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GLI2019
Contributor ○

Recommended interview for the openminded

Morningstar has a lengthy interview with Jeffrey Brown, Dean of the College of Business (U of Illinois), Professor of Finance, and also a TIAA trustee.

https://www.morningstar.com/podcasts/the-long-view/31

He discusses 401K's, annuitization, Social Security, and Long Term Care insurance.

If you don't wish to listen to the interview, you can read the transcript.  If you are highly opinionated, don't bother.

It's a thoughtful, informative interview.  In the past, I have read and learned and been influenced  by a number of his publications.

Bob

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13 Replies
DJANG0
Explorer ○○

Re: Recommended interview for the openminded

I was glad to read that if pension and SS provide sufficient income, you probably don't need to annuitise other assets, since that was my decision when I had to make a decision.

Not sure I understand why openmindedness is require. I didn't see much room for controversy or debate with anything said. 

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yogibearbull
Valued Contributor

Re: Recommended interview for the openminded

Thanks.

It was a long but good read.

Much of what 401k is lacking is already available in large 403b plans. But they do have to fix bad 403b plans available for elementary/middle/high school districts. Problem there is that school districts don't want to get involved and let insurance companies run amok with bad, high cost plans. This is a leadership failure at school district level. They should look at some models at higher education.

It did focus on many issues and some possible solutions.

YBB
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Learner
Participant ○

Re: Recommended interview for the openminded

Brown is a very knowledgeable and thoughtful person for sure.  I recommend it too.  Three things:  1)  It did not come up that, if the annuity company does not survive, your annuity won't either.  (i would not be concerned about TIAA, Vanguard, or a proposed federal program.)  2)  I met some and read from some who are for eliminating Medicaid (and Medicare).  I believe Brown is talking about policy-making people or people in his circle.  3)  I am against VAT. 

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yogibearbull
Valued Contributor

Re: Recommended interview for the openminded


@Learner wrote:

Brown is a very knowledgeable and thoughtful person for sure.  I recommend it too.  Three things:  1)  It did not come up that, if the annuity company does not survive, your annuity won't either.  (i would not be concerned about TIAA, Vanguard, or a proposed federal program.)  2)  I met some and read from some who are for eliminating Medicaid (and Medicare).  I believe Brown is talking about policy-making people or people in his circle.  3)  I am against VAT. 


I don't have concerns about TIAA but I try to monitor how it is doing by looking at its quarterly/annual reports, especially for its capital & surplus [C&S]. C&S is what backs insurance company guarantees [$39.2 billion for TIAA as of 9/30/19; +2.85% vs 12/31/18; that is after paying Traditional interests, insurance claims, operational expenses].

Vanguard is not an insurance company. It uses insurance companies for the annuities it sells. If those companies got into trouble, Vanguard would just replace them. Holders would then have to deal with state insurance that is basically unfunded but has the power to impose extra premiums to cover for failed companies; they can motivate [but not force] mergers; or just operate the failed company.

Insurance and annuity company workout under state insurance take a long time to resolve [unlike FDIC insurance for banks that are resolved within days - often from Friday to the following Monday].

I have experiences with failed MBL of NJ [took several years to resolve], Monarch Life [still being operated by MA Insurance Commissioner] and online NetBank [it became ING Direct and is now Capital One 360].

YBB
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Intruder
Participant ○○○

Re: Recommended interview for the openminded


@yogibearbull wrote:

Thanks.

It was a long but good read.

Much of what 401k is lacking is already available in large 403b plans. But they do have to fix bad 403b plans available for elementary/middle/high school districts. Problem there is that school districts don't want to get involved and let insurance companies run amok with bad, high cost plans. This is a leadership failure at school district level. They should look at some models at higher education.

It did focus on many issues and some possible solutions.


SDs don’t want to be involved with 403b plans because they dont have any funds to administer an additional plan for teachers who are already covered under health and retirement plans paid for by taxpayers. 70% of my high NJ property taxes fund the school district. Under state law school budget cannot increase by more than 2% a year. 
No one wants to impose additional costs on taxpayers. If teachers don’t like their 403b plan they can open an IRA.

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Intruder
Participant ○○○

Re: Recommended interview for the openminded

One important point That is not discussed in the interview is the higher costs of annuities. A typical fee for a fixed annuity is 1%  because commissions are paid to the agent. Rate of return for a fixed annuity is low 2-3% because  annuity invests mostly in long term bonds which have low yields of 3-4%.

Fes for variable annuities can be 2-2.5% and Unlike fixed annuities VAs don’t guarantee principal invested.

Another downside to annuities is that many impose penalties if funds are prematurely withdrawn within 5-7 years, eg., if employee terminates employment.

best option is for 401k participants to invest in large low cost equity funds such as VTI or SP 500 during their working career which will generate higher returns than an an annuity and defer selecting an annuity option until retirement.

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TheWizard
Explorer ○○○

Re: Recommended interview for the openminded


@Intruder wrote:

No one wants to impose additional costs on taxpayers. If teachers don’t like their 403b plan they can open an IRA.


Would be nice if the contribution limit for IRAs was the same as for 403b and 401k plans, totalled together...

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GLI2019
Contributor ○

Re: Recommended interview for the openminded

Learner wrote:

"1) It did not come up that, if the annuity company does not survive, your annuity won't either."

You might want to familiarize yourself with NOHLGA.

https://www.nolhga.com/

I am aware that Yogi had a terrible experience with Mutual Benefit, but that is not representative of state guaranty associations.  Years ago I posed the question to TIAA about its participation in state guaranty associations.  The answer was: "Yes, they participate."  I have noticed that in some recent TIAA materials it now publicizes its participation.

Link to list of impairments and insolvencies NOHLGA has participated in.

https://www.nolhga.com/factsandfigures/main.cfm/location/insolvencies

Bob

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Intruder
Participant ○○○

Re: Recommended interview for the openminded


@Learner wrote:

Brown is a very knowledgeable and thoughtful person for sure.  I recommend it too.  Three things:  1)  It did not come up that, if the annuity company does not survive, your annuity won't either.  (i would not be concerned about TIAA, Vanguard, or a proposed federal program.)  2)  I met some and read from some who are for eliminating Medicaid (and Medicare).  I believe Brown is talking about policy-making people or people in his circle.  3)  I am against VAT. 


When mutual benefit life became insolvent because it could not pay all requests for withdrawals from its annuity contracts it was taken over by the NJ insurance dept which put a freeze on withdrawals, reduced the interest rate on annuities from 9 to 5% and began the process of selling the 33 RE projects that  MBL had financed. Eventually the Annuity contracts were sold to other insurers, the RE was sold and annuity owners were able withdraw their account balances at reduced amounts.

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yogibearbull
Valued Contributor

Re: Recommended interview for the openminded

The state insurance programs, as I mentioned earlier, don't promise quick resolutions. They promise some workout so that nobody loses money and all holders are treated equally.

So, when I called regulators about my MBL 403b and asked for my money back under the state guaranty, I was told that would be at 40% haircut. But I could keep my frozen MBL 403b in m-mkt funds until the regulators try to work things out and they said that was fair to everybody. That is what I meant by stating that it took several years.

Monarch Life happened to be an insurance that was offered then at Fidelity platform. When Monarch Life went under, I wrote to the head of Fidelity Insurance program about where was its responsibility? The guy did respond citing some language that Fidelity wasn't responsible for success or failure of 3rd party products on its platform. When I called the MA regulator, they said that after failing to find a buyer for Monarch Life, they are just operating it in a run-off mode [i.e. no new policies are issued, but the existing ones are valid]. They also said that I was free to cash out and buy new insurance elsewhere - a problematic solution.

The best of course was when online NetBank failed. It was closed by FDIC on a Friday and reopened as ING Direct the following Monday [Capital One 360 eventually acquired ING Direct]. Before that, guess who passed up on NetBank? EverBank, now part of TIAA [I remember looking into EverBank then].

Anyway, my point was/is that FDIC workouts for banks are very different from annuity/insurance workouts by state insurance.

Based on my experience, my advice is that go for junky banks [for m-mkt accounts, CDs] with FDIC insurance, but be very careful with insurance/annuity companies covered by state insurance.

YBB
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Learner
Participant ○

Re: Recommended interview for the openminded

I am quite familiar with state insurance limits and checked the insurance limit in my state many years ago.  It was $250,000.  It may still be the same.  At that time, I saw states with a $100,000 limit.  If someone needs insurance for $250K (not a huge number) or $500K or $1M, it does not go far.  Not even close.

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Intruder
Participant ○○○

Re: Recommended interview for the openminded


@Learner wrote:

I am quite familiar with state insurance limits and checked the insurance limit in my state many years ago.  It was $250,000.  It may still be the same.  At that time, I saw states with a $100,000 limit.  If someone needs insurance for $250K (not a huge number) or $500K or $1M, it does not go far.  Not even close.


I am not worried about my investment in TIAA traditional.

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Learner
Participant ○

Re: Recommended interview for the openminded


@Intruder wrote:

@Learner wrote:

I am quite familiar with state insurance limits and checked the insurance limit in my state many years ago.  It was $250,000.  It may still be the same.  At that time, I saw states with a $100,000 limit.  If someone needs insurance for $250K (not a huge number) or $500K or $1M, it does not go far.  Not even close.


I am not worried about my investment in TIAA traditional.


If you read it, I made that point earlier in this thread about TIAA, which includes TIAA Trad.

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