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Old 10-16-2015, 02:09 PM   #1
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Looking to join class of 2016

I am 58 1/2. On 10/01/2016, I will be 59 1/2. By next year, my 401k should be around $525,000. I have a pension that I can take as a lump sum (around $600,000) or take a monthly payment of $3200/mth.

I will need to provide health care coverage for myself until I am 62 (not married). Because I have 30+ years at my company, they will cover me from 62 - 65. Plus Soc Sec of about 1800/mth when I am 62 (if I decide to take it then).

I am looking to generate about 60,000 - 70,000 a year in retirement. I also have saved over $200,000 in savings/CD's etc. which I most likely will use some to cover anything unexpected (how about a new vehicle to replace my honda with 145,000 miles).

I spoke with a financial advisor from Ameriprise. He said about using maybe 1/2 my money (either 401k or lump sum) to put into a Guaranteed Variable Annuity. This means that I am guaranteed to get 6% a year or higher depending on the market. THe rate never falls below 6%. This is a 10yr annuity with surrender charges. I can take out a max of 10% of the value of my annuity each year. The other half would go into a mix of bonds and stocks.

This Guarenteed Variable sounds good to me because at worst I get 6% ayear (and that is after Ameriprise takes thier cut). If market returns 10%, I get 10% (and that is after Amerirpise takes thier cut.)

I have more questions for this advisor, but this is one of things that seems too good to be true, so I am a skeptic. I read alot, but I need to understand more about this type of annuity. I have looked it up online, but I cannot find one where it says that you can get a guarantee rate and higher rate if market is higher than your guaranteed rate.

Anyway, I have one more year of "working for the man", than I am out. I am just now looking for some best choices to do with what I have earned for retirement ...

Thanks
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Old 10-16-2015, 03:03 PM   #2
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I spoke with a financial advisor from Ameriprise. He said about using maybe 1/2 my money (either 401k or lump sum) to put into a Guaranteed Variable Annuity. ....

I have more questions for this advisor, but this is one of things that seems too good to be true, so I am a skeptic. I read alot, but I need to understand more about this type of annuity. I have looked it up online, but I cannot find one where it says that you can get a guarantee rate and higher rate if market is higher than your guaranteed rate.

...

Thanks
Welcome aboard, Joe!

See the highlighting. :-) The only nice thing really guaranteed here is the nice commission that the advisor will get from your purchase. "if the market returns 10%," you will not get 10%. Rather, if broad market return of 10%, you'll get "market as defined in contract," less whatever adjustments, carryover losses, fees, and allocated insurance costs are applicable.

Turning (well, running) away from that product and looking at your situation as a whole, my initial reaction is that you are trying to get a pretty aggressive income for your assets.

BUT, the pension is intriguing. If it (and the company) are sound, you are looking at #38,400 a year from that alone. Is it inflation adjusted going forward? That is the key to your planning--and whether inflation adjusted or not, you've already got the secure income that causes people like me to consider Single Premium Immediate/deferred annuities--which are the most affordable annuity options.

Have you played with your numbers in firecalc? How firm are your expense numbers? "60,000-70,000" seems loosey-goosey. If need be, how tight could you cinch your belt for a year or two (or more) of bad economy?
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Old 10-20-2015, 09:15 PM   #3
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Joe, please be careful with Ameriprise and variable annuities. They might guarantee 6%, but you will net much less after their commissions and fees, which are hidden and not discussed. That happened to me and they even had a class action suit brought against them because they put myself and others into an annuity within the IRA, which made no sense. I was guaranteed 3% and I wasn't even netting 1%. Just look at other options as well.

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Old 10-21-2015, 06:51 AM   #4
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I did ask about what the net return would be after the fees. The advisor told me that it is 6% AFTER the fees. I will be meeting with this person again to clarify some things. I want to understand the fees. I have talked with other financial planners and when the subject of fees comes up, they are ALL always vague. What sucks is that I have a good sum of money and I cannot just throw it into a savings account without paying taxes, etc. don't have much of a choice but to find someone who is trustworthy. How I long for the days when a XMAS club account would pay 5% I even checked into doing this myself using something like Etrade.
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Old 10-21-2015, 07:42 PM   #5
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Joe, these variable annuities have a cap on returns that move so your upside is limited and if you run at the guaranteed rate, also usually adjustable, your fees make the net go negative. Ask for a pro-forma at the minimum and see how quickly the money disappears.


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Old 10-21-2015, 08:03 PM   #6
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I did ask about what the net return would be after the fees. The advisor told me that it is 6% AFTER the fees.
This doesn't pass the "too good to be true" test. There is no guaranteed 6% return in the current interest rate environment. You are likely to find when you press that someone creatively misunderstood your question.
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Old 10-21-2015, 08:09 PM   #7
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Old 10-21-2015, 08:34 PM   #8
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Find out what the annual increase is. If you are getting $3200 a month in 2016, does it ever go up?

What happens when you die? Does it return any money?

If it is a 10-year annuity, that means not collecting any funds for the first 10 years? You will be 69 1/2 at that time?

It is near impossible to get a 6% minimum return, plus what the market returns if it is higher.
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Old 10-22-2015, 07:01 AM   #9
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The $3200 / mth pension from my company will not increase over time. If I die, no money is returned, unless I elect survivor coverages, which will lower the monthly amount. So, if I take the lump sum and don't elect the guaranteed annuity from Ameriprise, then the money goes into investments, where that is a crap shoot too. I appreciate all the responses. I enjoy reading this forum and as I learn more, I will contribute more.
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Old 10-22-2015, 11:48 AM   #10
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Joe - There are many threads here talking about people's experiences with variable annuities and their salesmen. You can use the search field to find them, but here are a few to start with (note that the Google search here doesn't order results by anything useful like by date or number of posts, so you have to scroll through several pages of search results to find the most recent threads):

Variable Annuity

Lifetime Income Variable Annuity

Anybody buying variable annuities?

Annuity Advice

Annuity has gained NOTHING....help! (long)

Annuitizing part of a lump sum isn't a bad idea in and of itself, but do yourself a favor and check out some other providers before you make a final decision, as well as running your numbers through FIREcalc and/or other calculators out there.
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Old 10-22-2015, 12:45 PM   #11
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Wow .. Great questions for me to ask advisor. Are there less expenses if I were to just roll over to an IRA like Vanguard ? My company 401k is currently in Vanguard. Is an advisor really necessary ? I keep hearing that you need a financial advisor to do this, but it seems like they are just middle men. I wish I would have paid more attention to my business finance and economic classes in college.
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Old 10-22-2015, 12:54 PM   #12
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I've heard that if somebody is truly set on buying a single-payment annuity, Vanguard has the least expensive ones. Does anyone know the details?
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Old 10-22-2015, 02:49 PM   #13
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Forget Ameriprise and variable annuities. On the surface, you seem to be fine without any of that. Your pension plus SS at 62 is $60K, which hits the low end of your expense range. The remaining $10K (if needed) is only 1.4% of your nestegg. It's a little tight before SS, but the WR is manageable for that short period of time.

Lots of details you'll still need to work through, like whether to delay SS and inflation risk due to the non-COLA pension vs lump sum. FIRECalc, other tools, and just further reading here will help provide answers. But do yourself a favor and walk away from Ameriprise. Don't even go back to ask more questions. They are not interested in your financial success... just the fat commission and ongoing fees from selling you a product you don't need.
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Old 10-22-2015, 05:48 PM   #14
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I did ask about what the net return would be after the fees. The advisor told me that it is 6% AFTER the fees. I will be meeting with this person again to clarify some things. I want to understand the fees. I have talked with other financial planners and when the subject of fees comes up, they are ALL always vague. What sucks is that I have a good sum of money and I cannot just throw it into a savings account without paying taxes, etc. don't have much of a choice but to find someone who is trustworthy. How I long for the days when a XMAS club account would pay 5% I even checked into doing this myself using something like Etrade.
Joe, You have been given some good advice so far. I don't know which particular annuity you are referring to; but, please understand that you will NOT receive a guaranteed 6% "return" in the sense that you and I think of the word return. Typically, that 6% "return" applies to the "income base", A sort of make believe bucket that determine the value of payments you would receive after you annuitize. You CANNOT (EVER) receive that income base amount as a lump sum. When you work out the true rate of return for this product, it usually is in 1-3% overall. Plus, remember the annuity is taxed as regular income rather than dividend and capital gains... which won't matter for pretax retirement funds
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