Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Simple question re: annuity
Old 09-11-2018, 08:58 AM   #1
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
imoldernu's Avatar
 
Join Date: Jul 2012
Location: Peru
Posts: 6,281
Simple question re: annuity

No big deal, but thought it needed some other opinions. Jeanie and I are in different camps.

Involves a simple annuity, that started in 1984, when jeanie received an $8000 annuity when her mom passed away. In the beginning the interest rates were really high, in the 11%+ range, but gradually reduced to the current minimum of 4%.

Here'[s where it stands today:
Total annuity value. $65K
Surrender value $56K
If we take the annuity today, It will pay $701.01 per month for 10 years.

If we leave it, and don't do anything, the surrender value grows at 4%.

Now... here's the small question... Since we retired, in 1989, our income/outgo balance has kept us under the income tax limits, so no income taxes. I still file, (but don't have to) just to stay out of any possible trouble.
Should we take the monthly pay out, or just leave it for the capital to grow at 4%.

Currently in the slowdown period of life at age 82, we don't have high expenses, and strange as it seems, no real needs or even wants.

So... no big deal, but thought it might be an interesting question.
__________________

__________________
School 22 yrs... Work 30 yrs... Retired 32 yrs... Married 62 yrs... Age 84...
imoldernu is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 09-11-2018, 09:20 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 23,456
$701.01 for 10 years for $56,000 seems too good to be true.... payments of $84k vs surrender value of $56k if taken in cash today.... that is a 9.8% internal rate of return. (IRR is 5.5% based on $65k annuity value). I assume that if she were to die before the end of the 10 years that the remaining payments would go to heirs.... right?

The $701.01/month would probably be mostly or all taxable so would increase your income by $8,412/year at most. You could add that to your last year's taxable income and see if the added income might be subject to tax.
__________________

__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...60/35/5 AA
pb4uski is offline   Reply With Quote
Old 09-11-2018, 10:16 AM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
imoldernu's Avatar
 
Join Date: Jul 2012
Location: Peru
Posts: 6,281
Quote:
Originally Posted by pb4uski View Post
$701.01 for 10 years for $56,000 seems too good to be true.... payments of $84k vs surrender value of $56k if taken in cash today.... that is a 9.8% internal rate of return. (IRR is 5.5% based on $65k annuity value). I assume that if she were to die before the end of the 10 years that the remaining payments would go to heirs.... right?

The $701.01/month would probably be mostly or all taxable so would increase your income by $8,412/year at most. You could add that to your last year's taxable income and see if the added income might be subject to tax.
Thanks... That put into context what I was fuzzily thinking. We're right on the edge of taxable income, so it looks like the tax on the $8400 would be about $1000.

Re: the heirs... I'm not sure. The 12 page contract is too hard for me to understand, but from what I thought in the beginning, the remainder that would would go back to the heirs, would be based on the remaining cash out value... not the pay out. If that happened, then the inheritance tax would end up around 35%. To put a fine edge on that, if the payout by month went for 5 years,
8400 X5 =42,000 less 5,000 taxes =37,000.
65,000 current annuity value, less 5 yr payout of 42,000, equals $23,000 which would go to heirs and be taxed at an estimated 35%, leaving $14,000.

If that's right, after 5 years, the total "spendable value" would be $37,000 plus $14,000 or a total of $51,000.

Yes... before anyone says.. nitty gritty on such a small amount. My thought went beyond our own situation to what might be the case for someone buying an annuity today... Obviously at a much, much higher initial cost.

Here's a calculator that might help in making a decision.
https://www.newretirement.com/servic...alculator.aspx
__________________
School 22 yrs... Work 30 yrs... Retired 32 yrs... Married 62 yrs... Age 84...
imoldernu is offline   Reply With Quote
Old 09-11-2018, 10:49 AM   #4
Moderator
Jerry1's Avatar
 
Join Date: Nov 2014
Posts: 3,034
If you want to leave the money to someone or some organization upon your passing, I would continue to let it grow at the 4%. Wouldn’t it pass at the current value tax free? If you want to give it to charity, maybe you could find a way to donate the payments to them while living so you get the benefit of seeing the money being used. Unfortunately, You likely can’t just take the payments and then write a check for the same amount so it would be tax deductible, since you’re probably using a standard deduction.

If I don’t need the money, I like letting it grow. There may come a day when you do need it. Never know.
__________________
Every day when I open my eyes now it feels like a Saturday - David Gray
Jerry1 is online now   Reply With Quote
Old 09-11-2018, 10:55 AM   #5
Moderator
Jerry1's Avatar
 
Join Date: Nov 2014
Posts: 3,034
Quote:
Originally Posted by imoldernu View Post
before anyone says.. nitty gritty on such a small amount.
Itís not a small amount. I remember sitting down with the Fidelity rep and the look on her face was precious when I told her my $40,000 annuity was something I didnít really care about. That it was just something I bought because I wanted to understand annuities better. She said something like ďonly $40K? Some people donít make that much in a yearĒ. Thatís went I felt we had a good rep. Unfortunately, she moved on.
__________________
Every day when I open my eyes now it feels like a Saturday - David Gray
Jerry1 is online now   Reply With Quote
Old 09-11-2018, 01:20 PM   #6
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 15,302
Just curious... why taxed at 35%?


Is the payout to heirs considered life insurance? My mom has an annuity that is growing at 4% and I just leave it since that is a good rate right now... but it has a life insurance component to it and as long as she does not take the money it will be distributed as life insurance with zero tax.


BTW, the annuity is not in her name anymore... we moved it to a trust in '89...
Texas Proud is offline   Reply With Quote
Old 09-11-2018, 01:50 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
imoldernu's Avatar
 
Join Date: Jul 2012
Location: Peru
Posts: 6,281
Quote:
Originally Posted by Texas Proud View Post
Just curious... why taxed at 35%?


Is the payout to heirs considered life insurance? My mom has an annuity that is growing at 4% and I just leave it since that is a good rate right now... but it has a life insurance component to it and as long as she does not take the money it will be distributed as life insurance with zero tax.


BTW, the annuity is not in her name anymore... we moved it to a trust in '89...
Hmmm thanks...I didn't know about that... just assumed the tax rate was based on the total amount of the inheritance. I'm not very smart about these things. Back to the drawing boards. Will call the company.
__________________
School 22 yrs... Work 30 yrs... Retired 32 yrs... Married 62 yrs... Age 84...
imoldernu is offline   Reply With Quote
Old 09-11-2018, 02:57 PM   #8
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
 
Join Date: May 2005
Posts: 15,302
Quote:
Originally Posted by imoldernu View Post
Hmmm thanks...I didn't know about that... just assumed the tax rate was based on the total amount of the inheritance. I'm not very smart about these things. Back to the drawing boards. Will call the company.



If you estate is big enough then you will owe estate taxes on it as long as you own it... when we put my mom's annuity in a trust a long time ago the estates were taxed at a much lower asset level...



Be aware that not all annuities have a life insurance component to them... we bought on that specifically had one so we would not have to pay income tax if it was never used...





https://www.elderlawanswers.com/make...our-death-8296
__________________

Texas Proud is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
E-file a simple Tax return - best simple software/SS? ERD50 FIRE and Money 16 04-10-2016 12:22 PM
Single Life Annuity or Joint Survivor Annuity Chief322 FIRE and Money 19 09-27-2015 06:45 AM
Oil - Simple question, Simple answer? imoldernu FIRE and Money 14 12-18-2014 03:31 PM
Annuity post to end all annuity posts... Midpack FIRE and Money 61 07-09-2008 08:29 AM
Rolling over annuity money to Variable Annuity?? bigcedargrandma Hi, I am... 4 03-20-2008 07:39 AM

» Quick Links

 
All times are GMT -6. The time now is 02:44 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2019, vBulletin Solutions, Inc.
×