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Author: OKlady8 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75893  
Subject: Variable Annuity within IRA Date: 2/10/2004 3:39 PM
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I am new to this board but I'm desperate for quick information and need your help. I have an IRA/CD which expires this week and as you know the CD's are paying next to nothing. The young man at the bank has suggested that I buy a variable annuity in Corporate Bonds (Hartford Insurance, in fact.) I know nothing about such and got burned badly in the recent stock decline, consequently am apprehensive when it comes to something I know nothing about. I am 74 years old so no long term investments for me. If anyone can enlighten me, I would greatly appreciate it.

Helen
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Author: IndecisiveFool Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39115 of 75893
Subject: Re: Variable Annuity within IRA Date: 2/10/2004 3:52 PM
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I am new to this board but I'm desperate for quick information and need your help. I have an IRA/CD which expires this week and as you know the CD's are paying next to nothing.

I cannot suggest the proper investment strategy but I would suggest that since your CDs are paying next to nothing, there won't be much lost income if you take your time to find the proper advice. If you hurry with decision and use quick information, your losses may be much more than the loss of interest from the expiring CDs.

IF

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Author: OKlady8 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39116 of 75893
Subject: Re: Variable Annuity within IRA Date: 2/10/2004 3:56 PM
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Thanks greatly, IF. I knew someone on this board would know more than I do! I never thought of "taking my time". Makes a lot of sense.

Helen

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Author: gogreengo Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39117 of 75893
Subject: Re: Variable Annuity within IRA Date: 2/10/2004 4:16 PM
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I recently opened an IRA at Fidelity. The advisor there told me they don't allow people to put Variable Annuities inside IRAs. That's because it's not financially smart, as you are essentially putting a tax-deferred vehicle inside a tax-deferred vehicle. Doesn't make sense. That's what I've heard from other sources, too. If you want to own bonds, you can buy them individually and hold them inside an IRA if you want to, right? Or perhaps look into a bond fund? U.S. savings bonds might be another option.

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Author: TTRoberts Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39118 of 75893
Subject: Re: Variable Annuity within IRA Date: 2/10/2004 4:17 PM
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Helen (a.k.a. OKlady8), you wrote:

<< I am new to this board but I'm desperate for quick information and need your help. I have an IRA/CD which expires this week and as you know the CD's are paying next to nothing. The young man at the bank has suggested that I buy a variable annuity in Corporate Bonds (Hartford Insurance, in fact.) I know nothing about such and got burned badly in the recent stock decline, consequently am apprehensive when it comes to something I know nothing about. I am 74 years old so no long term investments for me. If anyone can enlighten me, I would greatly appreciate it. >>

That was great advice by IdecisiveFool to take your time. You don't need to rush such a decision.

A variable annuity is probably a bad idea given what you've just said. The expenses involved with a variable annuity are just too high to be investing in a portfolio of bond fund like investments. If an annuity of some kind would work at all for you, perhaps something more along the lines of one of the Equity Index Annuities might be more appropriate since your principle will be guaranteed and a minimum return also guaranteed . . .and without the expenses of a variable annuity. . . .???

Whether or not some annuity might be appropriate for you or not . . .I don't know. It all depends on details of how you plan to use this cash. And that also goes for ANY recommendation that someone might make. If someone doesn't ask you a lot of questions about how you want to use your money, and they give you some recommendations. . . move onto someone else who might take YOUR interests into consideration.


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Author: IndecisiveFool Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39119 of 75893
Subject: Re: Variable Annuity within IRA Date: 2/10/2004 4:25 PM
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Thanks greatly, IF. I knew someone on this board would know more than I do! I never thought of "taking my time". Makes a lot of sense.

You're welcome. Could you use the resources of different senior citizen organizations such as AARP to find a financial advisor that you could trust to advise you on this matter?

IF



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Author: FuskieFool Big funky green star, 20000 posts Top Favorite Fools Old School Fool Ticker Guide SC1 Red Winner of the 2010 Rule Breakers Challenge Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39129 of 75893
Subject: Re: Variable Annuity within IRA Date: 2/10/2004 7:07 PM
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I am new to this board but I'm desperate for quick information and need your help. I have an IRA/CD which expires this week and as you know the CD's are paying next to nothing. The young man at the bank has suggested that I buy a variable annuity in Corporate Bonds (Hartford Insurance, in fact.) I know nothing about such and got burned badly in the recent stock decline, consequently am apprehensive when it comes to something I know nothing about. I am 74 years old so no long term investments for me. If anyone can enlighten me, I would greatly appreciate it.

Stay away from annuities. For the time being, consider putting the money in an ING Direct Orange Savings account where you will get about 2% interest until you can really research your options. I can refer you for an extra $25 bonus if you wish. Outside of that, what you ultimately do will depend on your other retirement assets, distrbution schedule, and life expectancy.

Fuskie
Who warns to be careful - some advisors like to take advantage of unsure seniors...

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Author: FuskieFool Big funky green star, 20000 posts Top Favorite Fools Old School Fool Ticker Guide SC1 Red Winner of the 2010 Rule Breakers Challenge Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39130 of 75893
Subject: Re: Variable Annuity within IRA Date: 2/10/2004 7:10 PM
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You may also want to talk with some other Retired Fools here:

http://boards.fool.com/Messages.asp?bid=112955

Fuskie
Who thinks Fools of a feature retire together...

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Author: 2old4bs Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39131 of 75893
Subject: Re: Variable Annuity within IRA Date: 2/10/2004 7:16 PM
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The young man at the bank has suggested that I buy a variable annuity in Corporate Bonds (Hartford Insurance, in fact.)

I'm going to go out on a limb and tell you NOT to do this. The nice young man at the bank will earn a nice commission if you do this, but I don't believe it's a good investment vehicle for you.

You can buy a high-yielding corporate bond fund from Vanguard or Fidelity, and not pay any annuity fees or commissions. (Keep in mind that high yield corporate bonds are riskier than CDs, that's why they pay higher interest rates.) Is your IRA account with the bank? You might want to consider moving it to Vanguard if you want to invest with them.

I am 74 years old so no long term investments for me

My best friend is 92 and he still invests in 5 year CDs. :-)
(Told me he got one the other day yielding 4.3%.)

2old


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Author: Crosenfield Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39133 of 75893
Subject: Re: Variable Annuity within IRA Date: 2/10/2004 8:01 PM
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One of not-many investment vehicles worse than a variable annuity outside an IRA is a variable annuity inside an IRA. One of the few justifications for the high fees is the measure of tax advantage, and inside the IRA you don't even have that--the investment is already tax-advantaged by virtue of being inside the IRA.
If you need income, consider a corporate bond or possibly a preferred stock.
If you plan on leaving the money to heirs, a Vanguard index fund would be a good choice. If you plan on living to 100, the index fund is also a good choice. Over time, the stock market WILL go up.
I'm just a few years younger than you, still buying stocks quite aggressively. Everything I lost 2000-2002 came back last year, and I expect the market to continue to do well. Bear markets are followed by bull markets as surely as the sun comes up in the morning. The whole question is timing. If you plan on being dead in the next 5 years, then your focus is capital preservation and having enough to live on. If you are in good health and plan on lasting a lot longer, then you need to be somewhat more aggressive.
Best wishes, Chris

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Author: 2old4bs Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39134 of 75893
Subject: Re: Variable Annuity within IRA Date: 2/10/2004 8:29 PM
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Following up my previous post, the link below is to an informational piece on Vanguards high-yield corporate bond fund:

http://flagship2.vanguard.com/VGApp/hnw/web/corpcontent/vanguardviews/jsp/VanViewsNCArticlePublic.jsp?chunk=/freshness/News_and_Views/news_ALL_5min_01262004_ALL.html






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Author: OKlady8 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39174 of 75893
Subject: Re: Variable Annuity within IRA Date: 2/11/2004 5:14 PM
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To Chris, 2old4bs, Fuskie Fool, IF, TT Roberts and gogreengo: I am shocked that so many of you responded to my plea for help. You have certainly been a great help. It never dawned on me that I could have the hold the money until I made a decision. However, I saw red flags when the young man suggested variable annuities within the IRA. I'm not smart about money matters, but I am wary of a lot of advice I get. My brother-in-law was a great help for many years, but I discovered he didn't know as much as he thought. :) That lesson only cost me $50,00 and I cannot afford many lessons like that. I do have funds with Charles Schwab and should use someone there, I guess. When I called them yesterday, the fellow told me that the Variable Annuity was not in my best interest - just what you guys said.

Thanks a million.

Helen

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Author: IndecisiveFool Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39175 of 75893
Subject: Re: Variable Annuity within IRA Date: 2/11/2004 5:17 PM
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I am shocked that so many of you responded to my plea for help.

Don't be shocked. We're here to educate, amuse, and enrich.

IF

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Author: mcain6925 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39180 of 75893
Subject: Re: Variable Annuity within IRA Date: 2/11/2004 10:37 PM
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The advisor there told me they don't allow people to put Variable Annuities inside IRAs. That's because it's not financially smart, as you are essentially putting a tax-deferred vehicle inside a tax-deferred vehicle. Doesn't make sense.

I've only seen one case where a variable annuity inside an IRA made at least a bit of sense. If you put ENOUGH MONEY into this particular annuity, there was no surrender fee and annual fees were capped at about 1.5%. Money inside the annuity could be moved between the various funds that were available without additional charges and without restrictions on the number or size or frequency of exchanges. In effect, this annuity made it possible to implement various fund timing schemes with a cap on the trading costs. If you believed there were excess returns to be earned by trading in and out of a fund more quickly than otherwise possible, the fee charged by the annuity might be reasonable. The insurance company also did vetting on the available funds to verify that they were honoring their stated strategy and keeping the fund fees low.

There are probably more effective ways to implement the same schemes today.

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Author: TTRoberts Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39181 of 75893
Subject: Re: Variable Annuity within IRA Date: 2/12/2004 2:02 AM
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mcain6925, you wrote:

<< I've only seen one case where a variable annuity inside an IRA made at least a bit of sense. If you put ENOUGH MONEY into this particular annuity, there was no surrender fee and annual fees were capped at about 1.5%. Money inside the annuity could be moved between the various funds that were available without additional charges and without restrictions on the number or size or frequency of exchanges. In effect, this annuity made it possible to implement various fund timing schemes with a cap on the trading costs. If you believed there were excess returns to be earned by trading in and out of a fund more quickly than otherwise possible, the fee charged by the annuity might be reasonable. The insurance company also did vetting on the available funds to verify that they were honoring their stated strategy and keeping the fund fees low.

There are probably more effective ways to implement the same schemes today.
>>

That sounds like a pretty small nit to be picking and hardly compelling enough for anyone to use a VA when they have so few investment options to choose from for good fund timing scheme. What, did some day trader think this up??? <VBG> ;-)


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Author: FuskieFool Big funky green star, 20000 posts Top Favorite Fools Old School Fool Ticker Guide SC1 Red Winner of the 2010 Rule Breakers Challenge Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39192 of 75893
Subject: Re: Variable Annuity within IRA Date: 2/12/2004 7:00 PM
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Don't be shocked. We're here to educate, amuse, and enrich.


Yeah, but not necessarily in that order.

Fuskie
Who's attempts to be enriched are often amusing...

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Author: mcain6925 Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 39216 of 75893
Subject: Re: Variable Annuity within IRA Date: 2/13/2004 5:44 PM
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That sounds like a pretty small nit to be picking and hardly compelling enough for anyone to use a VA when they have so few investment options to choose from for good fund timing scheme. What, did some day trader think this up???

I'm trying to remember these details from memory, so this may not all be completely accurate. Accounts were traded according to a model that attempted to exploit statistical patterns -- identifiable situations where there was a substantially better-than-even chance of the holdings of a particular fund moving in a profitable direction over a four or five day period. One example -- overreactions to the news in some of the federal economic announcements. On average, they made about two "bets" like this per month. IIRC, most (all?) of the funds available within the annuity were not open to individual investors -- only institutional ones, including for-fee advisors who had at least $30-50M under management. The in and out trading was allowed up front -- no shady stuff going on. None of this was available through "retail" annuity salesmen.

The investment goal was to produce positive returns each year in the 8-10% range. I saw figures for the period 1992-2002 or so -- net of all fees, their worst year was in 2001 at +5%, their best years were in the late 1990s at +20% or so. The range of investment vehicles available in 1992 were considerably different than are available today, the arrangement may have made sense at that time for certain people's circumstances.

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