Question About Variable Annuities in General

[Drifting]

Good information scagnt83

I may very well stay in it. Too early to tell. I just hope that there is flexibility with Vanguard once I turn 59 1/2 and for quite a period afterwards. Being locked for life in that "income phase" scares me. Hopefully it doesn't start until long after I turn 59 1/2. That will be one of my many questions for Vanguard on Monday.

 

[scagnt83]

Good information scagnt83

I may very well stay in it. Too early to tell. I just hope that there is flexibility with Vanguard once I turn 59 1/2 and for quite a period afterwards. Being locked for life in that "income phase" scares me. Hopefully it doesn't start until long after I turn 59 1/2. That will be one of my many questions for Vanguard on Monday.

I highly doubt you will be locked in. Vanguard is known for being an extremely consumer friendly product. I dont think it even has a surrender charge after the first year.


The 0.53% M&E is extremely low.

From what I have heard, the fund expenses for this product are very low as well, like around the same as the M&E your paying.

1%ish total expenses on a VA is super cheap! Hell, most mutual funds charge more than 1%. Throw in the tax deferral and its not a bad deal comparatively. Of course I have no idea what quality the fund selection is. But I know that it will be filled with Vanguard funds... so whatever your opinion is of their funds is the determining factor there really.

With the ETFs you would be cheaper on expenses. But assuming your not in a 49% combined tax bracket, the tax deferral would probably win in the long term assuming the same rate of return.

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And if your worried about taxes, then you should look into Permanent Life Insurance. Specifically Indexed Universal Life (IUL)

Lots of varying info out there on it, few of it is fully accurate.

A fully overfunded policy will average around 4%-6% long term, depending on what the underlying index does.

But that is a tax-deferred RoR, and it gives you TAX FREE ACCESS.

Used for yearly income, it can produce a much higher % of assets as income vs. a traditional portfolio that takes 4% withdrawals.


Banks, Corporations, and small businesses all use it for executive benefit plans. That is one of my areas of specialty.
(over 60% of major banks utilize it)

 

[Drifting]

From what I have heard, the fund expenses for this product are very low

Here's some of Vanguard's variable annuity subfund expenses
S & P index fund expense ratio is 0.47 / 9% turnover
Total stock market index fund expense ratio is 0.48 / 8% turnover
Mid cap index fund expense ratio is 0.56 / 23% turnover
Total bond market index fund expense ratio is 0.59

Overall they tend to be about 0.4% more than the equivalent ETF's.

 

[scagnt83]

Here's some of Vanguard's variable annuity subfund expenses
S & P index fund expense ratio is 0.47 / 9% turnover
Total stock market index fund expense ratio is 0.48 / 8% turnover
Mid cap index fund expense ratio is 0.56 / 23% turnover
Total bond market index fund expense ratio is 0.59

Overall they tend to be about 0.4% more than the equivalent ETF's.

Yes, ETFs are less expensive, but so are index funds bought outside of a VA.
Vanguard for example, has a S&P index fund at 0.17%.


One advantage of VAs (in my opinion, and the opinion of many others) is that they offer funds that are not always available on the retail market, such as certain institutional funds. Jackson National is a good example of this.

So for some people that is an advantage along with Guaranteed Lifetime Income Riders and the tax deferral.

In Vanguards case, the biggest benefit is the tax deferral.

Based on 8%, compare the after fee/after tax return of the taxable ETF to the after fee/tax return of the comparable fund in the VA. See which looks better. Depending on your time frame, the tax deferral might come out ahead even with the higher fees.