask for her committment throughout the investigation and that will take time but there's a chance she will get something back.

If you try to do a 1035 exchange (basically a rollover for annuities) she will still get nailed with the surrender fees so I would recommend you get her money out of there if possible.

Oh yeah, Roth IRA hands down would be the winner and the rest could of gone to some index funds. I would determine her risk tolerance before recommending any investments...

best of luck.

Jesse


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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 38435 of 74759
Subject: Re: variable annuity question Date: 1/9/2004 12:05 AM
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My sister's husband died last year and his insurance left her $125,000. ... I'm thinking a Roth IRA would have better served her ...

Just a clarification. Insurance proceeds are not earned income and would not qualify as a basis for an IRA. In the year he died, she might be able to make an IRA contribution based on your BIL's earnings. At best, that would be for $3500, so it really wouldn't do a whole lot for her.

Roth's are useful, but they are not a cure-all.

--Peter

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