How much of your retirement income is "guaranteed"?

[Bikechuck]

Interesting thread. A month or two ago I realized that I have a small IRA (with approx $15K) that I established with a bank approx 30 years ago and pretty much forgot about. Recently I called the insurance co that holds this investment. Turns out it has a lifetime guaranteed minimum annual return of 4.5%, I can add new money to it that will also pay a minimum of 4.5% and there is no waiting period for getting any new money out if invested.

I plan to push approx $400K into this investment through 403B rollovers and use this as a bond substitute. I do not want to go much higher than $400K because ya never know if an insurance co can go belly up. This one is highly rated by BEST and has been in business for over 90 years but still I do not want to put too many eggs in one basket.

Good idea?

 

[nun]

Interesting thread. A month or two ago I realized that I have a small IRA (with approx $15K) that I established with a bank approx 30 years ago and pretty much forgot about. Recently I called the insurance co that holds this investment. Turns out it has a lifetime guaranteed minimum annual return of 4.5%, I can add new money to it that will also pay a minimum of 4.5% and there is no waiting period for getting any new money out if invested.

I plan to push approx $400K into this investment through 403B rollovers and use this as a bond substitute. I do not want to go much higher than $400K because ya never know if an insurance co can go belly up. This one is highly rated by BEST and has been in business for over 90 years but still I do not want to put too many eggs in one basket.

Good idea?

Alarm bells go off. Investing with insurance companies is nearly always a bad idea....

What is this account exactly.......a deferred variable annuity? fixed? hybrid? What exactly are the surrender rules. Is 4.5% the interest rate or a payout rate?

 

[Bikechuck]

Alarm bells go off. Investing with insurance companies is nearly always a bad idea....

What is this account exactly.......a deferred variable annuity? fixed? hybrid? What exactly are the surrender rules. Is 4.5% the interest rate or a payout rate?

Thank you for asking and for expressing concern, however in this case I do not hear alarm bells.

The 4.5% is a guaranteed interest rate. Since it is an IRA, I can withdraw, all, some or none of the money at any point now that I am past 59 1/2 without a tax penalty. If I withdraw half, the remaining balance will earn a guaranteed minimum 4.5%. If I double the amount in the account, the new balance will earn a minimum 4.5%.

I noticed that it was accruing interest at 4.5 % on the small balance that I have invested in the account over the past year. I checked and sure enough it earned 4.5% each of the past several years. I called and they said that I can add money to it and that the new money will earn 4.5%.

I think that it is very similar to TIAA traditional. I have some money in that as well but it only earns a guaranteed 3.5% and TIAA traditional limits annual withdrawals to 10% of the balance. There is no such limitation on this account.

When I first established the account ~ 30 years ago, I did have a seven year period during which if I made a withdrawal it would be subject to a penalty, however that has come and gone a long time ago and adding money does not kick off a new seven year waiting period.

Seems like a good deal to me

 

[nun]

Thank you for asking and for expressing concern, however in this case I do not hear alarm bells.

The 4.5% is a guaranteed interest rate. Since it is an IRA, I can withdraw, all, some or none of the money at any point now that I am past 59 1/2 without a tax penalty. If I withdraw half, the remaining balance will earn a guaranteed minimum 4.5%. If I double the amount in the account, the new balance will earn a minimum 4.5%.

I noticed that it was accruing interest at 4.5 % on the small balance that I have invested in the account over the past year. I checked and sure enough it earned 4.5% each of the past several years. I called and they said that I can add money to it and that the new money will earn 4.5%.

I think that it is very similar to TIAA traditional. I have some money in that as well but it only earns a guaranteed 3.5% and TIAA traditional limits annual withdrawals to 10% of the balance. There is no such limitation on this account.

When I first established the account ~ 30 years ago, I did have a seven year period during which if I made a withdrawal it would be subject to a penalty, however that has come and gone a long time ago and adding money does not kick off a new seven year waiting period.

Seems like a good deal to me

It sounds good. What is the product......how is it invested. is it truly a deferred fixed annuity?

 

[Bikechuck]

It sounds good. What is the product......how is it invested. is it truly a deferred fixed annuity?

The company refers to it as an "All Saver's Annuity". It is not a deferred fixed annuity since the current 4.5% return is a guaranteed minimum return.

That likely makes it a variable annuity (which can be a four letter word in this community) but there are no fees and the Insurance co. is making their money on spread income between what they have the money invested in and the return they are paying me.

My plans are to use this and my TIAA traditional as a substitute for bonds in my portfolio. As I previously said, I doubt that I will push more than $400K into this investment. With a guaranteed minimum 4.5% return, I doubt that I will ever annuitize this account.

 

[nun]

The company refers to it as an "All Saver's Annuity". It is not a deferred fixed annuity since the current 4.5% return is a guaranteed minimum return.

That likely makes it a variable annuity (which can be a four letter word in this community) but there are no fees and the Insurance co. is making their money on spread income between what they have the money invested in and the return they are paying me.

My plans are to use this and my TIAA traditional as a substitute for bonds in my portfolio. As I previously said, I doubt that I will push more than $400K into this investment. With a guaranteed minimum 4.5% return, I doubt that I will ever annuitize this account.

VAs are four letter words for good reasons. The fact that you don't specifically know its structure means that you should not invest in it until you know absolutely everything about it and then if it is a VA I would probably avoid it. I also doubt that there are no fees, you might not be aware of them, but I bet they are in there.

TIAA-Traditional is good because they tell you your interest rate after all their expenses have been taken out, so if you get 3% minimum and they declare a 1% additional rate for that year you will get the full 4%. You can also keep all your principal, the only downside is the 10 year access period. So using it as a bond replacement is ok.

 

[athena53]

In our case, about 28%. That's DH's SS and my $933/month pension. This will improve over the next few years; I plan to start a second pension at age 65, in February, 2018, that will pay $1K/month (the $933 pension started at 60, no choice on that). Neither has COLA. I'll also file for SS Spousal at 66 and then my own SS at 70.

 

[Independent]

The company refers to it as an "All Saver's Annuity". It is not a deferred fixed annuity since the current 4.5% return is a guaranteed minimum return.

That likely makes it a variable annuity (which can be a four letter word in this community) but there are no fees and the Insurance co. is making their money on spread income between what they have the money invested in and the return they are paying me.

My plans are to use this and my TIAA traditional as a substitute for bonds in my portfolio. As I previously said, I doubt that I will push more than $400K into this investment. With a guaranteed minimum 4.5% return, I doubt that I will ever annuitize this account.

By my definition, that is a "deferred fixed annuity". There is no equity component, the company simply declares a rate, subject to a 4.5% minimum.

I have something similar that I bought in 1981 when the "current" rate was 10+. The "guaranteed minimum" was 4.5%, and I thought that was laughably low. It's not a big part of our portfolio, but I'm holding on to it.

I just checked the contract. It's a "flexible premium" (FPRA), but I lost the right to add more money when I went more than 5 years without paying a premium.

 

[nun]

By my definition, that is a "deferred fixed annuity". There is no equity component, the company simply declares a rate, subject to a 4.5% minimum.

I have something similar that I bought in 1981 when the "current" rate was 10+. The "guaranteed minimum" was 4.5%, and I thought that was laughably low. It's not a big part of our portfolio, but I'm holding on to it.

I just checked the contract. It's a "flexible premium" (FPRA), but I lost the right to add more money when I went more than 5 years without paying a premium.

If the annuity contract was purchase a long time ago it could have a high guaranteed return. I have some TIAA-Traditional money accruing at 7% but the money was invested 25 years ago. But before any money is transferred the plan should be thoroughly understood.

 

[jimnjana]

Military pensions and VA disability fund about 80% of our retirement. Rental income had accounted for the rest. Transitioning a bit now as we are selling our old rentals, and buying a new vacation rental in Asheville NC. We're cutting our real estate investment in half and will move towards more of a balance between equity investments and rental income. DW will be eligible for SS next year but we will delay for now.

 

[ChicagoGal]

Not retired yet, but my percentage will vary. If all goes according to plan, when I retire in 4 years, my non-COLA pension will cover roughly 50% of expenses.

Assuming I start taking SS at 67, due to inflation the non-COLA pension will be a smaller percentage, but adding SS to it the 'guaranteed' portion should be roughly 70% of expenses.

We'll see how it all works out

 

[freebird5825]

Close to 100%...modest CSRS survivor pension with COLA, my own small FERS pension without COLA, and TSP converted to immediate annuity with MetLife. All safe and steady, but none hitting the ball out of the park.

I have a modest retirement portfolio as a backup in case inflation causes my COL to get beyond what my "guaranteed" income sources can accommodate.

I have a decent SS benefit available from my w*rk record, but that is still 5 years away from minimum eligibility at age 62. And yes, I am going to take SS at age 62.