"lucille" <realdeallu[at]aol.com> wrote
- quote -

For this annuity, expenses appear to be over 3% for the
first ten years, per
page 5 of the Jan. 1, 2006 prospectus at
http://www.metlife.com/WPSAssets/205...Prospectus.pdf .
Compared to Fidelity and Vanguard's variable annuity
expenses, as well as the VA industry averages, from my
reading this is
obscene.

Page A-1 says that the objective of the Equity Index
Portfolio [which earlier, the prospectus says is where
customer's PEP money goes] is to seek "investment results
that, before expenses, correspond to the price and yield
performance of the S&P 500 Index."

"Before expenses" is no small qualifier.

In addition, your financial advisor is saying the S&P 500 (a
collection of stocks of mostly older, large cap companies
which are arguably, currently somewhat overpriced) will
return in
excess of some 8.5% per annum in the next 1.5 years to make
up your surrender charge. It might. It might not. I'd say
expecting that sort of return is overly optimistic.

Hopefully someone will double check this information. For
one thing, Legg Mason took over Greenwich Street yada, which
previously ran the Equity Index Portfolio. So there may be
more up to date information somewhere... god knows Google
can't make it surface readily.

It appears the only way to get prospecti on the Conseco and
Americo Life annuity products is to contact an agent. To me,
given the transparency of the annuities like those offered
by Fidelity and Vanguard, this is a terrible sign.

- quote -

For this, I would start another thread on the subject of
choosing mutual funds. Legg strikes me as ridiculously
pricey, so far.

lucille wrote:
- quote -

Uh, hmmm, just one [last] question. You'll work for ten more years,
right? How old is the husband, and how old are the kids?

It appears that (1) is a whole life policy. You don't mention its death
benefit, but a 40 year old woman should have been able to buy $500k term
for about $500/yr give or take. The math seems right in that you paid
$345 x 12 x 4 = $16.5K which then should generate enough interest to
self-fund. That's the idea of a whole life policy.

In general, I'm against mixing investments and insurance. Mostly because
the need for insurance changes throughout one's life. A term policy
targeted with level premia until the kids are on their own is right for
most people. (an extreme over-simplification)
As others have stated here, I'd get away from this salesman. 10 years in
a good index fund and you're likely to double your remaining money.
JOE

On Thu, 20 Jul 2006 04:02:39 -0500, lucille <realdeallu[at]aol.comwrote:

- quote -

It is generally accepted wisdom that one should understand one's own
investments. If you are offered a financial product and told "This is
a good deal!" you should ask a lot of questions about the nature of
the product, the fees and expenses, the degree of risk, what you would
get back if and when you sell, how long it takes to sell, etc., etc.
Annuities are no different. Understand what you buy. I have a
suspicion that, if more people followed this time-tested advice,
annuities would have to be simplified or there would be fewer on the
market.

joetaxpayer wrote:

- quote -

value and rolled over into a MetLife Protected Equity Portfolio:

1. Conseco Life Insurance Policy which I initially signed up for in 1994
in conjuction with the next (annuity) policy and split a $580 payment
every months: $345 per month went to the life insurance policy and $180
went to the annity, 1994 through 1997. From that point on, all $580
goes to the annity and the life insurace policy has paid for itself
through interest gained. It continues to increase by about 3-4% per
quarter.

2. Americo Financial Life and Annuity Insurance Company in which I have
a "CRO127 Type: T" plan. Since 1997, I put $580 per month into this
annuity which also pays about 3-4% interest. Surrender value goes down
to zero after 16 years (2013)

3. Conseco Life Insurance policy for $174,000 which I paid
$235 a month on from 95-2001 at which time it started paying for itself
with the 3-4% interest it earns. Surrender charge goes down to zero in
2014.


If I surrendered all three policies today, they would be worth about
$94,000 and I would have given up about $8,000 in surrender charges.

I have been advised to roll all this money over into a MetLife Protected
Equity Portfolio which "will earn approximately a 7% return each year".
I would still pay $580 per month into a "fixed" 403B account with $150
a month of that money being invested in mutual funds of my choice (legg
has been suggested). I would supposidly earn back my $8,000 surrender
charges in about 18 months and then earn much more money.

In addition, I would purchase a $174,000 life insurance policy for $58
per month.


Comments???

"joetaxpayer" <joetaxpayer[at]nospam.com> wrote
- quote -


I meant that we had enough information to guide her
intelligently as to her original question: Should she switch
annuities?

Since being chewed out recently by a certain, apparently
hard working ambitious 20-something Canadian about
responding to more than was asked, I am being a tad more
circumspect. Today, anyway. :-)

I agree the additional information you suggest would be
helpful, if not to Lucille, than to lurkers and newbies.

- quote -

That's a good idea.

"Elle" <honda.lioness[at]nospam.earthlink.net> writes:

- quote -

Note that Vanguard's 0.57% includes the management fees of
the underlying portfolios (which themselves range from 0.14%
to 0.42%) and that "some death benefit" is really a nothing-
it's an "accumulated value only" "benefit" - not a
return of premium or annual step up. I'm not sure how
"accumulated value only" is different from Fidelity's
"no death benefit". (Vanguard does offer return of premium
and other actual benefits - for additional charges).

Also, it looks like the management fees for the underlying
funds at Vanguard are a lot lower than the ones at Fidelity -
for example, the Fidelity VIP FundsManager portfolios invest
in various Fidelity mutual funds - and you pay both the
expense ratio of the underlying mutual funds, plus 0.20%
for the asset-allocation wrapper - then, finally, on top
of all that, the 0.25% annuity fee. All together, it's still
probably a hell of a lot cheaper than more typical VAs,
though it may be hard to truly compare since almost all VAs,
as far as I can tell, aside from Vanguard and Fidelity,
include guaranteed minimum death benefits.


--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting

Elle wrote:

- quote -

We have no understanding of the rest of her situation.

d) has she funded her 401k, if she even has one.
e) how old is she? I'm no detective, is she 52 retiring in 10yrs or 62
working till 72?
f) based on (e) is the mortality expense of her VA the ripoff I rant
about for the 30 yr old who bough one, or is it reasonable?
g) is this all of her investment money? with an eye toward
diversification, does this money belong in (safe) bonds or somewhat
risky (stocks).

Elle - otherwise I think we're on the same side here. I'd like to see in
an FAQ, "if you want a well reasoned reply here, these are the things
you should share beyond your specific question."

JOE

joetaxpayer <joetaxpayer[at]nospam.com> writes:

- quote -

At a minimum, I'd be wary of getting into another one with
any surrender term like that. There are VAs which don't
suffer from that ugly form of lock-in.

If you're going to get locked into something, it had better
be exactly what you want. If you just want to get out of the
current product but minimize your costs while figuring out
if there's another VA which better suits your needs, you
might consider one of the ultra-cheap ones with minimal
options (ie. Vanguard and Fidelity both offer VAs which
have very very low expenses - Fido's is 0.25% - but note
that it has no minimum guaranteed death benefit. With no
surrender charge, these at least get you out of what you're
in, keep the money within a VA via 1035 tax-free exchange -
and let you proceed from there).

That surrender charge is ugly.

That all said, you should be able to describe exactly
what your investment objectives are for your VA. And
if your VA has other benefits (ie. almost every single
one has a minimum guaranteed death benefit - which
may or may not be of value to you!) you should know
exactly what those benefits are, how much they are costing
you, and why you have them.

There are many typical optional benefits. Every one of
them has a cost.

This page has some nice explanations of some of the common
benefits:
http://www.annuityfyi.com/variable-annuities.html

Anyway, before you go paying a big surrender charge right
now, make sure that you don't get tied into something
else that you'll be stuck with should you decide later that
the new thing isn't what you wanted.

--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting

"joetaxpayer" <joetaxpayer[at]nospam.com> wrote
- quote -

Seems to me at this time only a few questions needed or need
to be answered:

(a) When does the surrender charge expire? (Answer: 2013)
(b) What are the annual expenses on the current annuities?
(c) In what mutual funds do the current annuities invest?

Depending on the answers to (b) and (c), it might very well
pay to switch now and eat the surrender fee. For example,
suppose Lucille's two current annuities charge 1.4% This is
what Fidelity's annuity site says was the 2005 industry
average for "non-group open variable annuity contracts,"
quoting a report in Morningstar. Vanguard charges on average
0.57% (some death benefit). Fidelity charges a mere 0.25%
(no death benefit). Use the calculator at
http://www.kiplinger.com/personalfin...s/annuity.html
$100k , put in $100k and $92k (reflecting the loss of money
to the surrender charge), the two expense ratios (1.4% and,
to start, Vanguard's 0.57%), the same returns, assume no
further contributions, and ten years until withdrawal. The
numbers are so close with the Vanguard annuity that any
small variation could tip the decision towards switching.
With the Fidelity annuity, the argument to switch is even
stronger.

Also, neither Vanguard nor Fidelity charge a surrender fee
at any time. This may seem odd to newbies, but I figure
Fidelity and Vanguard realize, among other things, that the
federal tax deterrent is enough to keep people from giving
up their annuities, so a surrender charge is unnecessary.

Re death benefits: Fidelity's VA has none, and Vanguard's
may not have enough. But as previously discussed, this may
be of no consequence or she may buy life insurance yada and
probably at a much cheaper cost than packaging a death
benefit with an annuity.

After answering these questions, maybe only a bit more
examination of the details should lead Lucille to a
rational, financially intelligent decision.

- quote -

The sec.gov site (among others) I gave before does talk
about this, but even if Lucille can make a case, I suspect
it may take years to get the money back.

Lucille, the expenses your current annuity charges are
supposed to be easy to find. Insist that your financial
advisor provide them, with documentation to back them up. Or
it's time to dig up your annuities' prospecti and find the
expenses yourself. Also, Lucille, I would seriously consider
calling Fidelity and Vanguard and discussing their annuities
with them. Fidelity for one is not pushy. I haven't spoken
to Vanguard about annuities. They may even have some insight
on your current annuities. Whatever they say, you can run by
people here.

Or post the names of your current annuities, and between all
of us, I bet we can turn up the expenses.

"lucille" <realdeallu[at]aol.com> wrote
- quote -

Indeed.

You're getting savvy on variable annuities mighty fast.
Nail down a few more numbers, talk to some low expense ratio
and no surrender fee annuity plan representatives, digest
all this discussion for awhile, maybe laying down on paper
financial pros and cons of switching/not switching, ask more
questions for clarification, and you're probably good to go.

lucille wrote:
- quote -

I think by now you realize there are more questions here for you than
answers.

To say you have an annuity without knowing its contents is somewhat
similar to saying you own an IRA. Each is a type of account with
different rules, tax consequences, and (cough) benefits.

An IRA can contain any from money market funds, mutual funds, individual
stocks, real estate [rental only, not your house], etc.

If you had reasons for putting your money into an anuity, ok. But the
most important question now is what exactly is the investment contained
within the annuity? If you didn't understand three years ago what the
investment was, you [might] have a case to request your money back.

This is typical of the now dozen or so people who have come to me after
the fact trying to understand what they own. Not that you need to get a
degree in finance, but when you own a stock, you should know what the
company makes (a la Peter Lynch) and when you own a fund you should know
in one sentence its investment objectives (e.g. "this fund is an index
fund trying to match the S&P which are the 500 largest cap stocks" or
"this fund invests in energy stocks, it's diversified enough so even if
one of those stocks is an Enron, I think the fund will still perform.")

Of the people who came to me first, the common theme was "equity
indexed". In every case, the client was better off with government bonds.

JOE

TB wrote:

- quote -


- quote -


And do you have other alternatives available, through that same
- quote -


- quote -

have a lot more money by 2013 if I eat the surrender charge now and
transfer that money into the Protected Equity Portfolio. Or, after
hearing all the excellent comments here, maybe it is my financial
advisor who will have a lot more money in 2013 if I switch now!

Thanks to everyone who took the time to answer my questions and give
their opinions. Please keep them coming!

L

lucille wrote:
- quote -

Lucille,
Just to pause at that statement...what type of annuity is it and what
sub-accounts are you using at the moment - what types of investments are
they? And do you have other alternatives available, through that same
company & contract?

Before considering eating a surrender charge it's always good to see
what you can do with the product you've got. And the surrender
charge...what is it percentage-wise & when does that lapse?

-Tad

- quote -


It is the Annuity Company that write the verbage of the
contract & the brochures, NOT the Agent. He/she is
obligated to explain the contract as written.


Obfuscating the
- quote -



No argument here

- quote -


AND generaly speaking much higher overall FEES
which MIGHT be offset by market gains (and might not)

Cal Lester CLU

- quote -

I stand corrected. As I stated, I was NOT familiar with the
item referred to as "Protected Equity Fund". I was under
the impression that it was NOT another Annuity. Therefore
the above is absolutely correct, in that a 1035 from one
Annuity to another is NOT a taxable event.
Cal

"joetaxpayer" <joetaxpayer[at]nospam.com> wrote
- quote -

Two cents on this statement:
When one who sells annuities, as the author of the above
statement may, says something like the above, I think one
must view it with caution. Annuity salespeople have a vested
interest in making annuities appear to be so complicated
that only the seller can understand them. Obfuscating the
facts is to their advantage. Statements like the above
arguably set the stage for the proverbial fox in the
chickenhouse. The media has reported amply on how unwary
consumers have been sucked into buying VAs and later
regretted doing so.

We do know some important facts about variable annuities.
One gets
-- Tax deferment while one is saving for retirement,
meaning, that, as far as retirement income is concerned,
after a investing in a 401(k)'s matching and a Roth IRA,
variable annuities might be something to consider.
-- Typically a decent set of mutual fund choices
-- Often a death benefit and/or the promise of definite
payments for the lifetime of the owner/investor.

In exchange, one pays:
-- What seem to be higher than usual management fees for a
set of mutual funds (so if a person chooses to purchase a
VA, shop around for one with low fees)
-- Potentially a very stiff surrender fee if one wants to
cancel the VA or move it to another, different VA.
-- Potentially a 10% federal tax penalty and taxes on gains
and income from the assets in the VA, if one wants to cancel
the VA.
-- Potentially more for the death benefit than might be
obtainable through buying life insurance separately.

Of course not all VAs are the same, but from where I am
standing, the above are the salient features. They are the
ones on which consumers should focus when making their
decisions. Other options a salesperson may mention have the
purpose of distracting the potential buyer.

"Cal" <cal-lester[at]comcast.net> wrote
Lucille wrote
- quote -


The following from http://sec.gov/investor/pubs/varannty.htm
seems to say differently:
"Section 1035 of the U.S. tax code allows you to exchange an
existing variable annuity contract for a new annuity
contract without paying any tax on the income and investment
gains in your current variable annuity account. These
tax-free exchanges, known as 1035 exchanges, can be useful
if another annuity has features that you prefer, such as a
larger death benefit, different annuity payout options, or a
wider selection of investment choices."

This "Protected Equity Portfolio" is, after all, another
variable annuity. So I don't see what the problem is.

"lucille" <realdeallu[at]aol.com> wrote about switching from a
seemingly low yielding set of variable annuities to a Legg
Mason "Protected Equity Portfolio" annuity with the
"potential" to pay around 7%, with about ten years to
retirement --
Joetaxpayer:
- quote -

snip
- quote -

1.
The article "Annuity Blues," (Kiplinger's Personal Finance
Magazine, Nov., 2000, Jeffrey R. Kosnett
http://www.findarticles.com/p/articl...54/ai_66278780 )
makes some important points about your situation:

-- First, strongly consider waiting until there is no
surrender charge. The question for you, Lucille, is: How
long will it be until your current annuity's surrender fee
period expires?

-- If you do not have an annuity with low expenses, and the
surrender fee period has expired, then consider switching to
an annuity with low expenses. That can be a very sound
decision. But ignore guesstimates of future performance,
like the one your financial advisor gave. As with any
retirement vehicle, annuity returns (on the principal, and
disregarding death benefit features) depend most heavily on
the asset allocation and low management expenses. The
articles states: "More than likely, once a person has an
annuity, [then] no matter how well these firms and their
accounts may have performed in recent years, as with any
other investment, they can't guarantee future performance.
What you can learn in advance, however, is the fee
structure--the ongoing costs that will be a drag on
performance year after year. All variable annuities require
a prospectus, and the fees are detailed in a table near the
front." The "potential" for 7% of which your advisor spoke
is used car salesman blather that he needs to back up with
numbers based in the assets in which the annuity is
invested. No guarantee exists that your new annuity will
yield this much. Also, I agree with Joetaxpayer that 3-4%
per annum is not a bad appreciation for the last several
years.

2.
The article at http://sec.gov/investor/pubs/varannty.htm
adds that a rollover bonus (from the company to which you
are switching) is something to investigate. Will Legg Mason
(or any other annuity company offering you the chance to
roll over your annuity) pay any kind of bonus? How about,
say, Vanguard's Variable Annuity Plan (mentioned in the
article above), or the other four companies mentioned in the
article above? Granted it may pay to shop around at this
point, since some six years have passed since the Kiplinger
article above came out. Though I hasten to add that Vanguard
is known for its low fund management fees.

3.
Here's a tool that may help with your calculations:
http://www.kiplinger.com/personalfin...s/annuity.html

4.
Many folks, here and elsewhere, are wont to say that
variable annuities are complicated or confusing.
Increasingly I think it's not that they are complicated.
It's just that so many bells and whistles are tossed in that
the potential buyer cannot keep focus on the big picture.
The bells and whistles are sales devices--gimmicks--designed
to distract the potential buyer from the purpose of a VA.

5.
People responding to this thread should IMO state whether
they facilitate the sale of variable annuities and whether
they profit in any way from such sales. Consumers reading
here have a right to know of conflicts of interest, and this
presents a serious one, in view of the well-reported
shadiness of variable annuity sales in recent years. (Not
that they are all raw deals.) One who sells variable
annuities cannot very well come online and disparage them
here at MIFP without appearing inconsistent to his/her
offline customers. So for the "professionals" who sell
annuities, the incentive to spew salesman talk (which may or
may not have validity) is inevitably high.

Naturally if there are annuity salespeople who truly believe
in this product (just like, say, Toyota used car salespeople
might truly believe in their product), then their stating
why they believe in the product does have some value. Just
note the presence of a conflict of interest, and the
statements--and you--will be judged to be honest.

In this vein, if s/he has not already, then your financial
advisor needs to disclose his/her interests in exchanging
your current variable annuity to the new one. If s/he wavers
at all about thoroughly disclosing this, find another
advisor.

6.
I for one do not like that your financial advisor appears
not to have discussed with you when the surrender fee period
expires. I also do not like that s/he seems to be
guaranteeing that you'll make up the surrender fee within
1.5 years. S/he's making a guess, based on I bet another
guess about future stock returns, so IMO s/he's talking
hogwash.

7.
Where at its annuity site does Legg Mason discuss this
"Protected Equity Portfolio"? I want to know the fees. Maybe
I want to buy one. Legg Mason sure does not make that easy,
which, as I suggest above, may be indicative of how shady
the annuity business can be.

8.
Compare Vanguard's site's discussion of its VAs:
http://flagship5.vanguard.com/VGApp/...iewContent.jsp

Click on the "Low fees and expenses" for what seems to me a
transparent presentation of how Vanguard charges for its
VAs. Call 'em up and ask if they offer a bonus for a
rollover.

9.
Even Fidelity's site is very thorough when it comes to
exchanges, cautioning consumers that surrender charges may
make a rollover to a Fidelity VA a terrible choice:
http://personal.fidelity.com/global/...nuity10.Lastly, great question, Lucille. Variable annuities come upa lot here, and your recounting your experience here isgoing to help others.

" > Once all this is understood, we can offer some intelligent advice.
- quote -




EXCELLENT commentary
Cal

lucille wrote:

- quote -

Lucille, I've given it another shot and am unable to get any specifics
on the Protected Equity Annuity other than the 10 year performance which
seem to lag the S&P by about 2% per year.
(Disclaimer - I am less than objective on the subject of VAs, so take my
remarks with that in mind.)

You replied that your advisor is "trying to talk [you] into [this
product]". What is YOUR objective? Why did you buy the one you are in,
and if you are willing to take the 8% hit, why would you not consider
cutting this guy loose and not throwing good money after bad?

I (and anyone here) willing to help need specifics on three topics;

1) terms (i.e. exact investment description) of the current product
2) terms of the Protected Equity Annuity
3) more details on your objective. the 'positive feature of some
annuities is the death benefit. is this your concern? tax deferral?
downside protection?

Once all this is understood, we can offer some intelligent advice.
Taking the 8% hit only to but another VA with anmother 10 year surrender
term is the last thing I'd do before getting all your facts.

I was recently told by a fellow poster;
"Annuities are NOT for everyone. They are not a magic
panacea. The need to be understood, by those that sell as well as by
those that buy. And they need to be better understood by those of us
who critique their use."

I'll leave it at that.
JOE