Dad Passed Away -Help with Mom's Retirement Portfolio

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sabyaghati
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Dad Passed Away -Help with Mom's Retirement Portfolio

Post by sabyaghati »

Hi Everyone,

My father had a few Annuities through his investment advisor and now my mother is the beneficiary after his passing. There are two Fixed annuities at 3.35% and 2.85% with maturities in 2023 and 2024. We are unsure if we should continue with these two since they are at a relatively high rate. There is an indexed annuity that was sold to him and we will opt out of it since the transfer to my mother gives us that option without any penalties.

Our plan is to transition everything from current investment advisor and look for an investment advisor through Vanguard or put assets in a low cost index fund. My mother will turn 64 later this year, and would leave her job. She does not have any investment experience, right now I am living with her and paying the rent, so she doesn't have any major expenses. We are looking for a conservative investment, with #1 focus of capital preservation and secondary focus of portfolio growth. She currently has 401k portfolio with 60% bond/40% equity allocation.

Should we continue with fixed annuities at 3.35% and 2.85% rate? or take them out and move them over to an index fund through Vanguard?

Glad to provide more color as needed. Thank you.
Last edited by sabyaghati on Sun Mar 21, 2021 6:11 pm, edited 2 times in total.
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arcticpineapplecorp.
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Re: Retirement: Annuity Question

Post by arcticpineapplecorp. »

sabyaghati wrote: Mon Mar 08, 2021 12:57 pm Hi Everyone,

My father had a few Annuities through his investment advisor and now my mother is the beneficiary after his passing. There are two Fixed annuities at 3.35% and 2.85% with maturities in 2023 and 2024. We are unsure if we should continue with these two since they are at a relatively high rate. There is an indexed annuity that was sold to him and we will opt out of it since the transfer to my mother gives us that option without any penalties.

Our plan is to transition everything from current investment advisor and look for an investment advisor through Vanguard or put assets in a low cost index fund. My mother will turn 64 later this year, and would leave her job. We are looking for a conservative investment, with income growth. Given, she has exposure to the market through her 401k already, we are wary of putting more money in equity market with elevated valuation.

What do you all recommend?
i was right there with you right up until that last sentence.

life is not an either or. so just because she has enough stock market exposure doesn't mean she needs annuities. there are other things like bonds.

also elevated valuations is relatively meaningless since international stocks are less elevated than US stocks and we don't know what she has in terms of US/International.

finally, conservative investment, with income growth seems like an interesting statement. You're thinking "I don't want her to lose principle (or experience volatility) but I want increasing dividends" Is that it?

why are dividends so important? do you prefer her being taxed at ordinary income tax rates rather than capital gains tax rates? Why? Have you thought about seeking total return rather than focusing on dividends?

finally, if she's getting those higher interest rates for the next few years that sounds attractive, but you have to make sure that rate of payment is all interest and not a combination of interest and principle. Insurance companies tend to be slippery like that.

I think talking to Vanguard about using them for advisory services is warranted. If you want any additional specific information you should edit your post according to:

viewtopic.php?t=6212

welcome to the group.
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Stinky
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Re: Retirement: Annuity Question

Post by Stinky »

On the narrow question of keeping the 3.35% and 2.85% annuities, I agree that’s an attractive rate. I’d keep them as a part of her fixed income allocation.

You say she’s pretty conservative, and that she’s 40/60 in her 401k. With the three annuities you mention, her overall allocation is likely more conservative than 40/60.

Does she have a target for her overall asset allocation? If not, she should develop one. Vanguard PAS could help with that.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
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sabyaghati
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Re: Retirement: Annuity Question

Post by sabyaghati »

Hello,

Thank you for taking some time to reply. I did more research, gathered complete information on all accounts and had conversations with annuity companies to get more information.

My father took care of their finances and he unexpectedly passed away two months ago, so my mother and sister have told me to do what I think is right. My father had these fixed annuities to preserve capital as he was extremely risk averse.

Here's the breakdown.

44% the portfolio is in three fixed annuities (3.35%, 2.5% and 2.85%) with weighted average rate of 3.2%.
9% is in indexed annuity, which I am inclined to get out and bring it over to Vanguard. (https://athenecentral.widen.net/s/8bzpjj5vxj)
14% is in IRA savings account as a placeholder, until we finish paperwork and consolidate it to bring it over to something such as Vanguard.
32% is in company 401k, of which 62% is in Bonds, 21% in domestic stocks, 16% in international stocks.

Based on this information, it seems the portfolio is overly conservative and allocated to fixed instruments. This has been extremely difficult to sort through, so any guidance would be a great help. My mother doesn't want to take any contributions from the retirement accounts for at least the next two years and ideally not for ten years. There is no foreseeable need to make a withdrawal, since she would be living with me or my sister.

Thank you.
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Stinky
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Re: Retirement: Annuity Question

Post by Stinky »

sabyaghati wrote: Sun Mar 21, 2021 11:03 am Hello,

Thank you for taking some time to reply. I did more research, gathered complete information on all accounts and had conversations with annuity companies to get more information.

My father took care of their finances and he unexpectedly passed away two months ago, so my mother and sister have told me to do what I think is right. My father had these fixed annuities to preserve capital as he was extremely risk averse.

Here's the breakdown.

44% the portfolio is in three fixed annuities (3.35%, 2.5% and 2.85%) with weighted average rate of 3.2%.
9% is in indexed annuity, which I am inclined to get out and bring it over to Vanguard. (https://athenecentral.widen.net/s/8bzpjj5vxj)
14% is in IRA savings account as a placeholder, until we finish paperwork and consolidate it to bring it over to something such as Vanguard.
32% is in company 401k, of which 62% is in Bonds, 21% in domestic stocks, 16% in international stocks.

Based on this information, it seems the portfolio is overly conservative and allocated to fixed instruments. This has been extremely difficult to sort through, so any guidance would be a great help. My mother doesn't want to take any contributions from the retirement accounts for at least the next two years and ideally not for ten years. There is no foreseeable need to make a withdrawal, since she would be living with me or my sister.

Thank you.
I agree that moms portfolio is conservative. It looks like she’s about 10% equities. Many Bogleheads would suggest 25-50% equities for a retiree.

Does Mom have an opinion about more equity exposure?

I agree with surrendering the indexed annuity. If you do increase the equity percentage, you could reinvest the annuity proceeds into equities.

I would keep the fixed annuities until they mature.

If you want more help with a go forward portfolio, I suggest that you either retitle this thread or start a new one with a title something like “Dad Passed Away -Help with Moms Portfolio”. That title will attract more comments about general portfolio matters.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
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sabyaghati
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Re: Dad Passed Away -Help with Mom's Retirement Portfolio

Post by sabyaghati »

Thank you, I changed the post title. Mom wants to me to do what's best, so she doesn't have opinion on specific allocations. I am leaning toward increasing equity allocation and don't want to personally manage it since there are so many other things going on right now. Hence, My thought was to speak to Vanguard PA or a similar advisor. Any thoughts or guidance on specific allocation, PA experience welcome.
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Re: Retirement: Annuity Question

Post by Grt2bOutdoors »

sabyaghati wrote: Sun Mar 21, 2021 11:03 am Hello,

Thank you for taking some time to reply. I did more research, gathered complete information on all accounts and had conversations with annuity companies to get more information.

My father took care of their finances and he unexpectedly passed away two months ago, so my mother and sister have told me to do what I think is right. My father had these fixed annuities to preserve capital as he was extremely risk averse.

Here's the breakdown.

44% the portfolio is in three fixed annuities (3.35%, 2.5% and 2.85%) with weighted average rate of 3.2%.
9% is in indexed annuity, which I am inclined to get out and bring it over to Vanguard. (https://athenecentral.widen.net/s/8bzpjj5vxj)
14% is in IRA savings account as a placeholder, until we finish paperwork and consolidate it to bring it over to something such as Vanguard.
32% is in company 401k, of which 62% is in Bonds, 21% in domestic stocks, 16% in international stocks.

Based on this information, it seems the portfolio is overly conservative and allocated to fixed instruments. This has been extremely difficult to sort through, so any guidance would be a great help. My mother doesn't want to take any contributions from the retirement accounts for at least the next two years and ideally not for ten years. There is no foreseeable need to make a withdrawal, since she would be living with me or my sister.

Thank you.
Are you sure the portfolio is overly conservative? I say that because it is not enough to look at asset allocation and make a true determination. First, has your mother reviewed her annual living expenses? What are those costs? Second, has your mother logged on to www.ssa.gov and reviewed what her annual expected Social Security benefits are/will be? It will be the higher of her own earned benefit or that of her spouse (sorry for your loss) at either age 67 or age 70. If she defers her benefit to age 70, assuming she has a normal to long life longevity she will earn the highest inflation protected annuity by under current law 1.24x her projected benefit at age 67. The key is to determine what her annual income requirements will be in retirement and then you can start tinkering with a suggested asset allocation plan. Right now, you are working backwards. Don't let anyone talk you into an asset allocation plan until you understand what her true retirement expenses or as close to an estimate of those expenses will be in retirement. Just as an example, hypothetically speaking one could have an annual retirement income need of $50,000 earn a social security benefit of $25,000 and only need to fund $25,000, they have $750K in assets - there is no need to take risk, they could do just fine with a 30/70 allocation.

Investment advice - leave the annuities alone, let them mature as scheduled, she has some time between now and then to develop an Investment Policy Statement. View the wiki on how to develop one. There are examples of what others have done. There is no rush, seeing as your mother is likely still grieving, take your time because the IPS is her's, not yours. Her asset allocation will be different from yours.
As you can see from the current asset allocation in all of the accounts, your parents are generally conservative minded, tread carefully on the push to increase risk, the worse thing a person can do is to increase risk when not comfortable with it, see the market decline, sell at the bottom after investing at a higher point and lock in permanent losses. I would like to note one thing, while you believe your father to have been conservative, weighted average rate of 3.2% in relatively short term fixed income that was conditionally guaranteed. The only fixed income rated better are US Treasuries - there is no US Treasury bond, note or bill that yields 3.2% Yield To Maturity with a weighted average duration of 2 years and very few FDIC insured CD's. None. So, tip of the hat to your father who had the foresight to lock in a good rate when he saw it. Hindsight is 20/20 as they say.
See my signature - Invest based on need, willingness and ability to take risk. Not because a cookie cutter model suggests an asset allocation of x%/y% based on age.

Let us know what your analysis shows for projected income and expenditures need. We'll have a better idea of how to invest and you may be able to save 30bps instead of paying it away to PAS.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
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Re: Retirement: Annuity Question

Post by dmcmahon »

Stinky wrote: Mon Mar 08, 2021 4:02 pm On the narrow question of keeping the 3.35% and 2.85% annuities, I agree that’s an attractive rate. I’d keep them as a part of her fixed income allocation.
+1 if from a reputable insurer.
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BL
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Re: Dad Passed Away -Help with Mom's Retirement Portfolio

Post by BL »

Thanks for looking after your mom. Remember, she has enough things that must be done, and should wait on the rest of the decisions until she has had a while to recover. (Some of the recommendations found in the Wiki for Windfalls may be helpful here as well.
https://www.bogleheads.org/wiki/Managing_a_windfall)

It is often recommended that only the most urgent decisions should be made while in mourning, perhaps for a year or so. There is already so much stress, that it is not good to add more if the decision can be postponed without drastic consequences. It takes a while to start thinking straight as well. I recall a friend who sold her house and moved shortly after her spouse passed. She said later that she should have waited to decide. Others have made bad decisions that can't easily be undone. Making a decision on where to live is a big one, and should probably not be a permanent decision that first year for most survivors. She is still relatively young, and has a long life ahead of her, assuming she is fairly healthy.

I agree that looking into the best SS decision is important. She is eligible for both her own and survivor's pensions, but only one at a time. Compare both at her full retirement age (FRA) using info from SS. An example: take hers (if lower) now or as soon as she retires, and Survivor's at FRA. Or: If hers is higher, she could take survivor's now and hers at age 70 with and 8%/year increase from FRA. This may not be exactly correct so please look it up. Mike Piper can be searched here on Bogleheads and he also has a small SS book on Amazon that might be helpful.

Her income taxes may well put her into a higher tax bracket starting next year when she files Single, so there could be some advantage to move income into later this year rather than next year if there is a choice.

It is not clear if she also has a taxable account. Does the advisor manage some of her money?

There are no good paying cash accounts these days. You could check with local banks and credit unions as well as on-line banks for somewhat higher rates (perhaps 0.5% to 0.7% or so), but the rates are so low that it may not make much difference. Bonds and money markets are also very low and bonds do have some risk as well.
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Re: Dad Passed Away -Help with Mom's Retirement Portfolio

Post by sabyaghati »

Thank you, all. I took some more time to think about what you mentioned above.

The three fixed annuities are from Athene, Global Atlantic and Midland National. I agree that 3.2% weighted average rate for annuities is very good and leaning towards continuing them.

We spoke to SS office and my father started taking his benefits last year. Based on the conversation, survivor benefits would be greater than my mother's own benefits at any age. Since my mother is retiring, survivor benefits would be her only income ($13k) and she would be in lower tax bracket. She has a taxable savings account that earns 0.50%. We currently rent a 2BR apartment and I am living with her and taking care of rent and other expenses. We will think about moving later in the year, since I don't have energy to move apartments or buy a house over the next few months.

We don't plan on having her live by herself, so she would either live with me or my sister at any time. The only expenses she would have are unexpected health expenses since she is relatively healthy based on recent health assessment. We don't foresee any other recurring expenses. Please let me know if I am missing anything or forgetting to consider any other expenses.

32% of portfolio is in 401k with 40/60 split, allocated in the following right now.

FID FDM IDX 2015 IPR  (FIWFX) Target/Blended
FID FDM IDX 2020 IPR  (FIWTX) Target/Blended
FID US BOND IDX  (FXNAX) Income/Bond (Duration 6.05)
METWEST TOT RTN BD I  (MWTIX) Income/Bond (Duration 5.66)
FID GROWTH CO K6  (FGKFX) Large Cap Stocks
AF EUROPAC GROWTH R6  (RERGX) International Stock

Now, what should we do about 14% of retirement portfolio that is in IRA savings account at 0.25% and 9% that is in indexed annuities? This is the part that I am considering moving to Vanguard for PAs.
One of the other reasons for moving it to Vanguard is that it feels like a second job and I am a bit overwhelmed, so my thinking is to consolidate it and have a PA manage it until things get under control.

Thanks again, everyone.
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Re: Dad Passed Away -Help with Mom's Retirement Portfolio

Post by Stinky »

sabyaghati wrote: Mon Mar 29, 2021 10:07 am The three fixed annuities are from Athene, Global Atlantic and Midland National. I agree that 3.2% weighted average rate for annuities is very good and leaning towards continuing them.

[snip]

Now, what should we do about 14% of retirement portfolio that is in IRA savings account at 0.25% and 9% that is in indexed annuities? This is the part that I am considering moving to Vanguard for PAs.
The fixed annuities are with three fine companies. I think your decision to keep them is good.

On the indexed annuity, you should think of it as a “fixed income” investment currently. I would agree with surrendering it, or doing a 1035 exchange to a new multi year guaranteed annuity (MYGA), similar to the three that you have now. Check blueprintincome.com for current MYGA rates. Or just surrender and roll it to Vanguard.
Last edited by Stinky on Mon Mar 29, 2021 12:42 pm, edited 1 time in total.
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BL
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Re: Dad Passed Away -Help with Mom's Retirement Portfolio

Post by BL »

It sounds like she could maximize her SS by taking her own now or when she retires, then switch to Survivor's SS at FRA, at about age 67 depending on her date of birth. That will get her the max SS income from then on.

To delay taxes, if that is preferred, consider 1035 exchange to the preferred annuity:
A 1035 exchange is a provision in the Internal Revenue Service (IRS) code allowing for a tax-free transfer of an existing annuity contract, life insurance policy, long-term care product, or endowment for another one of like kind.
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sabyaghati
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Re: Dad Passed Away -Help with Mom's Retirement Portfolio

Post by sabyaghati »

I calculated the performance of the indexed annuity so far. It was pitched to my father as an annuity that would preserve the capital and provide upside to the equity market. However, the actual performance so far is 2.61% if my calculations are correct. If we surrender the annuity, we would get original premium back, but the 0.40% would be deducted from 2.61% as a return of premium rider. The 0.40% only applies to interest credit, not the principal.

(Sorry, I am not sure how to post the table with the right format below.)

Clearly, the FA was dishonest when selling this annuity and took advantage of my father.

SPX AIPEX BOFANFCC BNPIMAD5 SPXT5UT Average Return
08/24/2020 3,431.28 2394.41 243.31 257.2242 229.77
03/29/2021 3,971.09 2496.37 249.57 267.1846 239.18
Index Return 15.73% 4.26% 2.57% 3.87% 4.10%
Servicing Fees -0.5% -0.5%
Actual Return 4.25% 2.25% 1.16% 2.53% 2.87% 2.61%
Participation Rate 60% 45% 75% 70%
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Stinky
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Re: Dad Passed Away -Help with Mom's Retirement Portfolio

Post by Stinky »

sabyaghati wrote: Mon Mar 29, 2021 6:03 pm I calculated the performance of the indexed annuity so far. It was pitched to my father as an annuity that would preserve the capital and provide upside to the equity market. However, the actual performance so far is 2.61% if my calculations are correct. If we surrender the annuity, we would get original premium back, but the 0.40% would be deducted from 2.61% as a return of premium rider. The 0.40% only applies to interest credit, not the principal.

(Sorry, I am not sure how to post the table with the right format below.)

Clearly, the FA was dishonest when selling this annuity and took advantage of my father.

SPX AIPEX BOFANFCC BNPIMAD5 SPXT5UT Average Return
08/24/2020 3,431.28 2394.41 243.31 257.2242 229.77
03/29/2021 3,971.09 2496.37 249.57 267.1846 239.18
Index Return 15.73% 4.26% 2.57% 3.87% 4.10%
Servicing Fees -0.5% -0.5%
Actual Return 4.25% 2.25% 1.16% 2.53% 2.87% 2.61%
Participation Rate 60% 45% 75% 70%
I’m sorry that your father was taken advantage of.

As suggested above, I’d suggest either doing a 1035 exchange into a MYGA, or surrendering, paying any taxes due on the gain, and rolling the remainder to Vanguard.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
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sabyaghati
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Re: Dad Passed Away -Help with Mom's Retirement Portfolio

Post by sabyaghati »

As suggested above, I’d suggest either doing a 1035 exchange into a MYGA, or surrendering, paying any taxes due on the gain, and rolling the remainder to Vanguard.
Sorry, another question. If they are retirement accounts, why would surrendering them cause a taxable event?

The annuity under my father's name has options for the beneficiary(my mother) to continue the contract, or to take the contractual death benefit value and make an external transfer/rollover to her IRA account (Savings account as a placeholder until we consolidate the remaining and transfer to Vanguard).
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Stinky
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Re: Dad Passed Away -Help with Mom's Retirement Portfolio

Post by Stinky »

sabyaghati wrote: Mon Mar 29, 2021 7:24 pm
As suggested above, I’d suggest either doing a 1035 exchange into a MYGA, or surrendering, paying any taxes due on the gain, and rolling the remainder to Vanguard.
Sorry, another question. If they are retirement accounts, why would surrendering them cause a taxable event?

The annuity under my father's name has options for the beneficiary(my mother) to continue the contract, or to take the contractual death benefit value and make an external transfer/rollover to her IRA account (Savings account as a placeholder until we consolidate the remaining and transfer to Vanguard).
Oops, I didn’t reread all of the details above. I forgot that the indexed annuity is in an IRA; therefore, there is no taxable event until money is actually withdrawn. So there’s no need for a 1035 - you could roll to a qualified MYGA or directly to an IRA at Vanguard.

On having your mother continue your fathers annuities - it would be “yes” for the fixed annuities and “no” for the indexed annuities.

Sorry for my confusion. :oops:
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
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