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use cash or withdraw from ira
Old 06-21-2014, 11:00 PM   #1
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use cash or withdraw from ira

Hey all, just a basic question. My situation is thus, I have a tax deferred IRA of $1,000,000.00 and also $300,000.00 in cash in bank. Recently visited a FP who advised me to purchase a $500,000.00 Jackson Variable Annuity,hold for about 5 years which would earn 5% then start to withdraw from it., while using my cash ($3000) month to live on to add to my SS and small pension.My question is is it better to go through all this already taxed cash or start drawing from my 1 million IRA?
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Old 06-21-2014, 11:03 PM   #2
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Dump your FP. VAs suck. Not real keen on JNL either.
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Old 06-21-2014, 11:25 PM   #3
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Did the FA explain to you ALL the fees/commissions on the VA? Where is the $500K coming from? The IRA?
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Old 06-21-2014, 11:41 PM   #4
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Yes fees would be about 3 1/2%, $500K is from 1 MIL IRA. He feels Jackson returns are better than other Annuitys.
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Old 06-21-2014, 11:50 PM   #5
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Don't know your age but what is your eligibility with respect to Social Security? You might consider treating your future SS income as an annuity. Better still, defer SS until age 70 and you will receive a bonus of 8% for every year of deferral after your Normal Retirement Age (Maximum of 3 to 4 years for most of us)
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Old 06-21-2014, 11:56 PM   #6
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Am on SS Now ,I am 61 on SS disabilty
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Old 06-22-2014, 12:18 AM   #7
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Yes fees would be about 3 1/2%, $500K is from 1 MIL IRA. He feels Jackson returns are better than other Annuitys.
So 3.5% fees and 5% return give you 1.5% net on the VA (and I am pretty certain the 5% is not guaranteed). Not a good return on the surface.

It doesn't make sense to purchase a high fee annuity in an IRA as you have to pay ordinary income tax on the withdrawals when taking them out of the IRA. Why not just put the IRA money in low cost ETFs or similar? You will probably do better.

Did the FA give you proof that Jackson returns are "better" than the hundreds of insurance companies selling these high priced products (BTW they (annuities) are not investments, they are insurance products).
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Old 06-22-2014, 01:02 AM   #8
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5% is guaranteed till your start to take withdrawals. I,ve heard the term ETF,s but embarassly don,t know what they are. Really if I could put the 1 mil ira into a vehicle that would get say 4% and draw $3000 a month from it and allow maybe 2% for inflation I should have more than enough to last me 30 years. Getting back to my original question am I better to use my cash now or start withdrawing from my IRA? Thanks
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Old 06-22-2014, 02:52 AM   #9
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In our area, $500k would get you six rental properties, that would pay around $800 per month each in rent before 10% mgt fees.
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Old 06-22-2014, 04:49 AM   #10
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Also, did he mention that you will have to tap your after tax account to pay the tax on that $500K coming out of the IRA? That's a hefty expense for the first year, and needs to be factored in.
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Old 06-22-2014, 05:53 AM   #11
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It is not clear to me what problem you are trying to solve. In any event, it does not look to me that giving away your money to the FP and an annuity company is a solution to any problem.

Are you trying to buy a single-premium immediate annuity?
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Old 06-22-2014, 06:32 AM   #12
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What is your IRA invested in now? Did you self direct that? Are you happy with it?

I don't get the math on annuities even without considering the fees. Someone wants me to give them half my money for $25k a year? Listen to the folks here before you act.
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Old 06-22-2014, 06:56 AM   #13
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Really if I could put the 1 mil ira into a vehicle that would get say 4% and draw $3000 a month from it and allow maybe 2% for inflation I should have more than enough to last me 30 years.
With current rates you may as well be looking for a herd of powder blue unicorns. No such 'vehicle' exists, at least not in the world of annuities.

Listen to what other posters are telling you. Your FA is trying to sell you something that takes care of his financial needs, not yours.
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Old 06-22-2014, 07:16 AM   #14
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Selling annuities seems like a MUCH better deal for the seller, not the buyer. You should check with your state and determine what you'll get if the insurance company you bought your annuity from goes under. For some states, it's 100K. Do you want to be running financial checks on your insurance company for the rest of your life - to insure they can pay the annuity?
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Old 06-22-2014, 07:47 AM   #15
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How is the IRA invested?

I wouldn't turn over 1M to someone who is basically a sales guy that will profit greatly from what he sells to you.
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Old 06-22-2014, 07:54 AM   #16
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Listen to what other posters are telling you. Your FA is trying to sell you something that takes care of his financial needs, not yours.
Read the above again and again.

If you need financial help, my suggestion would be to find a qualified fee-only CFP who charges an hourly rate only and does not charge an AUM fee.
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Old 06-22-2014, 07:59 AM   #17
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Yesterday on a podcast I listened to a FP defend a VA that sounds exactly like this one. When she was asked about the effects mentioned on the IRA taxation/penalties she offered two paths:

1) Keep the VA inside the IRA so no taxes would be due. That means, pay extra for tax deferral when you already have it.
2) Pay the penalties and taxes since the guarantee that the principal will "never go down" is worth the cost.

I think she truly believed she was doing the right thing and was helping her clients. She just didn't seem to know enough to understand the alternatives since that was what her company taught her was right. Of course, they didn't teach the cons, just the pros.

I think the biggest issue with these products is that it is too easy to become a financial advisor. The two I've met with (free access with our company plans) for portfolio ideas and review seemed to know much less than I did about the VA's they both tried to sell me.

I believe that there can be a place for a SPIA in some portfolios, but I'd run from anyone that leads with a VA as a panacea for all things.

If you are still considering the VA I suggest you read up on the pros and cons and come back to your FA armed with questions. I predict you'll see a change in their tones when the hard questions are asked. That's what happened in my cases.

If nothing else, I suggest you also meet with a planner from one of the discount brokerages. $1M gives you great access to planners at Vanguard and others that will help you plan for free or for a much smaller fee.
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Old 06-22-2014, 08:37 AM   #18
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Don't do anything until you read and learn more about VAs. Generally, they are not a good investment because the high fees gobble up most of the return and guarantees are dubious after you sort through the complexity of the product.

If I were 61, on SSDI and had $1.5m in investments, I think I would snatch up a high rate CD from PenFed if/when they run their special in December (last year as 3% for 5 years and FDIC insured) up to the FDIC limit and put the rest in a conservative balanced fund like Vanguard Wellesley and defer SS to age 70 as my annuity. Wellesley's ER is 0.18% compared to fees of 3.5% for the JNL VA.
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Old 06-22-2014, 10:05 AM   #19
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It is not clear to me what problem you are trying to solve. ...
This is key, IMO.

The poster has asked a specific question, and while the answers are helpful (dump the FA), it would be better to look at the big picture.


lacawac - We know you are now age 61, on SS disability and small pension, with $1M IRA and $300,000 in cash (earning almost nothing, and not fully FDIC insured). Further Q's:

1) What are your living expenses (including medical, housing)?

2) How much do you receive in SS? Pension? Is pension COLA'd?

3) Any big expenses to account for outside routine annual bills? A replacement car? Home repairs/upgrades?

4) How is the IRA invested?

5) Is there any reason to think your life expectancy would be shorter/longer than average?

With that info, people here can give some investment ideas and reasonable expectations for how much you could withdraw each year w/o depleting your portfolio during your lifetime. There are ways to draw from the IRA w/o incurring tax penalties, if needed.

-ERD50
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Old 06-22-2014, 11:06 AM   #20
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In general it is better to spend your taxable accounts down before you withdraw from your IRA. The IRA is tax advantaged, so keep your money there as long as possible.

The main exception is if you have an opportunity to withdraw from the IRA at a tax rate that is lower than most of your future withdrawal taxes. In that case you might consider Roth conversions if you don't actually need the extra income.

As other have said, your FA is more of a sales guy in suggesting the VA. Stay out of it until you understand exactly what you would be getting, which usually means reading through a ton of fine print. The fees can be very high. You don't need a VA, and a VA is not something that will make a big difference to your net worth. Compare with something from Vanguard if you are seriously considering it.
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