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I have $30K in a 403b at an old employer. Insurance salesman is suggesting rolling that into a variable annuity. Thanks?

Married, mid-40's, 403b is the same firm as current employers 403b (Fidelity), about $120K in current 403b, spouse has about $315K in his 403b, several life insurance policies for both spouses. Was planning on rolling old 403b into current 403b.

Sep 27, 2013 by J from Seaford, NY in  |  Flag
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2 votes

If I were you I would want to be certain I understood everything about the annuity. If it seems too complex it may not be right. Also, make sure you ask about the total fees before doing anything.

Get a list of: The M&E fees The Admin fees The Rider fess The Management fees (this may be an average of the funds used)

Some or all of these fees may apply and in many cases we have had clients bring in their Variable Annuities put in place by insurance salesman that had fees in the 3-4% range. I think most would agree with me in assuming that it will be much harder to have progress in the growth of your account or sustaining your investment to produce income if you endure such a high level of fees.

2 Comments   |  Flag   |  Sep 27, 2013 from St. Louis, MO
J

The 4% minimum guaranteed return is almost negated by the 3% in fees I'm thinking, plus the small print that fees can go up 1.5%

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Flag |  Sep 27, 2013 near Seaford, NY
Don Chamberlin III, CFP®, AWMA®

Your best be is to find a fee-only or at least fee-based planner. They should be able to help you make an informed decision that isn't purely based on selling you a product and is more aligned with what is in your best interest.

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Flag |  Sep 27, 2013 near St. Louis, MO

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Hi J! You realize that you just said that an insurance SALESMAN suggested an annuity. Please research your options with a financial planner before jumping into this product. Annuities are complex, can be expensive, and can tie up your money longer than you want. I'm not saying this is a bad idea. There are no bad products, just poor use of them sometimes. You will want to be sure of your retirement goals and how an annuity may or may not fit into your entire plan. If the only tool you have is a hammer, everything looks like a nail. Don't just take the word of a salesman.

Comment   |  Flag   |  Sep 27, 2013 from River Hills, SC

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All answers thus far provide sound advice. Without knowing your situation, the product being presented, your risk tolerance, and your existing plan it's really impossible to make a definitive judgement here. As others have suggested, find a local, reputable Certified Financial Planner to discuss this with. A second opinion when it comes to your health or wealth is usually the prudent route to take.

Best Regards, Rod

Comment   |  Flag   |  Sep 27, 2013 from Springfield, MO

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I agree with all the others that there would have to be a really good reason (for you, not the salesperson) to get into a Variable Annuity because of all those fees. Rolling that money into low-cost, no-load mutual funds will likely be a better solution for the long run.

Comment   |  Flag   |  Sep 27, 2013 from Harrisburg, PA

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Generally a variable annuity is really beneficial....to the salesman! He will get a great commission. For you, on the other hand, the benefits are not so great. There is generally no advantage to you since your 403B can be rolled into your own IRA with the same tax deferral. Further, since you have a long time horizon, any guarantee they offer is practically useless; if you were to invest in a properly diversified portfolio, outside of the costs, fees and limitations of an annuity, you are likely to amass far more over the years. I often refer to Variable annuities being like putting training wheels on a bicycle for people who can already ride a bike. It'll slow you down considerably and make it harder for you to get to your destination. By the way, You said you and your husband were in your mid 40's. Without knowing your complete situation and goals, I can't make a complete diagnosis, but my hat is off to you and your husband for how much you've saved so far. I would encourage you to take the advice of some other answers here, and seek out a qualified adviser such as a Certified Financial Planner (TM) for your journey. You would likely pay much less than any variable annuity and they would have a fiduciary responsibility to assist you to meet your goals.

Comment   |  Flag   |  Sep 27, 2013 from Malvern, PA

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Hi, First, It does'nt sound like you are convinced that the annuity is the way to go. So that said, do'nt make any rash decisions until you have done all your homework. I would take a step back and assess your current situation in life and do some financial planning for your future. An annuity may or may not play a role. Meet with a financial advisor and get a financial plan done. The results of that plan will provide a clear direction for you to take. Best of luck, Dan Chen

Comment   |  Flag   |  Sep 27, 2013 from Asbury Park, NJ

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The onl thing that I can add, is that I spend 5 years at Fidelity working in their 403b group and Un like 401k plans, 403b plans on fidelity platform has access to all fidelity funds. That includes index funds, all of them, and Fidelity has one of the cheapest index funds in the industry. I wold consolidate them in to you existing plan, then hire a fee based lander to help you with planning and monitoring of your accounts. I Please let me know if you have any questions Sincerely Michael

Comment   |  Flag   |  Sep 28, 2013 from Farmington, CT

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J, there are basically 2 types of annuities; variable annuities that charge a fee, typically a high fee, or fixed, or index annuities that have caps on gains. Both are generally not very liquid. The question you need to ask without any pitch from a salesman of any sort is why would you want an annuity at age 40+. Some of the fixed type annuities have an exit strategy that will make you want to cry, but you may not know about it for 10 years or more.

I see 2 scenarios, in general, where an annuity is beneficial. One is if you need creditor protection, and the other is if you need a guaranteed source of income.

Because your assets are already in a 403(b), you already have creditor protection.

An annuity can provide a guaranteed income stream. Because we are in a historically low interest rate environment, I don’t think you’ll get a guaranteed income of more than 4%. 4% of $30,000 today is $100/month. So even with growth and guaranteed step-ups, will you see $300/month, $400/month? In 20 or 25 years, will this impact your lifestyle in any way?

My personal opinion is that for someone to tie up any amount of money for 20+ years for the promise of a historically low interest rate is just plain bat crazy. Your thought about rolling your old 403(b) into your current one is a much better way to go; easier monitoring. Fidelity has decent investment choices, low fees, but possibly, not always best investment advice. Otherwise, I would suggest you seek financial advice from a qualified financial professional in your area, preferably a CFP®. Seek referrals from trusted friends, relatives, neighbors, colleagues. I would advise you to avoid anyone who has the term ‘salesman’ in their job description. Save that for buying a car or appliances.

Comment   |  Flag   |  Sep 30, 2013 from Delray Beach, FL

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