New Member with a couple questions....

[CRPC101]

Hello,

I am a retired CSRS employee, 60 years old. I have been dealing with a Midland Life specialist for 20 years that I trust. They are offering a 7% bonus to rollover TSP to their company. I will not be touching the money for several years and possibly not till RMD at 70 years old. I'm required to leave the money for 1 year before I start drawing on it which is not a problem. I've talked to others which indicate they have not had a problem getting their money. I've also talked to others who indicated they are getting over 3% on their money which is better than G Fund which is where I had planned to leave my money. Their Fund is guaranteed to not lose money. The salesman does not draw a commission from my fund, he gets his money from the company. They used to offer a slightly higher rollover percent but drew commission from fund but have changed in order to take the salesman commission from company, I suspect.

I've read the fine print. I've done a search for complaints against the company. Seems the complaints I can find, people bought who shouldn't have bought when they might need their money to get by on and should have never bought in the first place because they had limited funds. They did not realize the amount they would surrender should they try to access the entire amount before the penalty period.

So couple questions:

1. What am I missing and what is the downside to this?

2. My original plan was to leave my TSP in the G Fund and at about 65 start taking a check for about $500 a month and every year to increase that by about $100 to offset the lack of COLA. But I've hear you cannot change the amount of TSP that often. Is that true?


Thanks in advance.

Ozark,

What he is pitching sounds like a Fixed Index Annuity (FIA). There is nothing wrong with one, as long as you understand them. The issue is most people don't. Midland is a decent stable company that would be fine to invest with. However, I'm sure there are better options. This friend you are talking to is probably a captured representative with Midland and sells their products without considering better options that fits your needs.

Having a 7% bonus is not uncommon in an annuity. A lot of companies have products that give you a bonus for buying. The downside is the fees within the contract are generally higher than other products offered. Most companies have rider fees with their annuities. I'm sure the one he showed you had around a 1% lifetime income rider fee. And since it has a bonus there are other riders you may be paying for. These riders are living benefits you can utilize while in the contract.

There shouldn't be a problem getting your money from a company this stable. If you hear any noise of people having issues they're more than likely just idiots. These contract have surrender charges. Most people make a big deal about this, but it protects the financial stability of the company. They are generally 10 year to 15 year contracts. But you have a 10% free withdrawal with no charge. I wouldn't get longer than a 10 year contract. Any longer doesn't provide enough of a benefit. Ask him if it's 10/10 compliant.

3-5% would be a good average to expect. FIAs do nothing more than have covered calls on a index. And sometimes bonds. Ask him what the cap and spread are on the contract. Normal right now is they will "cap" the percentage you can receive on a yearly basis at 4.75%. A good spread would be 1.75%. This means if the index you follow does 11%, they will subtract 1.75% and credit you that amount.

These contracts do guarantee not to lose money. That is what is appealing to them. The salesman does get a commission from the company that does not come out of your premium. It has always been that way. You are paying 0-2% in fees for peace of mind. For them going out and doing what you don't want to learn or spend time doing. Putting call options on index and bonds to protect your money. If this contract is higher than 1% I would look elsewhere. There are very strong insurance companies out there that charge 0% for their annuities. You may message me with any questions.

-CRPC101

 

[CRPC101]

Hello,

I am a retired CSRS employee, 60 years old. I have been dealing with a Midland Life specialist for 20 years that I trust. They are offering a 7% bonus to rollover TSP to their company. I will not be touching the money for several years and possibly not till RMD at 70 years old. I'm required to leave the money for 1 year before I start drawing on it which is not a problem. I've talked to others which indicate they have not had a problem getting their money. I've also talked to others who indicated they are getting over 3% on their money which is better than G Fund which is where I had planned to leave my money. Their Fund is guaranteed to not lose money. The salesman does not draw a commission from my fund, he gets his money from the company. They used to offer a slightly higher rollover percent but drew commission from fund but have changed in order to take the salesman commission from company, I suspect.

I've read the fine print. I've done a search for complaints against the company. Seems the complaints I can find, people bought who shouldn't have bought when they might need their money to get by on and should have never bought in the first place because they had limited funds. They did not realize the amount they would surrender should they try to access the entire amount before the penalty period.

So couple questions:

1. What am I missing and what is the downside to this?

2. My original plan was to leave my TSP in the G Fund and at about 65 start taking a check for about $500 a month and every year to increase that by about $100 to offset the lack of COLA. But I've hear you cannot change the amount of TSP that often. Is that true?


Thanks in advance.

Oh, and I would recommend not putting more than 50-70% of your assets in a FIA. Take the other 30-50% and put it in a good moderate equity portfolio. The agent and insurance company shouldn't actually allow more than 70% of your portfolio from the suitability report when you do the application. If you're so conservative that you planned to have all assets in G fund, maybe build a MYGA ladder. Janet Yellen speaking recently helped raise these rates on these recently. Do something like a 3-5-7 yr.