like to think I could get something right...

[jammes2014]

55 already and all too single – no wives, no dependents and nary a friend to turn to. Hoping to retire to something that I like (much, much lower-paying, alas) in a couple of years. My question is this: I’ll soon have the opportunity to add about $100,000 at a 5% rate of interest to a deferred annuity. This amount would be untouchable for seven years. I’ll have some other savings and income, so will not be needing the money during this time. But would I, in these difficult times, do better in a safely managed “diversified stock income plan”?
Guess I should mention, if it’s not apparent from the above, that I’m a bit of a dummy (and scaredy cat) when it comes to stocks. Thank you very much for your opinions.

 

[Sarah in SC]

I would not lock the money into an annuity. I think you could do better and have more flexibility if you invested it in an appropriate (risk tolerance wise) mutual fund.

No better time than now to learn about investments. Take a look at some of the books we suggest on the forum, and get to reading. You hopefully have a long life ahead of you at 55 and need to be comfortable with the real risks and how to measure them wrt investing.

 

[jammes2014]

Thanks, Sarah

Thank you for your response. Yeah, I think that, if anything's added to the annuity, it'll be a much smaller amount. Thanks again and best to you, jfb

 

[pb4uski]

Unless you have so much money that your withdrawal rate will be very low (say, less than 3%) you need to get over your fear of equities if you want your standard of living to be the same. The frequently unrecognized risk of "safe" investments is that inflation erodes the buying power of your investments over long periods of time.

Before you decide where the $100k will go, you should decide what you want your overall asset allocation to be and compare that target AA to what your current AA is. Then you'll know where to put the $100k.

While I'm not usually a fan of annuities, if it is a deferred fixed annuity and you can really get 5% interest (I'm skeptical) and the surrender fees are not outrageous, it might be a good parking place to the extent that you have a gap between your target and current fixed income investments.

 

[REWahoo]

... $100,000 at a 5% rate of interest to a deferred annuity.

When it comes to annuities the devil (and unseen fees) are in the details. In today's environment a 5% interest rate seems too good to be true. Be sure you read ALL the fine print in that annuity agreement before handing over your money.

 

[jammes2014]

Thanks one and all

PB4uski and REWahoo, thank you both for your advice here. It’s my understanding that the Lincoln annuity I have can be added to and, when the anniversary of the inception date comes around one year later, the new monies will begin to accrue the same 5% interest that the original investment earns.

But yes, I’m trying to have this confirmed and reconfirmed and reconfirmed again as it does seem almost too good to be true. As for surrender fees, after the 7-year period, I don’t think there would be any. But maybe that's the (only?) rub -- tying up the funds for seven years.

I have another five weeks before the get-it-in date, so I shall certainly be giving it more consideration. Thanks again for reading through all this and offering your thoughts. jfb

 

[pb4uski]

Assuming that it is confirmed to be true, then to me a dump in at 5% would be much better than buying a 2% 7 year CD - a much better yield in exchange for slightly more credit risk and more of a early withdrawal penalty.

Does the 7 year surrender charge clock start again on any amounts you add?

 

[target2019]

What you need to do is search for comments from folks who have invested in this specific instrument.

I've heard enough positive things from the sales guys. You need to go out and do serious homework about what you have in that annuity.

 

[tinlizzy]

I don't know squat about annuities but I thought one of the tricks was to get you to change it somehow near the payout age so the insurer could use the new longevity or life expectancy tables and lower the annuitized payout.

Would adding $100K change the original annuity?

 

[SVHoper]

Hi,

I know nothing about annuities and still have some w*rk to do tonight. However, saw your post and I would start with searching and learning at bogleheads.org

Bogleheads • View topic - Lincoln Choice Plus, i4life variable annuity

This was the first post that came up and the advice might be relevant to you.

Regards,

 

[jammes2014]

Thanks again, everybody. I’m attempting to have the 5%-rate-on-new-money question reconfirmed, as well as some queries about surrender terms, and the ramifications of any changes made to the annuity. I live and work overseas and don’t have the contract here with me at present, so will have to ask little brother to check it out. This could be a week or so, at least.

However, what I initially wrote is my present understanding. (This, after several lengthy phone calls to the Lincoln people last year.) Sometimes, though, I don’t fully trust my comprehension of things. Especially money matters.

SVHoper, I’ve taken a look at Bogleheads; they are really, really down on variable annuities. Mine with Lincoln is a fixed, deferred. But then Mel Lindauer (Bogleheads) has a piece in Forbes, July of 2010, entitled “Fixed Deferred Annuities: CDs With Gotcha.” His concludes, “Because of the low guaranteed total yield to maturity and the long surrender periods, we’ll put most of these deferred fixed annuities in the ‘just say no’ category.”

So now I am trying to determine whether my guaranteed total yield (to pocket and take home, should I decide to do so) is actually 5% after seven years. Or, as mentioned earlier, there are hosts of expenses, costs, charges and fees… scattered throughout the 30 pages of contract details. Oh, woe.

 

[jammes2014]

Thanks again for your thoughts on the matter. And yeah, the more reading I do, the more I'm beginning to suspect that those details may indeed be devilish. All the best to you, jfb

 

[pb4uski]

Thanks again, everybody. I’m attempting to have the 5%-rate-on-new-money question reconfirmed, as well as some queries about surrender terms, and the ramifications of any changes made to the annuity. I live and work overseas and don’t have the contract here with me at present, so will have to ask little brother to check it out. This could be a week or so, at least.

However, what I initially wrote is my present understanding. (This, after several lengthy phone calls to the Lincoln people last year.) Sometimes, though, I don’t fully trust my comprehension of things. Especially money matters.

SVHoper, I’ve taken a look at Bogleheads; they are really, really down on variable annuities. Mine with Lincoln is a fixed, deferred. But then Mel Lindauer (Bogleheads) has a piece in Forbes, July of 2010, entitled “Fixed Deferred Annuities: CDs With Gotcha.” His concludes, “Because of the low guaranteed total yield to maturity and the long surrender periods, we’ll put most of these deferred fixed annuities in the ‘just say no’ category.”

So now I am trying to determine whether my guaranteed total yield (to pocket and take home, should I decide to do so) is actually 5% after seven years. Or, as mentioned earlier, there are hosts of expenses, costs, charges and fees… scattered throughout the 30 pages of contract details. Oh, woe.

If you have an older fixed deferred annuity, there should NOT be "hosts of expenses, charges and fees". While policies varied between companies, for the most part during the deferral period it is a simple, interest bearing account that is credited with interest and has a early withdrawal penalty. Typically, after the first year the interest crediting rate is declared by the issuer on each policy anniversary subject to a guaranteed minimum interest rate (usually 3% for older contracts but it varies). Also, most policies allowed you to withdraw up to 10% each year without penalty.

 

[RunningBum]

What you need to do is search for comments from folks who have invested in this specific instrument.

And you might draw out more responses with a more specific and descriptive thread title. A thread about "something" doesn't give a clue. And if you do get good responses, it won't help someone else with the same question later because they won't know what's in the thread from the title.