First Post - Financial plan sanity check

[GaryK]

The market and economy scares the hell out of me. I picture retiring and the retirement calculators don't work. Therefore, I am probably too conservative.
Anyway, here are my thoughts and any feedback would be appreciated.
Assets approx:
$500K Non IRA in Fidelity they manage the funds.
$700K IRA,401K Mostly Fidelity and they manage the funds. This includes about $100K CD IRA.
Will be selling my house and will clear about $700K. New house is paid for.
Money Market $300K.
Total: $2.2M
I am 61 and I want to be able to retire at any moment.
To live the way I want, I think I need about $6,500 - $7,000 / month in todays dollars. My wife is already retired.
Plan / Questions:
I am thinking of putting $800K - $900K in an annuity that has a 3% COLA. This and FICA will come close to supporting my minimum monthly needs. Then the market won't scare me as much.
The balance would be placed in a manage market account.
Questions:
1) Does this sound like a reasonable plan?
2) Do I need to split the annuity between (3) insurance companies in case something happens to one?
3) On the market portion, is it safe to keep with one company like Fidelity?
4) Should I split the market portion between (2) firms to see who manages the account better? The downside is I will be paying a higher management fee.
5) Retirement calculators seem to vary a lot. ING says I need $1.7M to yield the monthly income I need. I am over this value as shown above.
6) From what I have stated, can I retire now?

Thanks in advance.

 

[Rich_by_the_Bay]

Gary, welcome to the board.

My first impression is that you have enough assets to retire if your expenses are not exorbitant. However, I suggest that you learn to use FIRECalc, a claculator which I think would work for you. You can find it here.

Also, see the archives section of the board. Your questions suggest to me that you might find the book Buckets of Money by Ray Lucia to be helpful since you seem to struggling a bit with categorizing or allocating your money.

But overall it looks good to me.

 

[73ss454]

Welcome Gary, you seem to have more than enough money to retire. You also have SS coming around the corner.

As far as giving my money to and insruance company, well, I'd rather eat puppy chow.

 

[mickeyd]

Hey Gary,

Welcome here.

am thinking of putting $800K - $900K in an annuity

What insurance company annuity? Only ING or others? Your idea or the insurance company agent's idea?

 

[GaryK]

Hey Gary,

Welcome here.



What insurance company annuity? Only ING or others? Your idea or the insurance company agent's idea?

My idea. I kind of like having an income stream that I don't have to worry about. I know it is not the best ROI, but sleeping must have some value.
Ihave not looked at any companies yet. I just used the following web site to give me rough numbers Immediate Annuities - Instant Annuity Quote Calculator. . At this site, I can get rough numbers without a salesman calling.

I am here to get independant view points and advice. IMHO All agents (Fidelity, insurance companies, etc) have there interests in mind before mine.

 

[REWahoo]

I am here to get independant view points and advice. IMHO All agents (Fidelity, insurance companies, etc) have there interests in mind before mine.

Is it just me or is there an apparent disconnect between the above statement (I'm in total agreement) and your desire to give these same folks hundreds of thousands of your dollars?

 

[73ss454]

Yeah, I can't even sending in my car ins. payment. No way am I going to send an Ins. Co. the better part of my savings.

 

[thaidyed]

If you run FIRECalc with 2.2m in your portfolio and 84,000$/yr spending, you'll see you already can retire 'at any moment'.

 

[Sarah in SC]

Maybe you could hold off on buying that annuity for a few years and see if your comfort level might increase to the point you can do without it. It really isn't likely to be a good deal, no matter where you buy it.

 

[Rich_by_the_Bay]

Agree about deferring the annuity decision. At least learn all about it from objective sources before you decide. Besides, the longer you defer the larger the payout .

 

[GaryK]

Is it just me or is there an apparent disconnect between the above statement (I'm in total agreement) and your desire to give these same folks hundreds of thousands of your dollars?

I don't know how giving money to a stock broker is different than giving it to an insurance company. Apparently, everyone in this forum hates annuities. Therefore being I am looking for input, I guess that I have to rethink this strategy. Would a small amount make more sense or zero is the right number?

 

[REWahoo]

Apparently, everyone in this forum hates annuities. Therefore being I am looking for input, I guess that I have to rethink this strategy. Would a small amount make more sense or zero is the right number?

I wouldn't go so far as saying everyone here hates annuities, but many of us think there are much better ways to manage your retirement funds.

As to what makes sense, that varies greatly by individual. When it comes to annuities, zero is the right number for me but that isn't the case for everyone. I suggest a balanced, diversified approach and would strongly advise against placing a large chunk of your nest egg in any one basket.

 

[Sarah in SC]

I doubt we're advocating handing your money to a stockbroker, either, Gary. What we do vehemently recommend, is that you and you alone are ultimately responsible for your investments, whatever they may be.

 

[rs0460a]

I wouldn't go so far as saying everyone here hates annuities, but many of us think there are much better ways to manage your retirement funds.

As to what makes sense, that varies greatly by individual. When it comes to annuities, zero is the right number for me but that isn't the case for everyone. I suggest a balanced, diversified approach and would strongly advise against placing a large chunk of your nest egg in any one basket.

I'm one of the "black swans" in regards to annuities (specifically, Single Payment Immediate Annuities). I have one and it was the correct decision "for me".

Just a tip on how you can see if it makes sense for you. Go to Immediate Annuities - Instant Annuity Quote Calculator. and plug in a value of say 10% of your retirement liquid assets. Then plug in the result (depending on if you request a single/joint, term specific, etc.) into your "calculator of choice" (e.g. FIRECalc) as a non-inflation adjusted income stream.

Compare your output against keeping your retirement funds in "the market" and see what the difference is (I won't tell you the answer - you need to see what it is in "your case").

Another thing to consider. Do you want to live for today, or live for tomorrow? An Immediate Annuity assures you can "live for today". Keeping that money "in the market" means you not only have to worry about what that portfolio does today, but also to the end of your life.

Additionally, if you strongly desire to leave a substantial estate value (for future generations), an Immediate Annuity may not be for you.

As for me? I purchased one with 10% of my then retirement portfolio value when I retired (last year - age 59). For me, the intent was to provide a "safe" level of income for my retirement since I'm delaying SS. Additionally, the bulk of my/DW's estate is going to charity, so we're a bit more pragmatic in looking to keep our living standard high for today (in retirement) rather than what "may happen" far in the future. After a year of retirement and getting this "guaranteed income", we're pleased with our decision and probably will look to buy additional SPIA's in the future.

It's an individual decision; each person/couple's "circumstances" are different and the only correct answer is "it all depends". Only you can answer that, based upon your own investigation and beliefs. Others (including myself) cannot make that decision for you.

- Ron

 

[73ss454]

Gary, most here would not suggest you give any money to a stock broker either.

Try doing some reading like "the bogleheads guide to investing" and many other that you can learn about on this forum.

Places like Vanguard will give you free advise on how and where to put your funds. You'll be amazed at the amount of $ you can save.

With over 1M you'll be at Admiral designation and have access to a free FP.

 

[rs0460a]

5) Retirement calculators seem to vary a lot. ING says I need $1.7M to yield the monthly income I need.

Since you are a Fidelity customer, have you used their "full calculator" (RIP - Retirement Income Plan)? Don't use the "quick/dirty freebe". If you use the full plan, you will get quite a bit of detailed information out of it (albit, you will have to provide a lot of input - at least on your first use).

I use it (along with FIRECalc and Vanguard's Financial Engines).

- Ron

 

[Rich_by_the_Bay]

Gary, you're right - annuities are a hot button around here and we run into this kind of dialog often.

There are many who believe that SPIA (not variable) annuities have a place for certain investors, usually no more than 20% or so of the nest egg; combined with social security some day, that may well cover your basic living expenses. Then, you can invest your other assets more aggressively without worrying about paying for food during a bear market.

The "sleep well" factor for some people is priceless. The point behind the resistance here (among others) is that you can achieve a similar result at lower cost by selecting the correct retirement strategy for yourself. Annuities might cost 6% up front, and 2-3% a year or more, largely "hidden" in the rate of return. Also consider the solvency risk of the insurance company 25 years from now, the loss of estate value by giving up a lot of money to an annuity then dying early, Just some stuff to factor in.

I am leaving open the possibility of limited annuitization as I approach 65 and beyond, depending on the details of health, market performance, life situation, size of the nest egg, etc.

 

[REWahoo]

I am leaving open the possibility of limited annuitization as I approach 65 and beyond, depending on the details of health, market performance, life situation, size of the nest egg, etc.

Note that Rich is also leaving open the possibility of eventually retiring...

 

[Rich_by_the_Bay]

Note that Rich is also leaving open the possibility of eventually retiring...

Darn gnats.

 

[rs0460a]

then dying early...

OK (black swan here ). Just a note - you can "guarantee" your SIPA for a fixed term. For instance (what we did) is to "guarantee" our income for a period of 28 years. That means (in our case) if I die before year 28 of payments, my DW will continue to get 100% monthly payments. If both of us pass before year 28 of the contract, the reminder can be paid (to our estate) in either monthly benefits or a lump sum (must be defined within 30 days).

Just to point out that (for a slightly reduced monthly benefit) you can insure that you don't "loose anything".

Again (in our case) our contract "insures" we will get back at least 2x our original "investment" - more if we live beyond the 28-year period. In that case, payments continue, at 100% till we both pass.

Hey - just a response to something that a lot of folks bring up...

- Ron

 

[REWahoo]

Just to point out that (for a slightly reduced monthly benefit)...

Translation: (for additional fees to the insurance company)

 

[W2R]

Gary, you're right - annuities are a hot button around here and we run into this kind of dialog often.

There are many who believe that SPIA (not variable) annuities have a place for certain investors, usually no more than 20% or so of the nest egg; combined with social security some day, that may well cover your basic living expenses. Then, you can invest your other assets more aggressively without worrying about paying for food during a bear market.

The "sleep well" factor for some people is priceless. The point behind the resistance here (among others) is that you can achieve a similar result at lower cost by selecting the correct retirement strategy for yourself. Annuities might cost 6% up front, and 2-3% a year or more, largely "hidden" in the rate of return. Also consider the solvency risk of the insurance company 25 years from now, the loss of estate value by giving up a lot of money to an annuity then dying early, Just some stuff to factor in.

I am leaving open the possibility of limited annuitization as I approach 65 and beyond, depending on the details of health, market performance, life situation, size of the nest egg, etc.

Sounds like a good plan, though to me 75 sounds better than 65 as a time to re-examine annuities.

As many here may recall, at one time I was planning to buy a fixed, immediate, lifetime, semi-inflation-protected annuity with 25%-30% of my TSP upon retiring at 61. I would never consider trusting an insurance company with more than that percentage - - too many eggs in one basket, sort of opposite to diversification on investments. My reason for wanting an annuity was that the annuity would give me a reliable income, probably of more than 4%, and I was contemplating a more or less bare bones ER with familial longevity so I felt I needed that.

Due to unexpected and un-planned-for events, I now have considerably higher net worth than a year ago. So, I think that I can afford to keep a considerable amount in fixed income and Wellesley (VWIAX), which will provide both the income I need and the flexibility of making changes if/when they seem advisable to me. I can always buy an annuity later, if I want to, and I'll get a better yield later if/when I do. Another factor for me is that right now, it is very difficult for some New Orleans residents to muster up that kind of trust for any insurance company. Enough said on that topic but I find it difficult not to be cynical about insurance companies.

 

[rs0460a]

Translation: (for additional fees to the insurance company)

Hey, when's the last time you got something for nothing? ...

(BTW, the reduction in payment is $15/month - I can afford that "because I'm worth it!")....

Additional note due to your comment (on SPIA's) - there is no "fee schedule" involved (unlike VA's). What you are originally quoted as a monthly income include all fees (regardless of any increase, in the future). Another "fact" thrown around here.

- Ron

 

[REWahoo]

Hey, when's the last time you got something for nothing?

As best I can recall, it was on a Saturday night my junior year in college...

 

[rs0460a]

Due to unexpected and un-planned-for events, I now have considerably higher net worth than a year ago. So, I think that I can afford to keep a considerable amount in fixed income and Wellesley (VWIAX), which will provide both the income I need and the flexibility of making changes if/when they seem advisable to me. I can always buy an annuity later, if I want to, and I'll get a better yield later if/when I do.

Makes sense. You are making adjustments to "your plan" due to a change in circumstances. Just as I eliminated all (term) life insurance when I retired, you have to "adjust your horizon" based upon the facts you know, not the facts that "may be" in the future.

Again on SPIA's - you looked, you considered, you made a decision, based upon current "factors". Those previous factors have now changed, and you changed your direction. No problem with that, IMHO.

- Ron