54 ry old looking to ER and wondering about annuities

[joecaf53]

I am 54 and have been looking for work for over a year and have decided that it may be best to hang it up. I have $620,000 in assets allocated as 56% stock, 30% bond and 14% cash. I am single, no kids, no debt, co own a 2 family home with my sister which we may sell in a few years. (I live on the 2nd floor, she on the first.) I am concerned about that when we sell, my housing costs will go up as we will go our separate ways. My present living expenses including health insurance is about $30,000/yr. I was wondering if I have a good chance of ER and was thinking of purchasing an annuity to generate monthly income, but not sure which kind would be best, what initial amount would be reasonable or if this is even a good option. Or maybe there are better options.

I would appreciate any advice.

Thank you,

Joe

 

[pb4uski]

Check out Firecalc. You'll need to take your SS into account as well as potential proceeds from the sale of your duplex and your revised housing costs.

 

[militaryman]

Assuming you have no mortgage on the property.

When you sell you can lock in you housing expenses somewhat buy using your proceeds to pay cash for the retirement home. Try to get a home that is maintenance free for years to come and that has low prop. taxes.

If you can do this and know that you are only spending $30k a year then you should be "OK" if your an average person that expects to draw around $14k/yr

source : Average monthly Social Security benefit for a retired worker

Have you run an estimate on SS benefits lately ?

If you are able to buy a home that you could take on a roommate then you could be alot more comfortable with an extra $4k+ a year coming in

 

[devans0]

With low interest rates, annuity may not be your best option. Some insurance agents sell for their bonus and completely disregarding fitness to the buyer. Caveat emptor! I am avoiding them, your experiences may be better.

 

[Midpack]

With low interest rates, annuity may not be your best option. Some insurance agents sell for their bonus and completely disregarding fitness to the buyer. Caveat emptor! I am avoiding them, your experiences may be better.

+1. Now is a bad time if you can avoid buying an annuity now due to interest rates if not other reasons, and I would not do it (now).

However, there are legitimate reasons such as a) who knows when interest rates will rise, supposedly not until 2014 at the earliest, b) what will returns be while you wait, if they're good the wait will be smart, if not you could lose some assets while waiting, c) you may just need/want the income now, and d) if your current assets would require a high withdrawal rate **, you probably can't wait. Of course you can annuitize some now, more later. And it may be wise to annuitize with more than one provider, though default risk has been almost non existent historically.

I am not a fan of annuitizing unless/until you have to, but there can be circumstances where they make sense. Many here have SPIA's and are happy with their decision.

I would also recommend you try FIRECalc: A different kind of retirement calculator. Good luck...

** you are at about 4.8% (30K/620K) which is too high for someone 54 IMO, but that's without Soc Sec - another reason to try FIRECALC.

 

[MBAustin]

If you are really ready for retirement then the posters above have given excellent advice. However, if you are just weary of the job search, things do seem to be getting better in many areas of the country. I have a 50+ year-old friend who just found a job last week after about 9 months of looking. The initial advice she got (resume, cover letter, interviews, etc.) was out-of-date and the local workforce commission office counselor as well as a 50+ job search support group were very helpful in "modernizing" her approach and focusing on the skills she has that were in demand.
Good luck to you!

 

[ETFs_Rule]

I was thinking of purchasing an annuity to generate monthly income.

You don't need an annuity to "generate income". Stocks / bonds pay dividends / interest payments. If that's not enough then you simply sell off a portion of your principal.

There's endless articles on the Internet about how annuities are a terrible choice. Annuities explained - Pros and cons
Some of the highlights:
- One of the most expensive of all financial products
- Lacks liquidity due to insurance company penalties, Uncle Sam penalties, state penalties.
- They are falsely marketed in various ways
- They are a tax nightmare

Stick with what you have been doing. Hopefully you are investing in ETF's rather than individual stocks and bonds. In these times I personally think 56% in the stock asset class is a little bit too conservative but it depends.

 

[Gill]

You don't need an annuity to "generate income". Stocks / bonds pay dividends / interest payments. If that's not enough then you simply sell off a portion of your principal.

There's endless articles on the Internet about how annuities are a terrible choice. Annuities explained - Pros and cons
Some of the highlights:
- One of the most expensive of all financial products
- Lacks liquidity due to insurance company penalties, Uncle Sam penalties, state penalties.
- They are falsely marketed in various ways
- They are a tax nightmare

Stick with what you have been doing. Hopefully you are investing in ETF's rather than individual stocks and bonds. In these times I personally think 56% in the stock asset class is a little bit too conservative but it depends.

Aren't you talking about deferred annuities and the OP is considering a SPIA?
Bruce

 

[ETFs_Rule]

Aren't you talking about deferred annuities and the OP is considering a SPIA?
Bruce

NO. I hate all annuities. Fixed types of annuities may not have the management fees that variable annuities have, but the insurance company recoups the big commission that they pay out to Mr. Broker and all of their other expenses by simply lowering your participation rate and market caps. They stack the deck in their favor. That's how they are able to confidently make the guarantees that they make. Then they turn around and do what the investor should be doing, which is invest in a bond / stock allocation that is sure to put them on top in the end.

 

[Ready]

Just curious (I have no interest in annuities myself), but if you buy an annuity from Vanguard, does the rep there get as big of a commission as the ones who work for the insurance companies? And if not, does that translate into any better performance for their annuities?

 

[panacea]

Just curious (I have no interest in annuities myself), but if you buy an annuity from Vanguard, does the rep there get as big of a commission as the ones who work for the insurance companies? And if not, does that translate into any better performance for their annuities?

Don't know if they have SPIAs but I know they have plain vanilla, deferred annuities . I'm pretty certain they don't have commissioned salespeople anywhere in the company, which is reflected in the low expense ratios and lack of any surrender charges on their deferred annuities.

 

[ETFs_Rule]

Just curious (I have no interest in annuities myself), but if you buy an annuity from Vanguard, does the rep there get as big of a commission as the ones who work for the insurance companies? And if not, does that translate into any better performance for their annuities?

As far as I know there are no reps who actively solicit annuities for Vanguard other than a very few fiduciaries out there who earn no commission (because they legally work for you rather than themselves or their company). A fee-only fiduciaries would recommend an annuity because you are one of the rare fits and because Vanguard is the lowest cost annuity for you. As far as I know the reps at Vanguard who process annuity sales and answer questions are not paid based on sales. This is perfectly evident when you see that Vanguard has NO surrender penalties. They're called contingent deferred SALES charges for a reason -- because if you surrender that retail annuity early the insurance company wants you to reimburse them for the high commission that they paid your adviser (and can't get back). The surrender period of the annuity is usually likened to the commission paid to the sales agent. For example a 7 year surrender period usually means that the broker earned perhaps a 6 to 7% commission. The people who sell retail annuities are basically like freelance salesmen who do all they can do to market annuities. It's what puts food on their table and so they try really hard to only say good things about annuities.
I was duped into locking a bunch of my money in a Sun America variable annuity long ago. I recently switched to Vanguard in a 1035 tax free exchange. I can tell you that not only are there no surrender penalties but the subfund management fees are drastically lower and the mortality and expense charges are drastically lower. Turneover rate costs are certainly lower too. I did the math and I believe that I am saving at least 2% per year if not 2.5% per year. After 10 years that's a lot of money!

 

[Ready]

Very interesting. Has anyone tried to gather data on the returns of Vanguard annuities and compare them to the high fee varieties out there? I wonder how much extra return the lack of a commission translates into.

 

[ETFs_Rule]

Very interesting. Has anyone tried to gather data on the returns of Vanguard annuities and compare them to the high fee varieties out there? I wonder how much extra return the lack of a commission translates into.

This question should be irrelevant because Vanguard offers mostly passively managed index funds. So you are not trying to beat the market. You are trying to BE the market. And this is a good thing because study after study has shown that on the whole, index funds consistently beat actively managed funds.
http://www.forbes.com/sites/rickferri/2012/08/20/index-fund-portfolios-reign-superior/2/

 

[Gill]

NO. I hate all annuities. Fixed types of annuities may not have the management fees that variable annuities have, but the insurance company recoups the big commission that they pay out to Mr. Broker and all of their other expenses by simply lowering your participation rate and market caps. They stack the deck in their favor. That's how they are able to confidently make the guarantees that they make. Then they turn around and do what the investor should be doing, which is invest in a bond / stock allocation that is sure to put them on top in the end.

How do I nicely say that you don't know what you're talking about. Everything you said has nothing to do with immediate annuities.
Bruce

 

[ETFs_Rule]

How do I nicely say that you don't know what you're talking about. Everything you said has nothing to do with immediate annuities.
Bruce

If you think immediate annuities are free then you have no clue what YOU are talking about. CDSC penalties, pre-59 1/2 tax penalties, they are over taxed at the ordinary income tax rate, they are falsely marketed based on fear of stock market volatility alone over short term time periods. If you think annuities are great then be my guest. Put all of your money in an immediate annuity prison! Actually you might be an insurance salesman.

Also if you read all of the thread we were not just talking about immediate annuities but variable annuities.

 

[Gill]

If you think immediate annuities are free then you have no clue what YOU are talking about. CDSC penalties, pre-59 1/2 tax penalties, they are over taxed at the ordinary income tax rate, they are falsely marketed based on fear of stock market volatility alone over short term time periods. If you think annuities are great then be my guest. Put all of your money in an immediate annuity prison! Actually you might be an insurance salesman.

Also if you read all of the thread we were not just talking about immediate annuities but variable annuities.

Of course, immediate annuities are not free. What you see is what you get. If you give the insurance company $100,000 and it agrees to pay you $10,000 a year for life that is exactly what you get. There are no CDSC penalties, charges or anything else. They make a lot of sense for many people because it is impossible to receive that guarantee in any other manner.

For what it's worth, I have no axe to grind. I'm not an insurance salesman but an attorney, CPA and retired trust company executive. I don't plan to get into a running argument on SPIA's. That has been discussed at length elsewhere.
Bruce

 

[brewer12345]

How do I nicely say that you don't know what you're talking about. Everything you said has nothing to do with immediate annuities.
Bruce

+1

He has absolutely no clue based on what he posted.

 

[ETFs_Rule]

Of course, immediate annuities are not free. What you see is what you get. If you give the insurance company $100,000 and it agrees to pay you $10,000 a year for life that is exactly what you get. There are no CDSC penalties, charges or anything else. They make a lot of sense for many people because it is impossible to receive that guarantee in any other manner.

For what it's worth, I have no axe to grind. I'm not an insurance salesman but an attorney, CPA and retired trust company executive. I don't plan to get into a running argument on SPIA's. That has been discussed at length elsewhere.
Bruce

No CDSC's because you are stuck in that annuity for LIFE. No way out. And if the annuitant dies in year one, the insurance company keeps the remainder of the principal. And heirs typically get nothing. When you think about it the insurance company is just giving you back your principal. It would have to be a really old person for them to give you 10K a year.

 

[Gill]

It would have to be a really old person for them to give you 10K a year.

I'm receiving $10,400 a year on a $100K annuity purchased at age 71. I guess in your mind that is a "really old person". So be it.
Bruce

 

[MichaelB]

Actually, the thread topic is a question about generating income now, and it would be a courtesy to the OP to get back on topic.

I was wondering if I have a good chance of ER and was thinking of purchasing an annuity to generate monthly income, but not sure which kind would be best, what initial amount would be reasonable or if this is even a good option. Or maybe there are better options.

I would appreciate any advice.

Thank you,

Joe

 

[MasterBlaster]

There can be a place in your ER planning for (SPIA) annuities to guarantee (along with SS) a minimum standard of living with a portion of your nestegg. Then given that a baseline is covered you can more aggressively deplete the remaining nestegg knowing that you'll never have to eat dog food. One can make the case that this approach allows for more spendable income while you are alive.

The alternative, which is widely touted on this forum, is to pick a very low SWR so as to never go broke. While this (SWR) approach certainly works it almost always leaves a large unspent - underutilized nestegg to the lifestyle detriment of the owner.

many people on this forum pooh-pooh the SPIA but (perhaps) could greatly benefit from it. You don't get a do-over when you wake up one morning and realize that you'll never spend all that money. The spendthrift beneficairies will enjoy it though !

 

[Gill]

Actually, the thread topic is a question about generating income now, and it would be a courtesy to the OP to get back on topic.

That's exactly what is accomplished by purchasing a SPIA.
Bruce

 

[ETFs_Rule]

I'm receiving $10,400 a year on a $100K annuity purchased at age 71. I guess in your mind that is a "really old person". So be it.
Bruce

Did you notice how much the stock market has gone up recently? 35% in the last 2 years. 151% in the last 5 years. Did you ever ask yourself how the insurance company is able to make the offers they make? They stack the deck in their favor and then they invest the money. So for people who fell for the insurance salesman bait back in 2009 and went ahead and made the cardinal sin of "selling low" the annuity wasn't such a great idea after all. So far the insurance company has been laughing all the way to the bank even with a diversified bond / stock mix.

 

[MichaelB]

That's exactly what is accomplished by purchasing a SPIA.
Bruce

I don't advocate for or against but agree with your point.