Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

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Sam Clemens
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Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by Sam Clemens »

Hello- I’ve been reading this board for a while and finally decided to register to join the discussion and ask for input.

I’m in a situation where I have too much in cash in my non-retirement (taxable) investments. This is due to selling off a large amount of my employer’s stock over the past several years (I had been too concentrated in that one stock, which did quite well over time). I’ve been hesitant to put much more into equities since the market has been so high. But of course it has just continued to go up in the meantime…

I’m 54, married and have no debt (mortgage is paid off, no other loans).

Non-retirement investments- $2.4 M (mostly Vanguard index funds). Allocation:
Large Cap- 21%
Small/Mid Cap-10%
International- 9%
Bonds-12%
Cash- 44%
Alternatives/other- 4%

Retirement investments- $1.92 M (mostly in a 401k with some in IRAs). Allocation:
Large Cap- 35%
Small/Mid Cap-20%
International- 14%
Guaranteed (stable value fixed fund, currently 2.75% yield) - 23%
Bonds-5%
Alternatives/other- 2%

I’m concerned about moving the cash into equities now at what feels like it could be close to the high point for the next 5 years and I’ve identified no other good options for my cash.

I came across this Prudential FlexGuard Indexed Variable Annuity product (bracing for backlash from this board...). I have never been a fan of annuities and don’t own any currently. But there seems to be something interesting here for my situation with upside potential with downside limits. A college friend is a fee-only financial advisor and I asked his opinion about this product as an option for my cash. His response is below. I’m interested in what this group thinks. Or if there are any other better recommendations for all this cash. Thanks.
----------

“I am not an advocate of annuities due to the high fees. But it seems this Pru product offers an interesting combination of market upside with some downside protection, and the cost/tradeoffs are not unreasonable for what you are getting. I researched this product and here’s what I found.

The changes in your account value are entirely due to the price appreciation of the underlying index (like SP500), subject to buffers (on the downside) and caps (on the upside). Dividends are not included in the returns, which lessens the upside. The changes in the index can be measured over different time periods – 1,3 or 6 years. For example, for the Russell 2000 with a 1 year period, the buffer is 10% with an 18.5% cap. For the SP500 index with a 3 year period, the buffer is 10% and there is no cap.

With a 10% buffer you are protected from the first 10% of losses and then you are on the hook for any losses beyond the first 10%. So if the index goes down by 15%, you’d lose 5%.

You lock in the index price at the beginning of your contract and your return is based on how much that index price changes over the period. Prudential can change some of the terms after the initial period (1 or 3 years). The buffer is locked so it’s really the cap rate that can change in future periods. I don’t know how likely that is.

I couldn’t find any underlying or hidden fees IF you stay with an index. There is an option to choose mutual funds for your investments rather than one of the indices. In the case of mutual funds, there will be some investment management fees that are netted against your returns. So if you do go with this, I’d stick with the indices.

One other thing to consider is that gains on annuities are taxed as income and not capital gains, but only as the money is taken out which most likely will be when you’re in a lower tax bracket in retirement. I also have concerns that capital gains rates will go up.. Lastly, this product has a 6-year surrender period, so your money is tied up for that time.

Unless I’m missing something, this actually could be a viable option for some of your cash since I know your concerns about putting money into equities while the market is so high. I would feel differently if you were 40 or didn’t already have a good balanced portfolio. You do have opportunity cost and inflation risk concerns with so much currently in cash, which is basically returning zero.”
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Stinky
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by Stinky »

The Prudential FlexGuard annuity has been extensively discussed, and pretty well debunked (in my view), in a current thread. See this link and read through the comments, please. viewtopic.php?f=1&t=328364

From your post, "I’m concerned about moving the cash into equities now at what feels like it could be close to the high point for the next 5 years and I’ve identified no other good options for my cash."

Another option for you would be to consider a multi-year guaranteed annuity. It would give you good "fixed income" rates for a pre-determined term, similar in some ways to a CD. There is also a current thread on that: viewtopic.php?f=1&t=334589

Please realize that if you buy an annuity in a taxable account, there is a 10% additional tax penalty for withdrawals prior to age 59.5. At your age 54, this could be a consideration for you.
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Wiggums
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by Wiggums »

I agree with Stinky’s response.
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Cyclesafe
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by Cyclesafe »

No, no, no.

Please don't make the mistake I did in 1997 when I dumped $1M into an investment variable annuity. It locked up what's now half of my net worth, now accessible only at a combined marginal tax rate of 32+3.8*+9.3**=45.1%. This is after age 59 1/2, after the surrender penalty period, after I retired, and before social security. I've ameliorated my blunder by always having invested heavily in equity subaccounts, lowering fees by 1035'ing to Vanguard (now Transamerica), by intending to fully annuitize at age 72 with a contract that guarantees a fixed return well above current market SPIA offers, and upon annuitization, reducing my optional realized income to stay below a marginal tax rate of 35***+3.8+9.3=48.1%

After TCJA expiration in 2026, MFJ AGI over $532k*** attracts 20+3.8+9.3=33.1% for taxable account LTCG and QDI. This is still a 15% advantage over partial surrenders of an investment variable annuity prior to breach of basis or the tax on the gain portion of a payment from an annuitization. While we mustn't speculate on future changes to the tax code, there's no scenario where there is a financial advantage to invest in these products. And if the investment variable annuity is passed on, under current law the funds are not stepped up as they would be if they were instead from the beginning held in a taxable account.

But there may be a longevity insurance or even a speculative reason. In our case, my wife's and my parents and grandparents lived to their mid-90's and even low 100's, and as we are exceptionally fit, there is no current reason, barring being hit my a bus, that the second of us won't live past age 92 when our annuity payment will be 100% house money. This provides no small additional incentive to continue to live a healthy and safe lifestyle, but it also precludes bestowing a legacy of the results of a stepped-up 1997 investment of $1M in an equity rich taxable account.

Investment variable annuities have prospectuses that are roughly 100 pages in length. Each is different and therefore each has different moving parts that (importantly) interact with the "investor's" specific financial situation. The only folks who fully understand these contracts are the teams of insurance company actuaries, accountants, and tax attorneys who write the contracts and prospectuses. And their understanding is strictly from the company's perspective. Marketing these products is the job of their salespeople, who generally don't exactly lie, but they present the product in such a manner that the "investor" hears only what he or she is meant (or wants) to hear.

Furthermore, assuming even that these insurance companies can invest more efficiently than you, they also build in a comfortable buffer for them that ensures their profitability no matter what reasonably might happen.

It took me hundreds of hours to game many of my options with my specific investment variable annuity contract and my personal situation. And I'm only tentatively understanding, as so much depends upon what will happen out of my control in the future. But I'm rationalizing, I'm throwing it against the wall to see if it sticks, I'm putting lipstick on a pig. My regret continues to be that I invested in something I didn't understand. Full stop.

* NIIT
** Cali
*** From 2026, assuming bracket / exemption creep from 2017 of actual C-CPI-U increases, then from 2020 projected inflation of 2.5%x.75=1.875%
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zlandar
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by zlandar »

Why do people keep looking for a magical product that produces a stock-like return with the risk of bonds? Here is a quote from a financial presentation I was pitched:

"Our investment process is strategic, yet tactical with a focus on downside risk and a goal of helping clients grow but protect their assets based on their specific & unique circumstances"

The financial hucksters know what you are thinking and prey on your fears.
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David Jay
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by David Jay »

Your buddy is trying to be polite but read carefully:
…the cost/tradeoffs are not unreasonable
Seriously faint praise. He wouldn’t use this double negative language if he liked the product.
…Dividends are not included in the returns, which lessens the upside…
There goes perhaps 1.8% annually.
…you are on the hook for any losses beyond the first 10% …
Listen closely: “on the hook” is not the language of someone who endorses this product
… Prudential can change some of the terms after the initial period (1 or 3 years). The buffer is locked so it’s really the cap rate that can change in future periods. I don’t know how likely that is…
Buyer beware. You are locked into the terms, seller is not.

Your friend doesn’t want to offend you, but he hates this product. He thinks you need real market exposure, but he doesn’t think you can overcome your fears.
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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Stinky
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by Stinky »

Here’s the first sentence in your financial advisor’s message to you.
Sam Clemens wrote: Fri Jun 18, 2021 10:29 pm “I am not an advocate of annuities due to the high fees.”
He then went on for seven full paragraphs telling you about all the wonderful features of this annuity.

This first sentence of his message was, at best, a huge misrepresentation, and, at its worst, an outright lie.

With a first sentence like this, how can you trust what this advisor says about this, or any other, product?
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
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retired@50
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by retired@50 »

I don't really understand the drastic change in risk profile for the OP?

He was willing to invest in "company stock" which is highly risky, but now is afraid of even the drastically reduced risk of a stock index fund?

I'd skip the annuity product for all the reasons pointed out by Stinky above, and in the prior thread he linked to.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Nate79
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by Nate79 »

If you are afraid of stocks then you don't understand this stinker of a product.

With friends like this who needs enemies.
Rex66
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by Rex66 »

Horrible idea

OP if you have specific questions then post them but expect to have a typical insurance investment product .

Newer products are almost Always worse at the moment bc interest rates have stayed low. They use interest sensitive investments to meet the guarantees.
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MJS
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by MJS »

Interest rates strongly influence the return of annuities.
Interest rates are very low right now.
At least, wait until interest rates have been raised 3 or 4 times before buying any annuity.
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Rex66
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by Rex66 »

The variable parts that aren’t involved in the insurance company’s general account aren’t but yes pretty much every other component is.
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by bberris »

zlandar wrote: Sat Jun 19, 2021 8:36 am Why do people keep looking for a magical product that produces a stock-like return with the risk of bonds? Here is a quote from a financial presentation I was pitched:

"Our investment process is strategic, yet tactical with a focus on downside risk and a goal of helping clients grow but protect their assets based on their specific & unique circumstances"

The financial hucksters know what you are thinking and prey on your fears.
Not only are they searching, a lot of people think they have found the holy grail. Dividends produce magic income, collared option ETFs produce stock market returns with bond market risk (at only a 0.7 % expense ratio) ...
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AllMostThere
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by AllMostThere »

The only person who makes any money with this "investment product" is the Salesman who sells this garbage to you. :greedy Anything that is Sold is NOT an investment. Ask in writing for the Salesman commission in $dollars$ and the annual fees in $dollars$. You will get lots of words in response with nothing that will disclose to you the TRUE cost of this product. Stay away from this Huckster and don't fund any more BMW's and Boats for the Salesman driveway. BH approach via this forum is best approach you will ever find!
It is not about how much you make; it is about how much you keep and how well you invest it. - Author Unknown | Dream as if you’ll live forever. Live as if you’ll die today. - Author James Dean
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by HomerJ »

10% buffer isn't much protection.

If the market crashes 50%, you still are down 40%. Which isn't that much different from being down 50% with Total Stock Market Index Fund in your taxable account.

And not getting dividends over the next 6 years basically equals the 10% protection they are giving you.

And then it's treated as income instead of capital gains when you cash out.

If this is long-term money, I'd just put in Total Stock Market Index Fund. Half of my taxable account is TSM. The other half is cash (because I'm close to retirement). It's very tax-efficient.
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Sam Clemens
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by Sam Clemens »

Thanks for the replies. Very helpful. This confirms my initial instinct about these products. I’ll keep looking for other places for my excess cash, and probably will just have to get over the mental hurdle of moving a lot into equities during an all-time high. I’m sure I’ll have other questions for this board.

Cyclesafe- Sorry to hear about your experience but thanks for sharing it with others.

Stinky- Thanks for the suggestion to check out multi-year guaranteed annuities. I am not familiar with those.
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Sam Clemens
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by Sam Clemens »

David Jay wrote: Sat Jun 19, 2021 8:42 am Your buddy is trying to be polite but read carefully:
…the cost/tradeoffs are not unreasonable
Seriously faint praise. He wouldn’t use this double negative language if he liked the product.
…Dividends are not included in the returns, which lessens the upside…
There goes perhaps 1.8% annually.
…you are on the hook for any losses beyond the first 10% …
Listen closely: “on the hook” is not the language of someone who endorses this product
… Prudential can change some of the terms after the initial period (1 or 3 years). The buffer is locked so it’s really the cap rate that can change in future periods. I don’t know how likely that is…
Buyer beware. You are locked into the terms, seller is not.

Your friend doesn’t want to offend you, but he hates this product. He thinks you need real market exposure, but he doesn’t think you can overcome your fears.
David Jay- You raise some very good points. I think you may be spot on when you look at his comments that way.
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Sam Clemens
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by Sam Clemens »

Stinky wrote: Sat Jun 19, 2021 8:50 am Here’s the first sentence in your financial advisor’s message to you.
Sam Clemens wrote: Fri Jun 18, 2021 10:29 pm “I am not an advocate of annuities due to the high fees.”
He then went on for seven full paragraphs telling you about all the wonderful features of this annuity.

This first sentence of his message was, at best, a huge misrepresentation, and, at its worst, an outright lie.

With a first sentence like this, how can you trust what this advisor says about this, or any other, product?
Stinky- To clarify this isn't my financial advisor. This is a college friend who works as a fee-only advisor. I think David Jay may be onto something and this is not multiple paragraphs only about the wonderful features of the product but rather some politely worded warnings about the downsides.
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Stinky
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by Stinky »

Sam Clemens wrote: Sun Jun 20, 2021 12:19 pm Stinky- Thanks for the suggestion to check out multi-year guaranteed annuities. I am not familiar with those.
Beyond the thread I linked above, I suggest you go to the Blueprint Income website for both educational information and product quotes.
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Sam Clemens
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by Sam Clemens »

retired@50 wrote: Sat Jun 19, 2021 8:54 am I don't really understand the drastic change in risk profile for the OP?

He was willing to invest in "company stock" which is highly risky, but now is afraid of even the drastically reduced risk of a stock index fund?

I'd skip the annuity product for all the reasons pointed out by Stinky above, and in the prior thread he linked to.

Regards,
It's not a drastic change in risk profile. The reason I ended up with so much in my company's stock is I receive shares/options as part of a management incentive program - and the stock value has really exploded the last 5 years. I've been selling most of it off over the past few years to rebalance my portfolio. That's how I ended up with so much sitting in cash. In hindsight I'm obviously wishing I would have put it directly into my stock index funds as I sold it.
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retired@50
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by retired@50 »

Sam Clemens wrote: Sun Jun 20, 2021 12:33 pm
retired@50 wrote: Sat Jun 19, 2021 8:54 am I don't really understand the drastic change in risk profile for the OP?

He was willing to invest in "company stock" which is highly risky, but now is afraid of even the drastically reduced risk of a stock index fund?

I'd skip the annuity product for all the reasons pointed out by Stinky above, and in the prior thread he linked to.

Regards,
It's not a drastic change in risk profile. The reason I ended up with so much in my company's stock is I receive shares/options as part of a management incentive program - and the stock value has really exploded the last 5 years. I've been selling most of it off over the past few years to rebalance my portfolio. That's how I ended up with so much sitting in cash. In hindsight I'm obviously wishing I would have put it directly into my stock index funds as I sold it.
I guess it depends on what you mean by the word "drastic"?
To me, going from company stock to cash is a drastic change.

At this point, going from cash, back to a stock index fund would be an increase in risk, but still much less risky than owning company stock, and probably better in the long run than owning the Prudential "product" being discussed.

If a stock index fund alone, is too much risk to consider at this point, then perhaps a mix of stock index and bond index. All of which are less risky than company stock.

Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
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Sam Clemens
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by Sam Clemens »

I agree going from a single company stock to cash is a drastic change. Having a lot of money in company stock (or cash) was not my goal, I just benefitted from a big runup in the stock price. I missed the boat the last couple years by letting it sit in cash after I sold it. I think I was stuck in a state of inaction because the stock market seemed ready for a significant correction recently. (yes, I know another reminder about the folly of trying to predict what the market will do...)

I am thinking I will start to move the cash into my stock and bond funds.
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by unclescrooge »

Sam Clemens wrote: Fri Jun 18, 2021 10:29 pm Hello- I’ve been reading this board for a while and finally decided to register to join the discussion and ask for input.

I’m in a situation where I have too much in cash in my non-retirement (taxable) investments. This is due to selling off a large amount of my employer’s stock over the past several years (I had been too concentrated in that one stock, which did quite well over time). I’ve been hesitant to put much more into equities since the market has been so high. But of course it has just continued to go up in the meantime…

I’m 54, married and have no debt (mortgage is paid off, no other loans).

Non-retirement investments- $2.4 M (mostly Vanguard index funds). Allocation:
Large Cap- 21%
Small/Mid Cap-10%
International- 9%
Bonds-12%
Cash- 44%
Alternatives/other- 4%

Retirement investments- $1.92 M (mostly in a 401k with some in IRAs). Allocation:
Large Cap- 35%
Small/Mid Cap-20%
International- 14%
Guaranteed (stable value fixed fund, currently 2.75% yield) - 23%
Bonds-5%
Alternatives/other- 2%

I’m concerned about moving the cash into equities now at what feels like it could be close to the high point for the next 5 years and I’ve identified no other good options for my cash.

I came across this Prudential FlexGuard Indexed Variable Annuity product (bracing for backlash from this board...). I have never been a fan of annuities and don’t own any currently. But there seems to be something interesting here for my situation with upside potential with downside limits. A college friend is a fee-only financial advisor and I asked his opinion about this product as an option for my cash. His response is below. I’m interested in what this group thinks. Or if there are any other better recommendations for all this cash. Thanks.
----------

“I am not an advocate of annuities due to the high fees. But it seems this Pru product offers an interesting combination of market upside with some downside protection, and the cost/tradeoffs are not unreasonable for what you are getting. I researched this product and here’s what I found.

The changes in your account value are entirely due to the price appreciation of the underlying index (like SP500), subject to buffers (on the downside) and caps (on the upside). Dividends are not included in the returns, which lessens the upside. The changes in the index can be measured over different time periods – 1,3 or 6 years. For example, for the Russell 2000 with a 1 year period, the buffer is 10% with an 18.5% cap. For the SP500 index with a 3 year period, the buffer is 10% and there is no cap.

With a 10% buffer you are protected from the first 10% of losses and then you are on the hook for any losses beyond the first 10%. So if the index goes down by 15%, you’d lose 5%.

You lock in the index price at the beginning of your contract and your return is based on how much that index price changes over the period. Prudential can change some of the terms after the initial period (1 or 3 years). The buffer is locked so it’s really the cap rate that can change in future periods. I don’t know how likely that is.

I couldn’t find any underlying or hidden fees IF you stay with an index. There is an option to choose mutual funds for your investments rather than one of the indices. In the case of mutual funds, there will be some investment management fees that are netted against your returns. So if you do go with this, I’d stick with the indices.

One other thing to consider is that gains on annuities are taxed as income and not capital gains, but only as the money is taken out which most likely will be when you’re in a lower tax bracket in retirement. I also have concerns that capital gains rates will go up.. Lastly, this product has a 6-year surrender period, so your money is tied up for that time.

Unless I’m missing something, this actually could be a viable option for some of your cash since I know your concerns about putting money into equities while the market is so high. I would feel differently if you were 40 or didn’t already have a good balanced portfolio. You do have opportunity cost and inflation risk concerns with so much currently in cash, which is basically returning zero.”
There are buffered ETFs that offer the essentially the same downside protection and upside exposure, except they are more liquid, likely have lower fees, and the taxation is more favorable.

Not that I recommend these ETFs either. I think the caps will result in your getting bond like returns with equity-like exposure.
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by Dale_G »

A much better solution as far as I am concerned:

You have about 1.3 million in equities in your 401k/IRAs - and something like 1 million in cash in your taxable account. In your 401k/IRA exchange about a million in equities for that nice 2.75% stable value fund (or some into a bond fund) and then use the cash in taxable to buy equities in the taxable account.

This keeps your equity allocation the same if that is what you want, and you will likely be much better off taxwise in the future.

No hassle, no added fees. Keeps it simple.

Dale
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by David Jay »

Sam Clemens wrote: Sun Jun 20, 2021 12:58 pm I agree going from a single company stock to cash is a drastic change. Having a lot of money in company stock (or cash) was not my goal, I just benefitted from a big runup in the stock price. I missed the boat the last couple years by letting it sit in cash after I sold it. I think I was stuck in a state of inaction because the stock market seemed ready for a significant correction recently. (yes, I know another reminder about the folly of trying to predict what the market will do...)

I am thinking I will start to move the cash into my stock and bond funds.
I strongly recommend a written plan and schedule. A certain amount each month. Otherwise you could be right where you are now in a couple of years.

How do I know? Because I have been planning the imminent launch of a “Procrastinator’s Anonymous” support group for a couple of decades.
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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Sam Clemens
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by Sam Clemens »

David Jay- Agree. I've set up automatic investments into my stock index funds. And let me know when your support group is up and running. :D
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David Jay
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by David Jay »

Sam Clemens wrote: Thu Jun 24, 2021 9:59 pm David Jay- Agree. I've set up automatic investments into my stock index funds. And let me know when your support group is up and running. :D
If I was you, I wouldn't be holding my breath... :wink:
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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Sam Clemens
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by Sam Clemens »

Dale_G wrote: Sun Jun 20, 2021 3:33 pm A much better solution as far as I am concerned:

You have about 1.3 million in equities in your 401k/IRAs - and something like 1 million in cash in your taxable account. In your 401k/IRA exchange about a million in equities for that nice 2.75% stable value fund (or some into a bond fund) and then use the cash in taxable to buy equities in the taxable account.

This keeps your equity allocation the same if that is what you want, and you will likely be much better off taxwise in the future.

No hassle, no added fees. Keeps it simple.

Dale
Dale- That is an interesting option, thanks. But I don't want to keep the allocation the same. I want to increase the % in equities.
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by esnellman »

The buffered ETFs are appealing in terms of tax treatment, liquidity, maintaince. They auto-rebuffer after a time period. Depending on your broker you can take out a cash margin loan against them too - so optionality. However they do have an expense ratio - possibly lower than an annunity. To avoid the expense ratio anyone with a large position can build it themselves via buying/selling cash settled SPX options or SPY options. Downside is each time these expire outside the etf wrapper it would be taxable. For SPX, 60 long and 40 short cap gain while SPY depends on the duration of holding time. You can decide the trade off or upside verse downside. Some protect as much as 30% downside but 6 pct up.. Exact up and down amounts depend on option pricing when these rebalance and the risk you want. https://www.innovatoretfs.com/define/et ... ter=buffer
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by Dale_G »

Sam Clemens wrote: Fri Jul 02, 2021 8:41 pm
Dale_G wrote: Sun Jun 20, 2021 3:33 pm A much better solution as far as I am concerned:

You have about 1.3 million in equities in your 401k/IRAs - and something like 1 million in cash in your taxable account. In your 401k/IRA exchange about a million in equities for that nice 2.75% stable value fund (or some into a bond fund) and then use the cash in taxable to buy equities in the taxable account.

This keeps your equity allocation the same if that is what you want, and you will likely be much better off taxwise in the future.

No hassle, no added fees. Keeps it simple.

Dale
Dale- That is an interesting option, thanks. But I don't want to keep the allocation the same. I want to increase the % in equities.
Fine. Invest most of your cash in taxable in equities and exchange whatever amount of equities in the 401k/IRAs to bonds or stable value fund to reach your desired allocation. Easy, you just have to do it!

Dale
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by mortfree »

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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by Actin »

Variable annuities are complete scams. Anyone saying otherwise is either a shill or doesn't know how to do basic math.
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by Dale_G »

Actin wrote: Sat Jul 03, 2021 6:24 pm Variable annuities are complete scams. Anyone saying otherwise is either a shill or doesn't know how to do basic math.
Low cost VAs served a legitimate purpose in earlier days with much higher tax rates and much lower (or non-existent) opportunities for tax deferred savings.

Today, not so much, but we will see what the future brings.

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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by Stinky »

Dale_G wrote: Sat Jul 03, 2021 6:48 pm
Actin wrote: Sat Jul 03, 2021 6:24 pm Variable annuities are complete scams. Anyone saying otherwise is either a shill or doesn't know how to do basic math.
Low cost VAs served a legitimate purpose in earlier days with much higher tax rates and much lower (or non-existent) opportunities for tax deferred savings.

Today, not so much, but we will see what the future brings.

Dale
One of the many problems with VAs today is that the vast majority of products are not “low cost”. Rather, they are high-complexity, high-fee products that pay large commissions to the advisors who sell them.

Such products generally deliver low value to the consumer.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by galawdawg »

Sam Clemens wrote: Sun Jun 20, 2021 12:19 pm I’ll keep looking for other places for my excess cash, and probably will just have to get over the mental hurdle of moving a lot into equities during an all-time high.
The reluctance to invest "during an all-time high" is market-timing. You are predicting that equities will drop in the future so don't want to purchase now. What do you know that everyone else doesn't? Perhaps your crystal ball is of a higher-quality than the official Bogleheads® crystal ball... :wink:

The market was also at an all-time high five (5) years ago in July 2016. How would a reluctant investor have fared had that investor chosen not to invest in VTSAX because it was "during an all-time high?" They would have missed out on cumulative returns of nearly 128% in the succeeding five (5) year period. That's all.

I'd recommend you simply invest your extra cash in accordance with your IPS and the asset allocation that you have already determined to be appropriate for your risk tolerance and investing goals. Don't have an IPS or desired asset allocation yet? Those would be good places to start!

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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by Dale_G »

Stinky wrote: Sat Jul 03, 2021 7:14 pm
Dale_G wrote: Sat Jul 03, 2021 6:48 pm
Actin wrote: Sat Jul 03, 2021 6:24 pm Variable annuities are complete scams. Anyone saying otherwise is either a shill or doesn't know how to do basic math.
Low cost VAs served a legitimate purpose in earlier days with much higher tax rates and much lower (or non-existent) opportunities for tax deferred savings.

Today, not so much, but we will see what the future brings.

Dale
One of the many problems with VAs today is that the vast majority of products are not “low cost”. Rather, they are high-complexity, high-fee products that pay large commissions to the advisors who sell them.

Such products generally deliver low value to the consumer.
Stinky, I specifically wrote, "low cost VAs", thereby excluding the "vast majority". I agree that the "vast majority" deliver low value, but that does not make Actin's statement that, "Variable annuities are complete scams" accurate.

Dale
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Re: Too much cash- Prudential FlexGuard Indexed Variable Annuity as an option?

Post by Hebell »

OP - to learn more about multi-year guaranteed annuities make sure and use the abbreviation MYGA when doing your search. There are plenty of good posts, but we very seldom spell it out! I'm a big fan of them, and have been moving cash into them during the last couple years of my husband's employment. He retires at 65 and I recently retired. We ladder these, with tips , EEs and i-bonds bought not only in our individual names, but in our LLC and an irrv trust as well. Like you, this market concerns me greatly, and I'll put more back into equities after a pullback. I hope I don't get pushed off the form for saying such heresy.
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