Brighthouse Variable Annuity XC

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AverageBear
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Brighthouse Variable Annuity XC

Post by AverageBear »

My wife and I have had these variable annuities since 2007. I am now kicking myself for having purchased them. They are complex with a number off riders. I fear that the fees are so significant that they will never grow significantly as the investments would have to outperform the market handily. We are having the contracts reviewed by the service that I became aware of here ($289).
We may surrender them or 1035 them to a no load variable annuity. I will be speaking with Fidelity and Vanguard about them.

If anyone has any experience or insight with these please share,
Thank you
Rex66
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Re: Brighthouse Variable Annuity XC

Post by Rex66 »

Not enough info
Need age, basis, current amount, what riders at least. Good to have an idea of overall intentions.

These things rarely work. As you are noticing the fees are just too much. This doesn’t even account for fact that you have changed long term gains to income rates, can’t tax loss harvest, and no step up at death.
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David Jay
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Re: Brighthouse Variable Annuity XC

Post by David Jay »

The one up-side is that due to their age and various riders, they could have good annuitization rates. Check the contract details and request an in-force illustration.
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
Rex66
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Re: Brighthouse Variable Annuity XC

Post by Rex66 »

Bc he talked about riders, it’s likely an income rider and not annuitization that would be considered

It is very important to know that while income riders and annuitization provide income streams, they are different processes and one has to be careful to pick which one makes sense at this point.
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Stinky
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Re: Brighthouse Variable Annuity XC

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AverageBear wrote: Mon Mar 22, 2021 7:15 am My wife and I have had these variable annuities since 2007. I am now kicking myself for having purchased them. They are complex with a number off riders. I fear that the fees are so significant that they will never grow significantly as the investments would have to outperform the market handily. We are having the contracts reviewed by the service that I became aware of here ($289).
We may surrender them or 1035 them to a no load variable annuity. I will be speaking with Fidelity and Vanguard about them.

If anyone has any experience or insight with these please share,
Thank you
Yes, I’m sure that you’re wishing that you hadn’t bought them. Depending on the number and cost of riders on the policies, you might have paid 2-3% per year, or even more, for the policies. That fee drag has absolutely KILLED your returns.

That being said, it’s all water under the bridge. Nothing you can do about the past. All you can do now is assess your path going forward.

You’re doing a good thing by having a professional look at the policies. You might find that there is an attractive “withdrawal” or “income” benefit embedded in the policy. If so, the professional would be able to assess the value of that option compared to your other possibilities.

If you choose to get rid of the policies, I’m not sure why you would want to do a 1035 exchange into a variable annuity. I expect that you’ve got a taxable gain on the policies, so there’s no reason to buy a new VA to monitize a tax loss. Maybe there’s another reason to buy a VA that I’m not seeing.

Post back if you have questions.

EDIT - A reason to do a 1035 is to avoid the 10% tax penalty if you’re surrendering and under age 59.5.

If you do a 1035, also look at a MYGA as an alternative.
Last edited by Stinky on Mon Mar 22, 2021 12:25 pm, edited 1 time in total.
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Rex66
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Re: Brighthouse Variable Annuity XC

Post by Rex66 »

With a gain, if it’s substantial and the person is close to 59.5 then it can make sense to avoid the penalty to 1035 it....

First need to figure out what the OP has already paid for.
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AverageBear
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Re: Brighthouse Variable Annuity XC

Post by AverageBear »

These annuities are all inside of IRA's. We are beyond the surrender penalties with the exception of a small deposit I made into mine a couple of years ago. When I get upset at myself I immerse in looking to thoroughly understand something. I have spoken with someone at Brighthouse and I am also intending to have that annuity service review the contract. There are two buckets, one that is the "walk away money" and is based on the amount invested and the investment performance of the selected investments, the other is the amount of money that would be used if the contract were annuitized, that total never drops from the number it was from the prior year and it is credited with a 6% increase every year until you choose to annuitize it.
The walk away money and the amount used for annuitization purposes are not that far apart right now, which is good in one sense but ridiculous in another because of how strong the market has been for so many years.
Riders are , Guaranteed Minimum Income Benefit Rider, Enhanced Dollar cost averaging rider, Three month market entry rider, Death Benefit rider Annual Step up, Purchase payment credit rider.
There is approximately $600,000 in the two annuities that my wife and I have. I am 63 and my wife is 60. I will likely work until the age of 70. The amount of these annuities represents about 50% of our total investments. Upon the sale of my business in the next year or two the additional amount of money available to invest will be about the same amount of money that we currently have invested.
In conversation with our current investment advisor I have been told the goal is to never annuitize these unless the "walk away money" bucket was down next to nothing.
Up to 6% can be taken each year without annuitizing, it decreases the walk away money balance but does not effect the balance available to annuitize and that balance continues to be credited with an additional 6% each year.
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Stinky
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Re: Brighthouse Variable Annuity XC

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AverageBear wrote: Mon Mar 22, 2021 12:37 pm These annuities are all inside of IRA's. We are beyond the surrender penalties with the exception of a small deposit I made into mine a couple of years ago. When I get upset at myself I immerse in looking to thoroughly understand something. I have spoken with someone at Brighthouse and I am also intending to have that annuity service review the contract. There are two buckets, one that is the "walk away money" and is based on the amount invested and the investment performance of the selected investments, the other is the amount of money that would be used if the contract were annuitized, that total never drops from the number it was from the prior year and it is credited with a 6% increase every year until you choose to annuitize it.
The walk away money and the amount used for annuitization purposes are not that far apart right now, which is good in one sense but ridiculous in another because of how strong the market has been for so many years.
Riders are , Guaranteed Minimum Income Benefit Rider, Enhanced Dollar cost averaging rider, Three month market entry rider, Death Benefit rider Annual Step up, Purchase payment credit rider.
There is approximately $600,000 in the two annuities that my wife and I have. I am 63 and my wife is 60. I will likely work until the age of 70. The amount of these annuities represents about 50% of our total investments. Upon the sale of my business in the next year or two the additional amount of money available to invest will be about the same amount of money that we currently have invested.
In conversation with our current investment advisor I have been told the goal is to never annuitize these unless the "walk away money" bucket was down next to nothing.
Up to 6% can be taken each year without annuitizing, it decreases the walk away money balance but does not effect the balance available to annuitize and that balance continues to be credited with an additional 6% each year.
Several quick questions back -
—— Are you planning to purchase a “guaranteed” stream of payments, like a SPIA, as you move into retirement? If so, the VA gives you some options; if not, all of those bells and whistles on the VA are of no value to you
—— How are the assets allocated within the VA? All equity, all fixed income, or some mixture?
—— Have you factored the investment mix within the VA into your total asset allocation? Put another way, if you were to surrender the annuity and reinvest the proceeds in the same asset mix, would that leave you with an asset allocation that makes you comfortable?
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Rex66
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Re: Brighthouse Variable Annuity XC

Post by Rex66 »

Request illustrations with the income rider starting when you want income. Compare that to a spia

Likely you will want to activate the income rider. Nothing can change the opportunity you lost over the years. Make the most of what you already purchased.
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Re: Brighthouse Variable Annuity XC

Post by Aak732 »

Both me and DW have the same type of VA with Brighthouse as wells - separate accounts with the purchase price of $20k each back in 2005 - in our Joint taxable brokerage account with ML.

As the surrender period is over, no charges are due to remove the money. If we decide to Close the account, we will have to pay taxes on the gains of $20k for each account (I believe taxed as ordinary income: 24% Fed and 6.37% NJ State).

I am 50, and DW is 47, so we have a ways to go before the annuitization option, however I want to get out of this VA as soon as possible via a 1035 exchange - due to the cumulative fee of 2.2% (Riders + the ER of the underlying mutual fund).

From my research, the cheapest and best option, in my opinion, is Fidelity. They do not have a surrender period, and the fee structure is simple: 0.25% admin fee + the ER of the underlying fund (no Guaranteed this and that Riders, etc). So if I was to put the money in the VIP Total Stock Market Index fund (er = 0.12%), my total expense will be: 0.25 + 0.12 = 0.37%. Vanguard now uses Transamerica to manage the VA accounts, and I did not want to add anymore complexity with this additional layer of relationships, so Fidelity it is.

Good luck with your decision.
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Re: Brighthouse Variable Annuity XC

Post by Stinky »

Aak732 wrote: Mon Mar 22, 2021 11:54 pm Both me and DW have the same type of VA with Brighthouse as wells - separate accounts with the purchase price of $20k each back in 2005 - in our Joint taxable brokerage account with ML.

As the surrender period is over, no charges are due to remove the money. If we decide to Close the account, we will have to pay taxes on the gains of $20k for each account (I believe taxed as ordinary income: 24% Fed and 6.37% NJ State).

I am 50, and DW is 47, so we have a ways to go before the annuitization option, however I want to get out of this VA as soon as possible via a 1035 exchange - due to the cumulative fee of 2.2% (Riders + the ER of the underlying mutual fund).

From my research, the cheapest and best option, in my opinion, is Fidelity. They do not have a surrender period, and the fee structure is simple: 0.25% admin fee + the ER of the underlying fund (no Guaranteed this and that Riders, etc). So if I was to put the money in the VIP Total Stock Market Index fund (er = 0.12%), my total expense will be: 0.25 + 0.12 = 0.37%. Vanguard now uses Transamerica to manage the VA accounts, and I did not want to add anymore complexity with this additional layer of relationships, so Fidelity it is.

Good luck with your decision.
Given your situation (taxable account, ages 50 and 47), I think that your decision makes a lot of sense. You would pay the 10% penalty tax if you were to surrender before age 59.5, and you are too young to annuitize, so keeping it in an annuity for now makes sense. And Fidelity offers the lowest-cost variable annuity out there.

A reasonable alternative annuity would be a multi-year guarantee annuity (MYGA). But you would only want to consider this route if you are considering this as part of your fixed income portfolio. If you are, then the MYGA might deliver higher net interest rates than the fixed income options available to you within the Fidelity annuity.
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AverageBear
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Re: Brighthouse Variable Annuity XC

Post by AverageBear »

After some more research the cash surrender value of these two annuities is around $595,000. The Income base figure that would be used now is a total of $716,000. In 7 years the income base benefit is guaranteed to increase to right around $1,050,000. Even with joint and survivor options that will spin off likely a low of $50,000 a year and a high of over $60,000 a year. I don't like the loss of principal and the loss of leaving these proceeds to our child but there will be significant other assets to share. Not related but we have planned and sacrificed to provide an Ivy league undergraduate education, Ivy league graduate education and top 14 law school education for our child. They will have no debt when they begin their career, As a full pay family that was not fun but it was the gift we wanted to give to our child.
I will follow through with evaluation by the firm that specializes in it. In hind sight I never would have bought these, Now we will see what our best course going forward is.
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Re: Brighthouse Variable Annuity XC

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AverageBear wrote: Tue Mar 23, 2021 7:15 am I will follow through with evaluation by the firm that specializes in it. In hind sight I never would have bought these, Now we will see what our best course going forward is.
Thank you for sharing your information.

If you feel comfortable, please post back with the results of the evaluation. It will be interesting to see how the “take income benefits from the VA” option compared to other possible paths.
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Rex66
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Re: Brighthouse Variable Annuity XC

Post by Rex66 »

Don’t pay too much attention to the value of the sub account

Pay attention to what you actually can withdraw each year with the rider. They could claim it’s worth a billion but the amount out per year is the factor.
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Re: Brighthouse Variable Annuity XC

Post by David Jay »

Rex66 wrote: Tue Mar 23, 2021 7:41 amPay attention to what you actually can withdraw each year with the rider. They could claim it’s worth a billion but the amount out per year is the factor.
+1
It's not an engineering problem - Hersh Shefrin | To get the "risk premium", you really do have to take the risk - nisiprius
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AverageBear
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Re: Brighthouse Variable Annuity XC

Post by AverageBear »

It is a 6% per year draw from the GMIB benefit in a lifetime annuity scenario, a lessor percentage if a joint and survivor structure. I had an initial consultation with Macro consulting group and I will be following up with them today to request they perform this service for me.
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Re: Brighthouse Variable Annuity XC

Post by nedsaid »

AverageBear wrote: Mon Mar 22, 2021 7:15 am My wife and I have had these variable annuities since 2007. I am now kicking myself for having purchased them. They are complex with a number off riders. I fear that the fees are so significant that they will never grow significantly as the investments would have to outperform the market handily. We are having the contracts reviewed by the service that I became aware of here ($289).
We may surrender them or 1035 them to a no load variable annuity. I will be speaking with Fidelity and Vanguard about them.

If anyone has any experience or insight with these please share,
Thank you
Just keep in mind that these earlier contracts had more generous income and sometimes principal guarantees than what are available today. You are wise to have the contracts reviewed. Pretty much what you did was to buy a pension years in advance, it is pretty likely that you would have done better to invest the money yourself and bought a Single Premium Immediate Annuity years later. It all depends on unknowable factors like investment returns, interest rates, longevity. Another big unknown is future inflation. Locking in future income at $50,000 plus a year looks impressive until you see the corrosive effects of inflation, who knows how much that will buy in the future.

Private sector pension plans are mostly gone now, that leaves a void that wants to be filled. I can see the appeal of such policies but as others have said, they are expensive. I looked at a similar Prudential product some years back and passed on it. I decided to take my chances in the investment markets and so far my choice has been vindicated.

Moshe Milevsky, an Academic expert on annuities has commented on the guarantees of these older annuities and has said that some of the older policies might be worth keeping. There were such annuities that had principal guarantees and step ups, savvy policyholders invested as aggressively as possible knowing that they couldn't lose. Insurance companies have since limited how aggressively you can invest the underlying portfolio, in Prudential's case, they had the right to switch you into conservative investments at the time of their choosing. Income guarantees were also scaled back.

You might be pleasantly surprised at the results of the analysis or find that you bought a real turkey. This are complex and hard to analyze products. Not only that but companies change their offerings all of the time and features vary from company to company. It is very hard to compare one product to another, you are comparing apples to oranges as each product is somewhat different. In other words, you can't just shop on price and features. Difficult comparisons are good for the industry.
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