Worrisome changes since buying an annuity...

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills.
Post Reply
Topic Author
MBL
Posts: 24
Joined: Tue Sep 18, 2018 3:49 pm

Worrisome changes since buying an annuity...

Post by MBL »

My husband (at age 60) used some funds from a deferred retirement account to buy a single premium fixed index annuity 5 years ago with the intent of turning on the joint income at his age 70 (me at 68), generating about $700/mo in income. Since then, (1) the person who sold the annuity to us is no longer with that bank, (2) the insurance company no longer sells that particular annuity product, (3) the insurance company was bought out earlier this year by KKR, and (4) a KKR CEO succession was just announced last week. All of this change is making me very nervous about the track record of the new company (whether we can expect the annuity to pay joint income as set forth in the contract), or whether we should just take the cash value at the end of the surrender period (2 more years) and roll it into an IRA, with the intent to convert to his Roth IRA. With the RMD age now changed to 72, he has a couple of extra years in the window of opportunity. He is on Medicare, and I will be too, at the time the surrender period ends. So we want to make sure we don't trigger IRMAA during Roth conversions. His pension is for single life, so it goes away at his death. That was the primary reason for buying the joint income annuity. However, it looks like I may wait until 70 to file SS and that income, coupled with my own 403(B) income and our Roth accounts should be enough for me. Question: Do we need to be worried about the whether the annuity is still viable given all that change, or is that a good reason to dump the annuity and roll into an IRA?
FoolMeOnce
Posts: 1392
Joined: Mon Apr 24, 2017 11:16 am

Re: Worrisome changes since buying an annuity...

Post by FoolMeOnce »

The plan was to hold this for maybe three or more decades. Would you think there would be no changes like this in 30+ years?
User avatar
Watty
Posts: 28813
Joined: Wed Oct 10, 2007 3:55 pm

Re: Worrisome changes since buying an annuity...

Post by Watty »

MBL wrote: Sat Oct 23, 2021 9:12 am My husband (at age 60) used some funds from a deferred retirement account to buy a single premium fixed index annuity 5 years ago.....
With all the options that you mentioned it does not sound like a SPIA. A SPIA is like buying a pension with a set payment once you buy it and they can be a reasonable choice as part of a retirement plan in some situations.

The problems is that there are lots of other things that they sell that are called "annuities" and they often pay the salesperson a high commission and have high ongoing fees. You local bank will sell these types of non-SPIA annuities.

I don't know a lot about these but if you look at the paperwork and post more details then someone who know more about these might be able to give you some insight about what you should do.
User avatar
Stinky
Posts: 14088
Joined: Mon Jun 12, 2017 11:38 am
Location: Sweet Home Alabama

Re: Worrisome changes since buying an annuity...

Post by Stinky »

MBL wrote: Sat Oct 23, 2021 9:12 am My husband (at age 60) used some funds from a deferred retirement account to buy a single premium fixed index annuity 5 years ago with the intent of turning on the joint income at his age 70 (me at 68), generating about $700/mo in income. Since then, (1) the person who sold the annuity to us is no longer with that bank, (2) the insurance company no longer sells that particular annuity product, (3) the insurance company was bought out earlier this year by KKR, and (4) a KKR CEO succession was just announced last week. All of this change is making me very nervous about the track record of the new company (whether we can expect the annuity to pay joint income as set forth in the contract), or whether we should just take the cash value at the end of the surrender period (2 more years) and roll it into an IRA, with the intent to convert to his Roth IRA.

…….

Question: Do we need to be worried about the whether the annuity is still viable given all that change, or is that a good reason to dump the annuity and roll into an IRA?
I understand why you’d be concerned about all of the changes.

First of all, it’s common for agents to leave companies, and for companies to discontinue old products and introduce “new and improved” products. So those two changes don’t concern me.

The KKR situation also doesn’t concern me. Life insurance companies are tightly regulated by state insurance officials, and I’m sure that KKR has a plan of operation for the company that will keep it well capitalized for the foreseeable future. And the KKR CEO succession is really remote from your insurance company. I’m not concerned about either one.

I’d focus more on what your plans are for the annuity. It’s unfortunate that your husband purchased a fixed indexed annuity policy a few years back, but that’s water under the bridge. Bogleheads in general aren’t fans of indexed annuities, and I’m in that camp.

With two years to go in the surrender charge period, I think it’s prudent to plan to surrender the policy when the surrender charge expires, roll it into his IRA, and go from there. You’ll capture the additional “value” of the roll off of the surrender charge, but won’t stay any longer than necessary to capture that value.

I also wouldn’t fault you if you chose to surrender it now and roll into the IRA. But I wouldn’t make that decision based solely on the four “changes” that you cited.
Last edited by Stinky on Sat Oct 23, 2021 10:59 pm, edited 1 time in total.
Retired life insurance company financial executive who sincerely believes that ”It’s a GREAT day to be alive!”
venkman
Posts: 1338
Joined: Tue Mar 14, 2017 10:33 pm

Re: Worrisome changes since buying an annuity...

Post by venkman »

MBL wrote: Sat Oct 23, 2021 9:12 amQuestion: Do we need to be worried about the whether the annuity is still viable given all that change, or is that a good reason to dump the annuity and roll into an IRA?
Annuities are binding contracts between you and the insurance company. If the insurance company gets bought out, the new company inherits the terms of the contract and has to honor them.

If the insurance company itself goes under, the state guaranty association will step in and back up the full accumulated value of the annuity (up to certain limits, which vary by state). KKR has an "A" rating, which is not in the top tier, but is still solid. Whether or not the annuity is still the best place for your money is a separate issue, but I would not be worried about the contractual guarantees remaining intact.
Grt2bOutdoors
Posts: 25617
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Worrisome changes since buying an annuity...

Post by Grt2bOutdoors »

The insurance company being bought out is a non-issue. Insurance companies are regulated by state insurance regulators and those insurance companies are required to meet statutory required capital levels. KKR is a top private equity company with a strong track record. The CEO succession plan is inevitable. Do you have any money in the equities markets, either directly or indirectly holding index funds or actively managed mutual funds? Are you concerned that each of the underlying investments have Boards of Directors, CEO’s, Presidents, management and ordinary workers retiring as time passes by? No, probably not because néw workers will come on board to replace them. And so, a new experienced senior executive will now be promoted into the CEO role. Nothing new.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions
ivgrivchuck
Posts: 1670
Joined: Sun Sep 27, 2020 6:20 pm

Re: Worrisome changes since buying an annuity...

Post by ivgrivchuck »

MBL wrote: Sat Oct 23, 2021 9:12 am Question: Do we need to be worried about the whether the annuity is still viable given all that change, or is that a good reason to dump the annuity and roll into an IRA?
I second what others have said:
(1) There is no reason for concern based on the changes you listed
(2) Index annuities in general are considered pretty bad products by most Bogleheads and should usually be avoided.
(3) The two annuity products that many here consider to be okay are: SPIA, MYGA.
25% VTI | 25% VXUS | 12.5% AVUV | 10% AVDV | 2.5% VWO | 25% BND/SCHR/SCHP
Post Reply