I am 77 years old with a net worth of 3M. Part of my portfolio includes a variable annuity I bought in 2007 for $320,000. I started drawing from it in 2017 and receive $25,000 per annum. My financial advisor now wants me to surrender the annuity with a surrender value of $319,000 and transfer the proceeds to my IRA to be invested in mutual funds. His rationale is that I currently pay 3% in charges for the annuity whereas the mutual funds only cost me 1.19% annually. Is this wise? The funds in the annuity do not perform as well as those in the IRA but on the other hand, I am guaranteed $25,000 per year until death at which time, whatever remains goes to my wife as an insurance death benefit. Please let me know what you think.
Transferring annuity proceeds to IRA
- Thread starter aubrey
- Start date
- 2,792
Is your financial advisor a tax pro? Look into the tax situation before you decide.
- 4,961
No mutual fund IRA will guarantee 25k in annual checks. Actually, if you needed to get 25k a year from a mutual fund, you will likely need to sell shares or keep a lot in cash as they won't generate 8% or more in dividends that could be received.
Lastly, 1.19% for index or mutual funds seems pretty expensive. Average mutual fund expense ratio is below .50% & average index fund is around .10%.....this means the advisor is either proposing extremely expensive funds or isn't disclosing to you that the advisor charges are the majority of the 1.19%.
Put your entire portfolio out for bid to an advisor or 2 that others you know might currently use. Or, there are plenty of online brokers or hybrid robo advisors.
PS-- the insurance carrier will love it if you surrender your old variable annuity with lifetime income or guaranteed withdrawal benefit. Those don't look great on their balance sheets
Mutual Fund Expense Ratios Have Declined Substantially over the Past 27 Years
March 21, 2024—The latest research from the Investment Company Institute (ICI) shows that the average expense ratio for equity mutual funds declined for the fourteenth straight year in 2023, while the average expense ratio for bond mutual funds remained unchanged from its level in 2022.
www.ici.org
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- 11,496
Not applicable in an IRA Trustee to Trustee transfer.
- 11,496
Fees are only one aspect to the decision.
You understand it... probably better than your "advisor" does.
Yes, the annuity has higher fees, but it only affects the residual remaining balance to be inherited by your spouse. No mutual fund alone can guarantee that check for life.
Based on $319,000 value and a guaranteed $25,000 annual check (assuming no growth), that's a 12.76% distribution rate! You cannot get that anywhere right now!
If you were to get a NEW annuity (not recommended) at age 77, you might get about 6.2% guaranteed income? That's HALF of what you're getting now.
As long as that annuity is meeting your needs, I wouldn't move it... and I might seriously question the integrity of the advisor who is suggesting that you do.
If you haven't looked them up on brokercheck, you might want to in case there have been regulatory complaints.
BrokerCheck - Find a broker, investment or financial advisor
BrokerCheck is a trusted tool that shows you employment history, certifications, licenses, and any violations for brokers and investment advisors.
brokercheck.finra.org
- 4,961
As much as I agree with the entire premise of your post. My brain calculator has this as around 8% income rate, not 12.76%. Am I missing something or am I losing brain cells from listening to our Presidential candidates talk lately?
- 11,496
I did the calculation backwards. It's 7.84% distribution rate. (I was also rushing to get a podcast/webinar done, so I didn't pause to check my math.)
Sheryl J Moore
Expert
- 84
Are you risk averse? Do you feel comfortable with the prospect of potentially losing money in a mutual fund? I would also take this into consideration. sjm
