Advice on New York Life Variable Annuities

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My parent who are reaching retirement age: My dad is 63 and my mom is 52 are thinking about signing up for a variable annuity through New York Life. They have well over a million plus in their 401ks. Does anyone have any advice on variable annuities. They attended some seminar and want me to sit in with the agent this weekend. What type of questions do you think I should ask? I have a feeling this is not a good idea, but I have to prove it to them. Any advice would help, thanks. I did some initial research on FW and suprisingly i didnt find that much info on annuities and the potential pit falls.

Questions I believe I should ask:
What is the surrender fee or the charge to withdraw early from the plan?
What is the administrative costs per year and what percent of the "locked in rate"?
Does the locked in investment compound?
What is the average ROI over the last 5 years? WHat is the actual ROI each year for the last 5 years?

Any advice would be helpful, I hope they dont get suckered into a deal that is not beneficial to them.

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Just an idea - after you get your questions answered, compare prices from other, equally rated, life insurance providers - i've found NYL to be 20%+ higher that other companies...

indianFW said: My parent who are reaching retirement age: My dad is 63 and my mom is 52 are thinking about signing up for a variable annuity through New York Life. They have well over a million plus in their 401ks.

...

Questions I believe I should ask:

What is the surrender fee or the charge to withdraw early from the plan?
It should be no more than 0.00%.

What is the administrative costs per yearNo more than $40, and the total expenses shouldn't exceed 1.0%.

Why a fixed annuity?

I had an eldery relative get suckered into some annuities - these were managed by a couple of nominally reputable insurance companies.

RUN, do not walk, away.

If your parents really want to buy an annuity, have them look around. I believe that schwab, for instance, offers a variety of annuities at much lower markups than your typical insurance company.

Just a hint - google a bit on annuities - note that the ads that come up are for places that will happily buy your annuity. This tends to imply that there are a LOT of people who want to get out from under these things, and lots of places that will take them off your hands for pennies on the dollar. Not a position you want your parents in.

cut out the salesman --- and try TROWEPrice website --- they have variable annuities

Question #1 - what do your parents gain from putting money which is already tax deferred into another layer of fees and expenses to make it tax deferred again? What does the insurance salesman gain? Selling people variable annuities using already tax-deferred money is borderline fraud (or actual fraud in many cases), but it sure does make a good commission for the salesman.

STATE OF RHODE SECURITIES DIVISION RELEASES “UNLUCKY 13” LIST INVESTOR TRAPS FOR 2006

Variable Annuities. Variable annuities are tax-deferred investments that
typically place mutual funds inside of an insurance wrapper for tax deferred
potential investment growth. While these products are legitimate investments,
regulators are concerned about their popularity in the sales community.
Commissions paid to those who sell variable annuities are very high, which
provides incentive for sellers to engage in inappropriate sales. The steep
penalties for early withdrawals make variable annuities unsuitable for short term
investors, and variable annuities are generally not suitable for most seniors. Be
especially wary of any broker who wants to sell you a variable annuity to hold
inside a 401(k) or IRA.
You are already getting tax-deferred growth in an IRA or a
401(k), and the variable annuity simply adds a layer of cost with no additional tax
benefit.


SEC Info on variable annuities

NASD Investor Information on VAs

Look into either leaving the money in the 401k plans (if they are reasonable) or rolling it into a traditional IRA at a low cost mutual fund provider such as Vanguard or Fidelity. With that amount of money, I believe either company will provide free financial planning that will help select funds which will likely produce more income for less expenses than the annuity. They've already got a tax-deferred chunk of money, so rolling it into a traditional IRA will allow the money to keep growing tax deferred until they need it.

If they're looking for security of guaranteed income, go with a low-cost fixed annuity. Vanguard offers these for reasonable costs - not saying that you should go with them, just giving an idea of what a reasonable fee structure for an annuity looks like if they decide that they need one.

If they're looking for death benefits, get life insurance. But have them think hard about why they'd need that. With a million plus, if they budget reasonably, invest in a low-cost diversified portfolio, and spend down no more than 4-5% per year, they're more than likely to leave a significant amount of that behind even after 30-40 years of living expenses.

the TRowe website lists pros and cons--- seems unbiased as they would be just as happy however you end up in their funds

KCfromNC said: If they're looking for security of guaranteed income, go with a low-cost fixed annuity... With a million plus, if they budget reasonably, invest in a low-cost diversified portfolio, and spend down no more than 4-5% per year, they're more than likely to leave a significant amount of that behind even after 30-40 years of living expenses.
I have a hard time seeing why some folks with that much money are worried about "running out" and need the annuity to guarantee their future income. As you say, if they just invest in a diversified portfolio and don't spend a huge amount, they should have plenty to live on for the rest of their lives. If you waste 1% on extra annuity fees per year, that's 1% less you get to live on. When your withdrawal rate was 4-5%, this is a 25-30% cut in your income!
If they're looking for death benefits, get life insurance. But have them think hard about why they'd need that.
Who would need the death benefits? Life insurance is a bad bet on when you'll die. By the time you're retired and your kids are adults, I can't see why there's anyone dependent on them that would need the insurance. Sure it's nice to leave some money to your spouse/kids when you die, but you'll leave more by investing wisely and not wasting money life insurance.

OP,

Since you are here asking questions, I ASSUME you know less about this than your parents (and myself). That being said:

Tell them you are no expert, but you will go with them for comfort.
Tell them you will go so you ALL can learn.
Tell them you will go, as long as they make NO DECISION regarding the seminar (no matter how attractive it seems).
After the seminar, take more time to sit with them to discuss other possibilities (other companies, other plans).

If they don't agree to all of the above, tell them you love them but you can't attend...

Also, feel fre to print out all the responses you get here, and research them BEFORE the seminar.... and to show your parents BEFORE the seminar....

xerty said: KCfromNC said: If they're looking for security of guaranteed income, go with a low-cost fixed annuity... With a million plus, if they budget reasonably, invest in a low-cost diversified portfolio, and spend down no more than 4-5% per year, they're more than likely to leave a significant amount of that behind even after 30-40 years of living expenses.
I have a hard time seeing why some folks with that much money are worried about "running out" and need the annuity to guarantee their future income. As you say, if they just invest in a diversified portfolio and don't spend a huge amount, they should have plenty to live on for the rest of their lives. If you waste 1% on extra annuity fees per year, that's 1% less you get to live on. When your withdrawal rate was 4-5%, this is a 25-30% cut in your income!

The nice thing about fixed annuities is that you're averaging your result with a bunch of others, instead of having to fund your exact life expectancy, and some people like the guarantee instead of slight chance of failure that doing it yourself brings. It's not a choice I would make, I was just pointing out how to do it for a more reasonable fee than the VA would likely charge.

If they're looking for death benefits, get life insurance. But have them think hard about why they'd need that.
Who would need the death benefits? Life insurance is a bad bet on when you'll die. By the time you're retired and your kids are adults, I can't see why there's anyone dependent on them that would need the insurance. Sure it's nice to leave some money to your spouse/kids when you die, but you'll leave more by investing wisely and not wasting money life insurance.

Yeah, agree again, that's why I said they should think hard about whether the death benefits are useful. It's a nice emotional pitch to guarantee that "you'll leave something to the kids", but the cost is probably enough that they'd end up coming out behind in the long run.



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