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Annuity question
Old 12-08-2013, 09:00 AM   #1
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Annuity question

I am currently unemployed and looking for work with little success. I will be 51 in March. I am single. I am worried about running out of money. I currently have a qualified SPIA paying me $445 a month. I am considering purchasing another qualified SPIA for $39,000, and a non-qualified SPIA for $152,000. This would bring my total monthly income to about $1385 a month for life. This would cover my basic living expenses until I find a job. Health insurance would be subsidized by the ACA. I would have $15,000 in cash left over to cover emergencies. Social Security will kick in at 62 years old, which would give me a nice increase in income. The bulk of my money is currently in a Vanguard managed payout fund currently paying 7% which pays me $852 a month. In January the payout will be reduced to 4% which would significantly reduce my income. I am not crazy about the thought of giving up my principal to by the annuities, but at least I would not run out of money. Any comments? Thanks.
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Old 12-08-2013, 09:10 AM   #2
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I would dip into principal before tying up the vast majority of my money in a SPIA. It will give you much more flexibility going forward.

You could by the SPIA and die shortly after. Or get a job shortly after and wish you hadn't bought the SPIA.
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Old 12-08-2013, 09:34 AM   #3
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I would put a high priority on the job focus as the economy is getting better. You don't mention your location/skills/experience, but maybe a relocation to a hot job area (like Texas) may be something to consider? I agree with pb4uski's advice as to not pouring your cash into an annuity.
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Old 12-08-2013, 09:46 AM   #4
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Quote:
Originally Posted by pb4uski View Post
You could by the SPIA and die shortly after. Or get a job shortly after and wish you hadn't bought the SPIA.
Or not get a job, have inflation heat up and discover a few years down the road that your monthly SPIA income has far less buying power than today.

Inflation, even at modest annual levels, is insidious. I retired in 2005 and the $1.00 I spent back then is worth only $0.80 today - and the rate of inflation during those eight years has been below average.

Bottom line: I'd not put any more of my money in an annuity.
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Old 12-08-2013, 06:02 PM   #5
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If I do simple math, you invest $191K to get additional $940/mo ($11.28K/yr). $11.28/$191 = 5.91% return.

I think you can do better return than approx 6%. I realize the risk vs guaranteed return of annuity, but agree with the others to concentrate on job search, even if it means moving. Having the money in your control enables you to have flexibility later vs annuity gives no flexibility.
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Old 12-09-2013, 08:53 AM   #6
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While I'm a great supporter of the use of an annuity (specifically an SPIA) in specific situations, I question the percentage of your assets being used to purchase such "income products" (they are not investments, IMHO).

One of the questions asked (and we had to certify) upon application of my/our joint SPIA was that the purchase of the SPIA, along with all other retirement directed annuity products, did not exceed 50% of our total retirement assets.

It certainly seems that it does in your case - unless you have other income/retirement assets held outside your annuities that you just stated.

Since any annuity (and I'm refering exclusively to an SPIA - not an indexed annuity) is tying up your assets for the remainder of your life (assuming not a term specific product), I question the ability to provide increase in income for the long term, in order to meet/exceed unknown future inflation concerns. Our SPIA was purchased with only 10% of our then current joint retirement portfolio assets; the remaining funds are to do the heavy lifting to meet/exceed inflation in the future, over a long term. It seems that you may be putting a long term solution in place just to cover a short term condition - your current employment situation.

FWIW...
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Old 12-09-2013, 06:23 PM   #7
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Don't do it! (Buy more SPIA, that is).

"An income you can't outlive" and "guaranteed income for life" while true, don't really address the challenge we all face, that being securing "an income you can live on the rest of your life" (my quote).

As a previous poster said, the effect of even low inflation on what those insurance company marketing slogans want to lure you into doing, is devastating over your expected remaining life.

A diversified portfolio of the great companies (stocks) has been one of the simplest and most effective ways of maintaining and increasing your purchasing power over long periods of time. That, and getting a j*b, of course.
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Old 12-09-2013, 07:37 PM   #8
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Don't do it! (Buy more SPIA, that is).

"An income you can't outlive" and "guaranteed income for life" while true, don't really address the challenge we all face, that being securing "an income you can live on the rest of your life" (my quote).

As a previous poster said, the effect of even low inflation on what those insurance company marketing slogans want to lure you into doing, is devastating over your expected remaining life.
Although anything can change, if anything has been proven by postwar economics it is the constancy of some greater or lesser degree of inflation. It just does not go away. In light of this, to buy a fixed annuity is betting against the complete life experience of almost any of us here on this board today.

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Old 12-09-2013, 07:57 PM   #9
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OK. I will hold off on buying the annuities. I just hope I will get a job soon. Thanks.
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