Transferring annuity proceeds to IRA

[aubrey]

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.

 

[annon123]

You need to think about why you bought an annuity to begin with and decide if that/those reason(s) matters to you anymore. I'll leave the rest of the advice to others.

 

[adjusterjack]

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

Is your financial advisor a tax pro? Look into the tax situation before you decide.

 

[Allen Trent]

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.

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