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Pension decision
Old 08-03-2009, 01:29 PM   #1
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Pension decision

I am pondering what to do with my wife’s lump sum pension. She will be receiving it around October 1 of this year. It is around 400K and will represent about 50% of our total retirement assets. We are both 55 years old and want to retire at 62. I have been approached by a financial advisor who wants to sell us a variable annuity with about half of our money. This product has a guarantied return rate of 7 percent on the income side and investment return rates on the cash side. At 62 we can withdrawl up to 5% a year on the income side. This product has a high fee structure of around 3.75 percent annually. The second product, from another advisor is a fixed annuity which pays 8 percent simple per annum plus a 10% signing bonus. This product on the cash side guaranties no loss of initial investment and upside potential based on stock market returns. A third product buys whole life insurance products from high risk individuals and pays them more then the cash value to sign over the high cost policies. When they die we collect. Morbid huh! I could also go with a conservative spread of mutual funds and etf’s with Fidelity. I want some advice and your reasons why. Thanks in advance.
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Old 08-03-2009, 01:36 PM   #2
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The first thing I think you should do is roll the money into an IRA fund (maybe a money market) until you decide what is best for you. Take your time. Annuities around here are looked down on because of the cost. Don't buy an annuity until you completely understand them; because if you change your mind later, more than likely you'll have to pay a huge surrender fee.

Number three might not be a scam, but it sounds "scamish" to me. I wouldn't touch that one

Fido mutual funds and bond funds would be my pick.
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Old 08-03-2009, 01:52 PM   #3
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The buying insurance policies was popular years ago especially with aids patients but it has lots of scam potential .

Viaticals: Watch Out!
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Old 08-03-2009, 02:07 PM   #4
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The first thing I think you should do is roll the money into an IRA fund (maybe a money market) until you decide what is best for you. Take your time.
I fully agree with this advice.

When I retired, I had the same decision to make, and a lot of research to do before I made a decision on my lump sum and the various options related to different annuity types (or none at all).

While I finally decided on an SPIA (Single Payment Income Annuity), that was the right thing to do for me (and my wife, since it is held jointly).

For you? Don't know, nor would I ever tell you what you should do. The only advice I would give is simply take your time and learn what the options could be. Also give some thought about breaking it up among more than just one investment vehicle, if it makes sense. You don't invest in just one fund; it may make sense with this amount of money to do the same.

Here's a couple of links that I've referenced in the past, on the subject that helped me make a decision (in my case):

Money Magazine, Retirement Guide. Income plan - Sep. 12, 2006

Immediate Annuities in Retirement
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Old 08-03-2009, 02:21 PM   #5
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Annuitizing makes sense if you know what asset allocation you want and can pay the absolute minimum for the security you're seeking. Otherwise you're heavily overpaying for slick marketing and the privilege of chasing yield.

And from Greaney's Retire Early Home Page, a little perspective on why even cheap annuities cost so much:
The high cost of a no-fee, no-commission Single Premium Immediate Annuity (SPIA).
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Old 08-03-2009, 02:31 PM   #6
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You say you were approached by a financial advisor. How did this advisor hear about you? I'd never buy anything form someone who approached me. What I'd do would be to roll over to a MM in an IRA and start doing your own research. If you are interested in annuities go with a product from a highly rated company.

I use an annuity as my foundation, so safety is upmost. Most of my money is in CDs and mutual funds, but I also have a TIAA-CREF teachers annuity as part of my fixed income. I think the security of an annuity is nice to have, but it should only form part of a balanced portfolio and many of the products out there are just plain rip offs so be very careful.
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Old 08-03-2009, 02:57 PM   #7
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The buying insurance policies was popular years ago especially with aids patients but it has lots of scam potential .

Viaticals: Watch Out!
Thanks Moe...I had no idea where to look.
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Old 08-03-2009, 03:15 PM   #8
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If you don't read Scott Burns, I would start. I have read most of his articles, and they make since to me.

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Old 08-03-2009, 03:55 PM   #9
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I don't see these "advisors" doing you any good. They are selling you products that earn themselves good commissions. I'd suggest parking the money in an IRA and reading up on investment basics yourself. No one will care about this money as much as you do, except for the part the "advisors" think they can get from you as commissions, and many of them care about that part too much to give objective advice.
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Old 08-03-2009, 03:59 PM   #10
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I have been approached by a financial advisor who wants to sell us a variable annuity with about half of our money.
Run away. Run away!

Q~Why put deferred $ (pension plan) into a deferred product (VA)?

A~So the insurance agent (ok, "advisor") can increase his retirement plan.
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Old 08-03-2009, 04:57 PM   #11
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I have been approached by a financial advisor who wants to sell us a variable annuity with about half of our money. This product has a guarantied return rate of 7 percent on the income side and investment return rates on the cash side. At 62 we can withdrawl up to 5% a year on the income side. This product has a high fee structure of around 3.75 percent annually.
On this product, check out Moshe Milevsky's analysis;

What is a Guaranteed Rate Really Worth?

btw - I think Greeney's suggestion of delaying SS is an excellent one.
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Old 08-03-2009, 07:34 PM   #12
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Does she have to take it as a lump sum?
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Old 08-04-2009, 06:52 PM   #13
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She can take it as lump sum or an immediate annuity. The immediate annuity if it pays out for both of our lives is $2178 per month, and if it is just her is $2365 per month.
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