My Broker Wants Me to Get Into VAs

Q: My broker is trying very hard to get my husband and myself into Guaranteed Minimum Income Variable Annuities. I am 65 and my husband is 70.

I just read the article on the internet you wrote about GMWB and have a couple of questions...

First, you are concerned as it normally takes 10 years before you can start withdrawing the guaranteed amount. The variable annuity my broker wants us to get into (AXA Equitable, Guaranteed Minimum Income Benefit) says we only have to wait for 1 year. Another concern you have is with the death benefit the charges could be as much as 3.5%. This one is supposed to be 1.6% cost per year with our guaranteed minimum withdrawal of 6.5%.

Our stock broker says we have to stay in for 4 years, otherwise there is a $5,000 withdrawal fee. He feels we cannot lose as we will get the income, but if one or both of us die, the original principle is guaranteed.

Please give me your advise on this. We will need our money in a year or so to subsidize our living expenses.

A: Here is an answer where I address the guaranteed income benefit:

Underperforming IRA

The bottom line, though, shouldn't be whether you will get your money back. The risk of getting your money back over a 15 year or so period without the guarantee is very small.

Moreover, the expenses are much higher than other alternatives. The 1.65% that you were told about doesn't include all of the expenses. That's the fee (called M&E) for the annuity. That doesn't include the fee that the people managing the money get. The management fees on the sub-accounts will usually be 1% or more. It's not unusual to see fees of 1.5% a year.

So the fees on this annuity are 3% or so. 1.6% for the M&E and 1-1.5% for the sub-acccount management.

Let me know if I can be of further help.

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