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Location: Chapel Hill, NC, formerly NoVA and Phila
9,775 posts, read 15,776,851 times
Reputation: 10880
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I've never concerned myself with my MIL's finances before because she's generally a stable, smart woman, and I figured she knew what she was doing, and that she had enough to live on. My husband is not a finance guy and has limited understanding of investments (I handle all of ours), so he's never asked about her investments or finances either. For the record my MIL is 84 and is a widow. My husband is her only child.
Recently she's indicated to us that money is running tight and that she needs to bail on our annual beach vacation (cost about $1000 for her). That led me to question how financially secure she really is. I asked my husband to talk with her and what we've found out makes me wonder if she knows what she's doing. She has a financial advisor. I think she is being taken on advisor fees and on products that are too risky for her and that she doesn't understand - mainly annuities. I am pretty knowledgeable about finances, but generally stick with what I know and understand - CD's, mutual funds, stocks - and I invest everything on my own with well-known companies such as Vanguard and Fidelity. We'd like to talk to her and perhaps get her invested in something with less fees and less risk more like Vanguard Wellington. I wonder what you all think.
Her advisor has her invested in an L Series Fixed and Variable Annuity (IRA). She bought it exactly 2 years ago at age 82 for $84,000. It has all kinds of "features" and "benefits" I don't really understand. It has a 4-year surrender schedule. And it has a guaranteed return of premium through annual withdrawals of 7-10%. I'm not really sure what that means.
I'm guessing that he made a good profit off her selling her the product. I don't think it's even right for her (and I'm sure she doesn't fully understand it but she trusts her advisor who is "so nice."). And I question the underlying investments that he has her in as well as how much he makes off her changing her investments around. (Right now it looks like it has 13% in international funds and 5% more in foreign commodity securities - yikes!) This annuity represents about 30% of her entire retirement portfolio.
Her advisor also has her invested in a mix of investments outside the annuity - mutual funds and such - again there is about 20% in global funds. This total is about $40K. Combined, her advisor is in charge of investing 44% of her total portfolio.
In addition to the above she has ANOTHER annuity (single premium deferred annuity - non-qualified) worth $30K. I'm not sure how or through whom she bought that one, but it was bought 4 years ago. Minimum interest rate is 3%. And recently it's been 5.25% according to her.
Finally, she has 120K in CD's earning 3%.
Other than the above investments she is living off Social Security.
Are annuities even right for her? I understand she likes the "guaranteed" payout. But it seems like the investments underlying the annuity are risky and I don't fully understand all of the features it touts. I also know she is paying a lot of fees.
Any advice or comments on annuities or more appropriate investments for a woman this age would be appreciated. Thanks!
Thanks for the link! After reading it, it seems like you are not a fan of the variable annuities either. Ugh, all of the fees you quoted look very similar to the fees in her annuity. I'll be honest, after reading over all the materials she passed on to us, it still is very confusing to me, and I consider myself somewhat intelligent. But, my gosh, if we can't understand it, then clearly we shouldn't invest in it!
Do you know if you can get out of an annuity once you're in or what the ramifications are?
There are usually structured with surrender fees the first 10 years.
I was a fan of some of the newer variables but the promises turned out to be more then the insurers could follow through with and so they are changing the deals on even existing policies.
At this point my opinion is if you need one stick to the immeadiate annuities which are transparent to just what your deal is.
Im a big fan of getting at least a base of pensionized income in place to cover your non discretionary expenses.
As perfect as retirement calculators make your plan look reality has a way of screwing it up when its your money.
As jim otar said the early years of our retirement have some slack built in if we are still able to go back to work if we have to.
The later years of retirement are more critical because many times age and health limit that ability to go back to work and you may need protection in place in case markets go terribly wrong.
Thats when a pensionized income from an immeadiate annuity can be the most helpful .
Last edited by mathjak107; 09-21-2012 at 06:15 PM..
Location: Chapel Hill, NC, formerly NoVA and Phila
9,775 posts, read 15,776,851 times
Reputation: 10880
Quote:
Originally Posted by mathjak107
There are usually structured with surrender fees the first 10 years.
I was a fan of some of the newer variables but the promises turned out to be more then the insurers could follow through with and so they are changing the deals on even existing policies.
At this point my opinion is if you need one stick to the immeadiate annuities which are transparent to just what your deal is.
Im a big fan of getting at least a base of pensionized income in place to cover your non discretionary expenses.
As perfect as retirement calculators make your plan look reality has a way of screwing it up when its your money.
As jim otar said the early years of our retirement have some slack built in if we are still able to go back to work if we have to.
The later years of retirement are more critical because many times age and health limit that ability to go back to work and you may need protection in place in case markets go terribly wrong.
Thats when a pensionized income from an immeadiate annuity can be the most helpful .
Thanks for your comments. At this point, I just might have her not do anything with the annuity alone, but try to convince her to move the $40K in mutual funds that are outside the annuity to some Vanguard funds. There is no reason she should be paying him a 1.5% fee for him to invest in high risk funds.
Friend if you think her affairs are confusing now just wait and see how confusing things will get if you try to get rid of the financial adviser close the accounts and collect the money.......she will get "some" of it back as the adviser crys the blues ...Mark me well.
An L Share annuity has a 4 year surrender schedule. So it sounds like she has 2 more years before she can get her cash value out free of surrender.
As to the guaranteed return of premium. I'm not sure what that means. Is that the exact name of the rider? (insurance term for the actual guarantee that was purchased)If not, what is the exact name? It should be on her quarterly statement.
What company is it with? Prudential? Jackson?
If you get me that info, I'll let you know how it works and what she may be able to do with it.
Has she taken any money out of it yet?
Of the assets listed, is she making withdrawals from any of them?
Location: Chapel Hill, NC, formerly NoVA and Phila
9,775 posts, read 15,776,851 times
Reputation: 10880
Quote:
Originally Posted by bdawk
An L Share annuity has a 4 year surrender schedule. So it sounds like she has 2 more years before she can get her cash value out free of surrender.
As to the guaranteed return of premium. I'm not sure what that means. Is that the exact name of the rider? (insurance term for the actual guarantee that was purchased)If not, what is the exact name? It should be on her quarterly statement.
What company is it with? Prudential? Jackson?
If you get me that info, I'll let you know how it works and what she may be able to do with it.
Has she taken any money out of it yet?
Of the assets listed, is she making withdrawals from any of them?
Thanks for the info.! I'll have to look up the exact name of the rider later on today. The company is Jackson - how'd you know?
She has taken out mandatory withdrawals from the annuity, I believe, because it's in her IRA. I have to double check.
We convinced her to cash in the other investments she had with him (outside the annuity) and we're helping her invest it in some Vanguard funds. Thanks so much for your help. That is very kind of you.
When you get the additional info, just let me know. Send a direct message if you prefer.
Along with the exact rider name, some of the rider values from the statement might be helpful. Like guaranteed amount or guaranteed payment amount if one exists. The terminology is always a little tricky on the actual statements.
You will have to wait a minimum of two years to take the cash value out of the contract without penalty, but it may not be the full principal investment. Depending on investment return her cash value and benefit base value can be very different. Speak to another advisor about the options available with the contract and values......in some cases it may make sense to leave the value in the contract and take the income. All depends on all the factors of the contract.........
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