Lincoln stable value fund vs S&P Marc 5% Fixed Index Annuity ?

[edmund360]

I currently have about 50% of retirement funds in a 403 B employer invested plan, called the Lincoln stable value fund. {Classified as an annuity} It pays about 2.8% per year with no risk to principal. Been doing same for several years now. I was thinking about switching to the  S&P Marc 5% Index. It is a Fixed Index Annuity. It had been yielding 4 to 5% annually {average yield} for the most part.  Any suggestions or advise from community members?

[jtax]

What is your desired asset-allocation? The Lincoln stable value fund is a bond fund based. The SP Marc 5% fund is a stock fund with some bells and whistles that might (or might not) hedge some downside. Both of course, being annuities, have return guarantees that are only as good as the insurance company backing them.

So the first question is to ask yourself given your desired asset allocation are you too much in bonds and not enough in stocks? If so the move might make sense. But you also have to consider that stocks are all all time highs. Some people believe that can't last, other people believe they will continue. You have to make your own call on that.

Then the second question to ask is whether the annuity funds (with their fees but with their "guarantees") are better than regular mutual funds, including super-low cost index funds? Either bond index funds like the stable value annuity you're in or an sp500 index fund or the like. True the sp marc 5% has a mish mash of gold and other things in an attempt to limit some risk. You have to figure out if that is worthwhile (if you decide it matches your asset allocation). I'm skeptical, but it is your call.

Re: annuities

I have never understood why people buy annuities inside of an already tax-deferred plan.  I suppose it's possible the terrible annuity fees might be less if the 403b sponsor has negotiating power and cares. But a huge selling point of annuities is that they grow tax-deferred. You are paying for that somehow. But if you buy inside of a 403b you are already tax deferred. Kind of a waste from that POV.

To my mind annuities make the most sense when you want an income stream  (an immediate annuity) and want to mitigate the risk of living too long.  In that case the law of large numbers and sharing the risk with others works to your advantage. I don't buy the argument that (outside of qualified plans) one needs more tax-deferred investments. The 401k/403b/IRA/etc. limits are so large and all the income  eventually coming out of them will be taxed as ordinary income (not capital gains or qual divs) that people wind up having huge retirement plans and no other assets (which would be taxed at favorable rates). A mix might be better.