- Thread starter
- #11
- 406
I'm in Florida
38 yr Old Wants Fixed Indexed Annuity
- Thread starter SecureHealth1
- Start date
I'm in Florida
- 10,702
Be very careful with this setup. Be sure the TPA you are using is very experienced and not one of the "bargain basement" online only shops that pitch "cheap" SoloK Plans. Since your funds are being held with EJ.... I have a feeling you are using one of those...
You also need to make sure there are certain Plan Provisions in place in order to Transfer the Annuity out of the Plan and into an IRA (which eventually you will want to do once retired). You also have to do it in a certain way, or it creates a taxable event.
I sell both annuities, and 401k Plans. But I do not recommend combining the two.
If you are afraid of market risk, then consider Bond Funds. Many 401k Platforms offer a "Stable Value Account" that give a fixed interest rate (many are in the 3%-4% range).
---
As far as the annuity goes, there are options for someone in their 30s. I highly recommend NOT getting one with a Bonus... you give up future returns for that upfront bonus. Which means you get more upfront on a smaller amount... and give up more later on the larger accumulated amount.
I also recommend NOT getting a long surrender product. Some do offer higher bonuses, but you are much better off with a shorter surrender. Especially in a rising interest rate environment.
But again, I HIGHLY recommend keeping the two separate. An individual annuity within a 401k has a lot of hidden potential issues.
---
If you just have to have an IA, then set one up as an IRA. There are zero fees to do this.
Then you can do a Qualified Transfer of Funds (tax free transfer) each year from your 401k over the the IRA.
That will eliminate the many issues that having an annuity in the Plan presents.
You also need to make sure there are certain Plan Provisions in place in order to Transfer the Annuity out of the Plan and into an IRA (which eventually you will want to do once retired). You also have to do it in a certain way, or it creates a taxable event.
I sell both annuities, and 401k Plans. But I do not recommend combining the two.
If you are afraid of market risk, then consider Bond Funds. Many 401k Platforms offer a "Stable Value Account" that give a fixed interest rate (many are in the 3%-4% range).
---
As far as the annuity goes, there are options for someone in their 30s. I highly recommend NOT getting one with a Bonus... you give up future returns for that upfront bonus. Which means you get more upfront on a smaller amount... and give up more later on the larger accumulated amount.
I also recommend NOT getting a long surrender product. Some do offer higher bonuses, but you are much better off with a shorter surrender. Especially in a rising interest rate environment.
But again, I HIGHLY recommend keeping the two separate. An individual annuity within a 401k has a lot of hidden potential issues.
---
If you just have to have an IA, then set one up as an IRA. There are zero fees to do this.
Then you can do a Qualified Transfer of Funds (tax free transfer) each year from your 401k over the the IRA.
That will eliminate the many issues that having an annuity in the Plan presents.
Last edited:
- 2,291
With regard to the annuity; make sure that you do not have to annuitize at the end to realize the gain. Some plans only give the gain if they get to keep the money, you want to be able to walk after your 10 year, or 5 year, or 7 year plan
- Thread starter
- #14
- 406
Thanks for this insight!
This is exaclty what I needed to hear, I dont think the EJ advisor is very experienced.
JD AgentMan
Expert
- 21
This is great advice. I also prefer FIAs that DO NOT have a bonus for the same reasons that SCAGNT noted. An annuity inside an IRA, or a 401(k) is placing a tax-deferred vehicle inside another tax-deferred vehicle. There needs to be good justification for this. Therefore, I would keep the two separate and may not even place an IRA wrapper on the annuity at all. If I did, it would likely be a Roth IRA wrapper so you would have a tax free bucket to pull income from down the road. I would also look for an FIA that has participation rates versus cap rates as the long term performance potential is usually better.
Like SCAGNT, I would advise to invest your 401 according to your risk tolerance. If that's conservative, then great, invest conservatively in bonds, brokerage CDs, money market accounts, or dividend stock/mutual funds and income funds. Then start the FIA for another bucket of savings. If it's not an IRA, your contributions won't be limited. Or, maybe consider your FIA your "safe money" and use your 401(k) specifically as your more aggressive investments. There are many ways.
A few problems you may have is finding a variety of FIA carriers that allow flexible premiums as opposed to single premium dump ins. Also, if you set up an IRA funded with the FIA, I don't know if you'll be able to take annual qualified transfers from the 401(K) before a certain age. These are known as in-service withdrawals and may have some limitations.
I would tell you to become educated in equities. You have a long time horizon and there are very few 10 year periods where the stock indexes have lost money.
I suggest going to efficientfrontier.com and reading his book labeled "For the liberal arts crowd ". The Four Pillars of Investing Pick up a few others while you're at it used on Amazon. You will be thousands ahead if not hundreds of thousands. Basic financial principles warn you away from your proposed course of action.
You will be simply exchanging one type of risk for another more detrimental risk - out of ignorance. Education and diversification are your friends.
Of course, none will make the commish that helping you buy what you think you want would generate.
Edit: 200,000 compounded for 25 years at 4% ends up at $533,167. Compounded at 7% = $1,085,486. Compounded at 8% = $1,369,695. A question should be, what type of risk and how much is appropriate for someone 38 yrs old - even if he needs to be educated. A 1% difference in return makes a big difference in ending value and it's difficult to justify paying an advisor the required expense for that amount of time.
He'd be better off just throwing the money in Vanguard's S&P index and forgetting about it. How much is the "safety" and high load of the annuity worth? The money is already qualified and the annuity doesn't add a thing. (Yes, I know that he can further diversify and reduce portfolio risk and bla, bla,bla but this board is supposed to be for "professionals" that know what they're doing.)
I suggest going to efficientfrontier.com and reading his book labeled "For the liberal arts crowd ". The Four Pillars of Investing Pick up a few others while you're at it used on Amazon. You will be thousands ahead if not hundreds of thousands. Basic financial principles warn you away from your proposed course of action.
You will be simply exchanging one type of risk for another more detrimental risk - out of ignorance. Education and diversification are your friends.
Of course, none will make the commish that helping you buy what you think you want would generate.
Edit: 200,000 compounded for 25 years at 4% ends up at $533,167. Compounded at 7% = $1,085,486. Compounded at 8% = $1,369,695. A question should be, what type of risk and how much is appropriate for someone 38 yrs old - even if he needs to be educated. A 1% difference in return makes a big difference in ending value and it's difficult to justify paying an advisor the required expense for that amount of time.
He'd be better off just throwing the money in Vanguard's S&P index and forgetting about it. How much is the "safety" and high load of the annuity worth? The money is already qualified and the annuity doesn't add a thing. (Yes, I know that he can further diversify and reduce portfolio risk and bla, bla,bla but this board is supposed to be for "professionals" that know what they're doing.)
Last edited:
Sanfelipe123
New Member
- 5
Please send email to [email protected] ref. 38 yo
- 10,702
You are welcome. Who is doing the Admin on the Plan? I take it EJ is acting as Recordkeeper, but who files the 5500 for you?
You need someone experienced with 401k Plans, not with managing individuals assets.
As a 401k Adivisor, I dont manage individuals assets. I manage the 401k Plan, the participants choose their own investments. If they want professional management, I provide that option within the Plan's investment options. But I dont do it because I am busy creating $100k tax deductions for the business owner.
---
As for the people who say to manage the investments yourself... well.. you can do that if you want. But is it the best use of your time? (how much extra income could you produce in the many hours learning and the many hours managing)?
And are the statistics on your side in that scenario? (they are not)
However, that is assuming "actively managing" the portfolio. If you are ok with a "buy and hold" strategy, then it is fairly easy to do it yourself. Just use index funds and diversify accordingly for risk among sectors. Or pick a few high quality mutual funds that have consistently outperformed the index (yes, plenty of them exist that fit that criteria).
---
If you like annuities, then get one. Just dont put all your money into it, and dont put it in your 401k! Diversity among financial products is a very good thing.
strategicchoices
New Member
- 1
Do not get a bonus Indexed Annuity as it will have lower upside potential over the life of the contract. Do not get an Income for Life rider as you are too young, and the market will produce better Income products as you get closer to retirement.
You can look at stable funds or good bond fund as an alternative, but check what the underlining fees are to see if the net historical returns are over 2-3%. There are only about 3 Insurance carriers that can safely place an annuity in a 401(k) plan and I would go with them as they have systems in place to coordinate with TPA's. Diversification is always a good thing. Good luck.
You can look at stable funds or good bond fund as an alternative, but check what the underlining fees are to see if the net historical returns are over 2-3%. There are only about 3 Insurance carriers that can safely place an annuity in a 401(k) plan and I would go with them as they have systems in place to coordinate with TPA's. Diversification is always a good thing. Good luck.
Thisperson is too young to not be heavily weighted in equities. Unfortunately, the major indices are positively correlated and true diversification is difficult and requires more effort than simply throwing dollars into stock and bond funds.
Bernstein has some programs that will crunch numbers so one can understand how various factors affect portfolio asset class weights.
I suspect that few have had a discussion with a carrier on how they construct the underlying annuity portfolio to make giving the guarantees possible. The result is not a portfolio that a person in accumulation stage should hold and annuities should be off the table for this qualified maney.
Bernstein has some programs that will crunch numbers so one can understand how various factors affect portfolio asset class weights.
I suspect that few have had a discussion with a carrier on how they construct the underlying annuity portfolio to make giving the guarantees possible. The result is not a portfolio that a person in accumulation stage should hold and annuities should be off the table for this qualified maney.
