Questions for lifetime annuity holders!

[ethernow]

Hi:

Before reading further, if you don't own an immediate annuity, I respectfully ask that you don't respond to my post! I'm seeking input only from individuals who are living-on the income from a lifetime immediate annuity (SPIA)!

I'm 57 and I retired nearly 2 years ago. I'm living on my pension plus 4% of my 401K balance, withdrawn annually. I'll rollover my 401K into my Vanguard IRA in about 2 years. I like the simplicity of a lifetime immediate annuity and, of course, Vanguard offers these! I'm considering purchasing an immediate annuity because, for the past 15 years, the stock market has been very volatile, while under-performing bonds in the long-term. Making a difficult investing environment even worse is the fact that bonds have recently lost their safe-haven status! Since I believe that the future will be even more challenging, an immediate annuity looks very enticing to me!

I'd like to purchase an immediate annuity that starts paying at age 60. Since I'm single, I don't need a death benefit. I plan-on using 90% of my IRA balance to purchase the annuity and leaving the rest in my IRA, for emergencies. According to Vanguard's annuity income calculator, I'd earn one-third more income from the immediate annuity than 4% of my 401K balance generates today! I realize that there are a number of drawbacks with annuities, but I'd like to focus this discussion on specific questions about the policy that you purchased and your experiences with the annuity.

1) What percentage of your nest egg did you use to purchase your annuity?
2) Did you limit the amount you invested to the maximum amount that your state's insurance protection agency will cover if the insurer fails?
3) Which insurer issued your policy?
4) Did you purchase a policy with inflation protection?
5) If you did not purchase inflation protection, do you regret not having it?
6) At what age did your annuity payments start?
7) Do you regret purchasing your annuity and, if so, why?

If there's anything that you believe is important, but I failed to ask, please include it in your reply!

Thanks!
John Swanson

 

[Texas Proud]

Hi:

Before reading further, if you don't own an immediate annuity, I respectfully ask that you don't respond to my post! I'm seeking input only from individuals who are living-on the income from a lifetime immediate annuity (SPIA)!
/snip/

Good luck with that request....

 

[Jerry1]

I look forward to this discussion. I have most of my money in 401K/IRA's, however, one pool of money is a cash option pension from work. It holds about 20% of my wealth and I have never put a dime into it. I can live pretty well on the other 80% at a 4% withdraw rate and have seriously considered moving that "pension" to an annuity when I retire. The thought of some "guaranteed" money appeals to me.

 

[haha]

Hi:

Before reading further, if you don't own an immediate annuity, I respectfully ask that you don't respond to my post! I'm seeking input only from individuals who are living-on the income from a lifetime immediate annuity (SPIA)!

I'm 57 and I retired nearly 2 years ago. I'm living on my pension plus 4% of my 401K balance, withdrawn annually. I'll rollover my 401K into my Vanguard IRA in about 2 years. I like the simplicity of a lifetime immediate annuity and, of course, Vanguard offers these! I'm considering purchasing an immediate annuity because, for the past 15 years, the stock market has been very volatile, while under-performing bonds in the long-term. Making a difficult investing environment even worse is the fact that bonds have recently lost their safe-haven status! Since I believe that the future will be even more challenging, an immediate annuity looks very enticing to me!

I'd like to purchase an immediate annuity that starts paying at age 60. Since I'm single, I don't need a death benefit. I plan-on using 90% of my IRA balance to purchase the annuity and leaving the rest in my IRA, for emergencies. According to Vanguard's annuity income calculator, I'd earn one-third more income from the immediate annuity than 4% of my 401K balance generates today! I realize that there are a number of drawbacks with annuities, but I'd like to focus this discussion on specific questions about the policy that you purchased and your experiences with the annuity.

1) What percentage of your nest egg did you use to purchase your annuity?
2) Did you limit the amount you invested to the maximum amount that your state's insurance protection agency will cover if the insurer fails?
3) Which insurer issued your policy?
4) Did you purchase a policy with inflation protection?
5) If you did not purchase inflation protection, do you regret not having it?
6) At what age did your annuity payments start?
7) Do you regret purchasing your annuity and, if so, why?

If there's anything that you believe is important, but I failed to ask, please include it in your reply!

Thanks!
John Swanson

I know the answers to each of your questions, but I am sorry I am not eligible to answer.

Ha

 

[ProspectiveBum]

Won't cashing out 90% of your IRA to buy the annuity cause a huge tax hit?

 

[zinger1457]

Won't cashing out 90% of your IRA to buy the annuity cause a huge tax hit?

No, the annuity is set up through the IRA, he'll just pay taxes on the annuity payments as if it was income.

 

[Brat]

So what happens when RMD's kick in?

 

[pb4uski]

A SPIA sidesteps RMDs, so only the OPs remaining balance would be subject to RMDs.

My understanding is that inflation protection/inflation adjusted annuities are hard to find these days other than one offered by the Social Security Administration, which is favorably priced and has been discussed on these boards ad nauseum.

 

[FIREd]

I will answer on my mother-in-law's behalf, since I helped her set up the SPIAs back in 2010.

1) What percentage of your nest egg did you use to purchase your annuity?
She used 100% of her IRA to purchase 2 SPIAs. She had no other investments. She was left with just $30K in an emergency fund.

2) Did you limit the amount you invested to the maximum amount that your state's insurance protection agency will cover if the insurer fails?
Yes, her IRA was around $200K, so we split it between two, $100K annuities.

3) Which insurer issued your policy?
We chose Penn Mutual and American General through the Vanguard Lifetime Annuity Program.

4) Did you purchase a policy with inflation protection?
The Penn Mutual annuity is not COLA'd, the American General annuity is CPI-adjusted.

5) If you did not purchase inflation protection, do you regret not having it?
In MIL's case, there were several considerations that drove our decision to purchase only one inflation-protected annuity. We made sure that her basic expenses would be covered by inflation-adjusted streams of income (social security + American General SPIA). At the time she had a lot of older pets and her pet expenses represented about 20% of her budget. We had projected that her expenses would actually drop somewhat as the older pets passed away (not to be replaced). So going with a non-COLA'd annuity (high initial payment that slowly gets eroded by inflation) to cover those expenses seemed like an OK strategy. All but one of her pets have since gone to the Rainbow Bridge, so her expenses should have dropped... but she recently found herself a beau and she is spending more money on entertainment. So it is a good thing that inflation has been relatively tame because her actual expenses have not gone down at all.

6) At what age did your annuity payments start?
I think she was 65 or 66 years old when the payments started.

7) Do you regret purchasing your annuity and, if so, why?
No, she does not regret purchasing those annuities. Her income is stable and predictable so budgeting is easy and she does not have to worry about the ups but mostly the downs in the stock market.

 

[utrecht]

Hi:

Before reading further, if you don't own an immediate annuity, I respectfully ask that you don't respond to my post! I'm seeking input only from individuals who are living-on the income from a lifetime immediate annuity (SPIA)!

I'm 57 and I retired nearly 2 years ago. I'm living on my pension plus 4% of my 401K balance, withdrawn annually. I'll rollover my 401K into my Vanguard IRA in about 2 years. I like the simplicity of a lifetime immediate annuity and, of course, Vanguard offers these! I'm considering purchasing an immediate annuity because, for the past 15 years, the stock market has been very volatile, while under-performing bonds in the long-term. Making a difficult investing environment even worse is the fact that bonds have recently lost their safe-haven status! Since I believe that the future will be even more challenging, an immediate annuity looks very enticing to me!



Thanks!
John Swanson

Pretty sure the bold statement is false.

 

[OAG]

Hi:

Before reading further, if you don't own an immediate annuity, I respectfully ask that you don't respond to my post! I'm seeking input only from individuals who are living-on the income from a lifetime immediate annuity (SPIA)!

I'm 57 and I retired nearly 2 years ago. I'm living on my pension plus 4% of my 401K balance, withdrawn annually. I'll rollover my 401K into my Vanguard IRA in about 2 years. I like the simplicity of a lifetime immediate annuity and, of course, Vanguard offers these! I'm considering purchasing an immediate annuity because, for the past 15 years, the stock market has been very volatile, while under-performing bonds in the long-term. Making a difficult investing environment even worse is the fact that bonds have recently lost their safe-haven status! Since I believe that the future will be even more challenging, an immediate annuity looks very enticing to me!

I'd like to purchase an immediate annuity that starts paying at age 60. Since I'm single, I don't need a death benefit. I plan-on using 90% of my IRA balance to purchase the annuity and leaving the rest in my IRA, for emergencies. According to Vanguard's annuity income calculator, I'd earn one-third more income from the immediate annuity than 4% of my 401K balance generates today! I realize that there are a number of drawbacks with annuities, but I'd like to focus this discussion on specific questions about the policy that you purchased and your experiences with the annuity.

1) What percentage of your nest egg did you use to purchase your annuity?
2) Did you limit the amount you invested to the maximum amount that your state's insurance protection agency will cover if the insurer fails?
3) Which insurer issued your policy?
4) Did you purchase a policy with inflation protection?
5) If you did not purchase inflation protection, do you regret not having it?
6) At what age did your annuity payments start?
7) Do you regret purchasing your annuity and, if so, why?

If there's anything that you believe is important, but I failed to ask, please include it in your reply!

Thanks!
John Swanson

#1: 21+ Years of my life.
#2: NA
#3: US Govt
#4: Yes
#5: NA
#6: 38 years
#7: No

Also have a second SPIA called SS purchased the last time at age 68 (COLA protected).

Also have a third one called a Traditional IRA now paying out under RMD and due to the increasing percentage tied to age consider it a Semi-COLA protected SPIA.

I know the above is probably not what you were looking (although I do think of them as a SPIA) and I probably will not actually purchase a SPIA on the civilian/open market. I am almost 75 years of age, widowed, and no longer see any value in a SPIA. I have outlived the last two generations of biologically related males in my family by about 25% so far so I do not see the value in a SPIA any longer.

OAG

 

[Running_Man]

I have an immediate annuity with a 4% annual step up, I started payments of $400 per month in December of 2007, at age 55 at I used it as a replacement of part of my long term bond portfolio, which I hold at 25% of my portfolio, I continue to consider this part of my long term bond portfolio for allocation purposes. State guarantees played no role in my decision, I had been considering a larger portion back then as I felt inflation was going to be well contained and with a 4% step up that this annuity was underpriced, this would result in a better than inflation investment going forward but I limited it to 1/3 of what I was considering, darn it. After 7 years it is paying $526 per month (inflation indexed would have been $456) and hopefully this can continue to exceed inflation, presently I am 15% ahead of inflation. Alas deals like this are no longer to be found.

Here is the thread where I originally discussed this:
http://www.early-retirement.org/forums/f28/4-graded-payment-in-annuity-as-fixed-income-portion-29859.html

 

[Gill]

1) What percentage of your nest egg did you use to purchase your annuity?

I don't have a single annuity, but rather 11 of them purchased over about seven years with about 25% of my nest egg.

2) Did you limit the amount you invested to the maximum amount that your state's insurance protection agency will cover if the insurer fails?

No

3) Which insurer issued your policy?

Seven different insurance companies.


4) Did you purchase a policy with inflation protection?

No

5) If you did not purchase inflation protection, do you regret not having it?

No, I have my inflation protection in common stock mutual funds, I-Bonds and TIPS.

6) At what age did your annuity payments start?

Nine contracts starting from age 72 to 77 with one deferred to age 85 and one to age 86. With exception of the latter two longevity annuities, all my annuities were purchased with the first payment deferred one year from purchase date.

7) Do you regret purchasing your annuity and, if so, why?

No, I'm happy I did and I may still purchase more. My guaranteed income from pension, SS and annuities now well exceeds my salary income at retirement.

Bruce

 

[zinger1457]

I purchased a SPIA a few years ago to help with my expenses until my pension and SS kick in. If you want good feedback it's probably a mistake to ask to limit the discussion to only those who have a SPIA. I’m sure many here have good reasons for not buying one. I would want to know both sides.

1) What percentage of your nest egg did you use to purchase your annuity? About 25%, using 90% of ones savings for an annuity would be way too much IMO.
2) Did you limit the amount you invested to the maximum amount that your state's insurance protection agency will cover if the insurer fails? No
3) Which insurer issued your policy? Penn Mutual
4) Did you purchase a policy with inflation protection? No
5) If you did not purchase inflation protection, do you regret not having it? No, I have other inflation protected sources of income and luckily inflation has been low in recent years.
6) At what age did your annuity payments start? 52
7) Do you regret purchasing your annuity and, if so, why? No, very happy with the decision but not sure I would purchase one today with the lower interest rates/payouts.

As far as a SPIA with inflation protection make sure you understand the fine print. Many limit the inflation protection to no more than 3%/year and a year with negative inflation could impact future inflation increases. There are other SPIA options to consider. Some have a cash certain option or a 10/20 year certain option. Basically if you die early your heirs will receive something. Of course selecting any of these options comes at a cost and reduces your SPIA monthly payout.

 

[ethernow]

Thanks for your help and people without annuties can join-in!

I want to thank those of you who have taken the time to reply to my post!

I should've stated that the reason that I want to hear only from immediate annuity holders is that, when I posted my query on other investor-oriented websites, I got a barrage of replies stating that I was going to make a huge mistake, even though the person replying doesn't own an annuity! Since my goal is to learn the real life experiences of annuity holders, I chose to focus on the this group! However, if those of you who don't own annuities want to reply, please do so!

If I decide to purchase an immediate annuity, this will happen early in 2018. Of course, your input, along with the events that occur prior to 2018, will help me make my decision!

Thanks for your help!
John Swanson

 

[Kimo]

I decided to buy 3 variable annuities at 100,000 each from Vanguard a few years back. They are great for me and I realize not everyone agrees with these. I plan on buying more when I turn 65 because then the income raises to 5%. Because these are VA most of your the questions don't apply, other than I am buying more. I saw your latest post and decided to let you know my experience with Vanguard annuities. (No, I don't work there )

 

[hurricane harry]

I am 55 and purchased a deferred annuity with a withdrawal start when I turn 58.
I used about 25% of my retirement savings. This should produce %25 of my retirement income.
I did not care about state insurance protection, the insurer has been around a long time, MetLife.
No inflation protection, do not care.
I have no regrets at this time, the product just seemed right for my situation. I gave this plenty of consideration.

 

[freebird5825]

At age 48, I converted my decent sized federal TSP account into an immediate fixed annuity at 5.25% interest, under a provision of the TSP program. I could not wait until I was 59 1/2 to use the other provisions of the TSP program. I needed the money in order to FIRE. I suffered no tax or early withdrawal penalty.

I am single (widowed). No children.

1) What percentage of your nest egg did you use to purchase your annuity?
I had over $300K in my TSP account. Cannot remember what percentage of my nest egg that constituted at the time, July 2007.
2) Did you limit the amount you invested to the maximum amount that your state's insurance protection agency will cover if the insurer fails?
It turns out that I was under the maximum amount for NY, which I believe is $500K. I did not know about this issue when I did the conversion. It would not have altered my decision.
3) Which insurer issued your policy?
MetLife, under contract with OPM.
4) Did you purchase a policy with inflation protection?
No.
5) If you did not purchase inflation protection, do you regret not having it?
No. I have used a lot of the annuity payments to continue adding to the principal of an existing VWALX account, earning pretty decent tax exempt returns on it. In this manner, I created my own inflation match/beater on the funds dispersed via the annuity. So far so good.
6) At what age did your annuity payments start?
48 years, 10 months was my age when the paperw*rk cleared 4 months after I submitted it. I made a slight mistake on the application.
7) Do you regret purchasing your annuity and, if so, why?
Not at all. My relatively young age, plus the 5.25% interest for the life of the annuity, made taking the TSP conversion to an immediate fixed annuity completely sensible in my own particular circumstance.

If I had to purchase an annuity out in the open market, i.e. not under the OPM contract with MetLife, I'm sure I would have done things a little differently. No regrets.

 

[zinger1457]

If I had to purchase an annuity out in the open market, i.e. not under the OPM contract with MetLife, I'm sure I would have done things a little differently.

Why is that? When I purchased my SPIA I transferred money from my TSP to an IRA and setup a SPIA through that. I found I could get a better return on a SPIA on the open market than what MetLife offered through the TSP.

 

[freebird5825]

Why is that? When I purchased my SPIA I transferred money from my TSP to an IRA and setup a SPIA through that. I found I could get a better return on a SPIA on the open market than what MetLife offered through the TSP.

Because at the time, and my age at conversion, it was an all or nothing deal with the TSP to annuity conversion. Maybe the TSP rules have changed since 2007, but that was the best option I had at the time. I also had to make sure I would not incur any tax penalties from the IRS.
I ran all this by the personnel dept and an independent accountant to make sure I was doing the right things.
I had just under 8 years to go from FIRE (I resigned, not retired) until I could draw my own deferred FERS pension. The annuity plus my survivor pension was my income to get me through those years without touching my mutual funds in my retirement portfolio.
It all w*rked out. I am now drawing my own FERS pension when I turned 56 in fall 2014.
So far, I have been paid roughly half the original principal I had in my TSP. Another 8 years and it will be just about the break-even point, not even adding the interest.
And that check will just keep on coming as long as I'm exchanging oxygen.

 

[ethernow]

Anybody have an annuity from Fidelity Investments?

Hi,

I recently compared the yields of lifetime SPIAs from Fidelity Investments vs Vanguard and was surprised to see that the Fidelity Investments annuity pays $136/mo more than Vanguard's! The yields were generated by the annuity income calculators on their websites and I assume that, if I ask for a quote from one of their agents, I'd get a different number. However, since I'm about 2 years away from purchasing the annuity, I'm merely performing research at this time!

Although most people will probably agree that it's obvious that I should purchase an annuity from Fidelity Investments, my former employer's 401K plan is with Fidelity and they scare the s*** out of me for reasons that I'd rather not delve-into now! However, I believe that it's possible that I'll get a different outcome if I have my IRA with this firm!

I've read that one of the problems with fixed SPIAs is that they provide too much income early in retirement and not enough as the retiree ages. One aspect of Fidelity's website that I like is that the annuity income calculator can provide a quote for an annuity with a 2% annual payment increase. I fed the initial payment amount into a Linux shell script that I wrote to calculate the annuity payments for 30 years. I learned that the fixed annuity pays 21% more the first year and beats the 2% annual increase annuity for 13 years. However, in the 30th year, the 2% annual increase annuity pays 40% more than the fixed annuity! Since I think that I'm going to beat the longevity odds, I'm planning on purchasing either a Fidelity, or Vanguard, SPIA that provides a fixed annual increase!

Although I have a retirement plan, I'd like feedback from retirees with an annuity from Fidelity Investments, because I've read enough complaints about this firm to be concerned!

Thanks!
John Swanson

 

[pb4uski]

Fidelity is only the broker for the annuities, which are issued by insurance companies.

See https://www.fidelity.com/annuities/immediate-fixed-income-annuities/compare

 

[nun]

1) What percentage of your nest egg did you use to purchase your annuity?

18%, I bought service in a state pension plan rather than an annuity

2) Did you limit the amount you invested to the maximum amount that your state's insurance protection agency will cover if the insurer fails?

No I wouldn't, I'd buy from an insurer like TIAA, METLife or through Vanguard........

3) Which insurer issued your policy?

A US state..

4) Did you purchase a policy with inflation protection?

My state penson has a COLA, but I wouldn't purchase inflation protection on an SPIA as they are poor value for money

5) If you did not purchase inflation protection, do you regret not having it?

N/A

6) At what age did your annuity payments start?

55

7) Do you regret purchasing your annuity and, if so, why?

No

I'm not sure if an SPIA is appropriate for you as you don't tell us anything about your finances, current AA or need for income. But I would not buy one with inflation protection, I would only buy a fixed annuity....no variables and I would not spend more than 20% on one.

Are you interested in current income or longevity insurance, if the latter think about a QLAC.

 

[courtjustshan]

I purchased a Deferred Income Annuity at age 51. My former megacorp was giving me an additional 35% in my pension account if I took a lump sum, so I decided to treat it like found money and took a portion of it and purchased a DIA

1) What percentage of your nest egg did you use to purchase your annuity? I used 20% of my total nest egg for the DIA. I am a big believer in the bucket strategy, DIA is just a bucket to me.

2) Did you limit the amount you invested to the maximum amount that your state's insurance protection agency will cover if the insurer fails? I went above the amount in PA (250K), but not by a huge amount.

3) Which insurer issued your policy? Mass Mutual had the best deal by a fair amount. Realize that the Fidelity site calculator typically calls out Mass Mutual for the numbers. I crunched numbers from a dozen insurance companies and worked deals with all through their rep networks on my own. At the end of the day, its a contract between an individual and a company, I want as few people in the middle as possible.

4) Did you purchase a policy with inflation protection? No, longevity does not run in my family and with a run rate of 13 or so years to the breakeven point, I decided to not go that way direction.

5) If you did not purchase inflation protection, do you regret not having it? No, I look at this as basic living expense money long term. It will be triple that to start with, but when my electric bill is $700 some day, I will still be OK. It is purely for paying basic bills for me, OpEx.

6) At what age did your annuity payments start? I purchased at 51, plan to start payments at 55. I am currently 52.5, my FIRE date is in 2 years. I plugged in all of the numbers into FIRE and even w/o inflation adjustment, all my scenarios were in the black so to speak.

7) Do you regret purchasing your annuity and, if so, why? I don't regret it. I feel that at 20% of my egg, it was a sensible choice that fit as both a replacement for my ballooned pension lump sum as well as a compliment to passive real estate investment income, IRA and brokerage account. Its interesting in that with the market relative flatness over the past 18 months, it has calmed my initial buyers remorse. I am only up 2-3% for 2015 to date (I am pretty conservative), so the ho hum returns made me feel OK with not being "all in". Also, other than a ladder strategy with CD's or bonds, this seemed to be a reasonable bucket. Lastly, I have a wife and I did choose 100% survivor income for her and 30 year period certain if we both kick for my kids. The annuitized monthly payment was negligible for those options.

Hope this helps with your decision. I know there are many nay sayers, but for us "lump summers", it seemed like a reasonable strategy. I analyzed the crap out of in my own unique OCD way for a few months before I pulled the trigger. My portfolio was up almost 15% in early 2014, so I decided to take that tailwind along with the extra incentive money and pull the trigger.

My 2 cents.

 

[Kimo]

FWIW, my situation is completely different but I do have 3 annuities with Vanguard and it was one of the best financial decisions I made. It sounds like you have done the research and I am sure that at some point after 55 you will be very happy with your decision.