Hi, I am nervous about letting go of my money...

[nanaS]

Hello,
I am 60 yrs. old,single, retired one month ago. Have a pension as well as SSDI totaling $5K gross/mo. I also have a 401K with $92K and $125K in a MM account. My 401 is in a stable value fund which is earning 3.85%. I have a mortgage which I am upside down on approx $40K. I can meet my bills but barely. I am not worried about my children, they are in good shape financially.

I have been speaking with a fin. advisor who is encouraging me to take my money out of my 401K and get a Aviva annuity which is 7.25%. I know nothing about annuities but am very nervous about tying up my money for 10 years. His goal is to help me supplement my income monthly. I am scared to death of committing for such a long period.

This is all the savings I have with zero chance for earning due to a disability. My income has been cut by 50% and don't know if I can afford to live where I do unless I figure out a way for my money to work for me.

I am ready to tell him forget it because I feel so unsettled. Can anyone provide insight on a way to earn a little interest and not have my money tied up for so long? I am grateful for any feedback.

Thanks
nana S.

 

[DblDoc]

You probably don't want to hear this but your best choice is likely downsizing your home and/or make cuts elsewhere in your budget rather than chasing yield with your precious savings.

If you post your monthly budget you will get plenty of good advice on where to make effective changes.

DD

 

[REWahoo]

I am ready to tell him forget it...

Good!

Trust your instincts and be very cautious about purchasing an annuity unless you have done a lot of research and fully understand what you are buying.

Many times - way too many times - the fine print says "the agent who sells you this will make more money than you do on the transaction". Of course it isn't spelled out that clearly, but that's the end result.

 

[Purron]

Single with pension and SSDI income of $5K month? I'd take a hard look at your expenses. Now may not be the best time to buy an annuity because rates are so low. Plus, you just retired and are going through a transition. Ask questions, learn all you can, track your expenses, and give yourself time to think all this through. Don't let anyone talk you into something you're not comfortable with or don't understand.

 

[FIREd]

I'd be nervous too.

I agree with Purron. You need to take a hard look at your expenses. It seems to me that one of your biggest expenses is housing (since you still have a substantial mortgage). If you could have a paid for home, it sounds like you should be able to live comfortably on your pension + SSDI. Can you use part of your saving to pay off the mortgage? If not, would you be willing to move?

Does the pension have a cost of living adjustment?

 

[73ss454]

His goal is to help me supplement my income monthly. I am scared to death of committing for such a long period.

No, his goal is to sell you an annuity.

 

[Koolau]

Hi, NannaS. Welcome to the forum.

I look at annuities as a way to stretch a meager retirement portfolio or else to provide longevity insurance. Unfortunately, as others have pointed out, this may be a bad time to buy an annuity due to the poor return. For now, based on your income (probably not as fully taxed as all pension??) you probably should be able to survive without an annuity if you cut expenses. There are folks on this forum living on half your income - and doing well.

Within this forum, there are tons of ideas on saving money. Before going the annuity route, PLEASE investigate all the other options. Once you buy an annuity, you can't get the money back. I would even say "sit on the cash" before I would suggest an annuity - at least until you have proved to yourself that it makes sense to you.

Don't mean to beat up on you about annuities. They do have their place. But, you can go that route next year if you are still convinced it's a good idea. Don't let a salesman pressure you.

Very best of luck. Check back often. We rarely bite and, once in a while, we have some good advice.

 

[nanaS]

Thanks for the foodback

That 5K is a gross figure. I have medical ins. which is $650/mo, PITI plus HOA and utilities that totals 2400. (I bought in 2005, put $110K down, paid $320K, now worth $150K Owe $205K). Planned on selling home when I retired, but can't do that.

Gross $5K
Net $4200.

Med. Ins. $650.
Med. Co-Pays/RX's $50.
PIMI/HOA/Utilities/Home maint. $2400.
Car Pmnt/Ins. $600.

Phone $105.

Total $3805.

I have not included life ins. prem., gas, food, clothes. I know the house is costing me alot, but how do I get rid of it? The home is fairly new, does not need any repairs, in a safe neighborhood (nothing fancy, gated 55+ neighborhood), taxes are very high (I have it reassessed each year)

 

[aaronc879]

How much longer is the car payment?

 

[clifp]

The thing that jumps out to me is your Car Payment. Unless you have a zero interest rate loan, or some type of early penalty for paying it off, I definitely pay off your car loan. That would drop your expenses by $500 a month a make it relatively easy for you to pay the bills. Once you hit 65 you'll be eligible for Medicare which will drop your expense even further.

The house situation is tricky. It is certainly worth a phone call or two to the lender to see if you can at least refinance at a lower interest rate.

 

[nanaS]

48 mo

 

[Nuiloa]

None of my business, but the phone charges seem like a lot. Any way to cut that down?

Or is that what phones cost in the USA?

 

[nanaS]

48 mo on car. Int rate 3%. Chase stated they will refi 1/2% less 5.25 for about $2500. Reduce pmnt $150. I don't want to do that because I hope to eventually get out of here.

 

[REWahoo]

If the interest rate on the car loan isn't zero, strongly consider paying it off.

And I agree the phone bill looks high. If you have both a land line and cell phone, consider dropping the land line. We dropped our land line several years ago and never missed it.

 

[ERD50]

Since you say your children are OK financially, I question the need for any life insurance (your post #8). How much are you paying, and why?

Also, what will your retirement income be? I assume you go from SSDI to SS? And a pension?

You'll need to dig deeper into those numbers, but I'm starting to think you may need to rent out the house? Take in a room-mate?

-ERD50

 

[chinaco]

Wow, you took a big hit on the house. What area of the country do you live in?

 

[nanaS]

Iphone cost is pretty standard about $100 mo. Includes long distance and my internet.

 

[Lisa99]

That 5K is a gross figure. I have medical ins. which is $650/mo, PITI plus HOA and utilities that totals 2400. (I bought in 2005, put $110K down, paid $320K, now worth $150K Owe $205K). Planned on selling home when I retired, but can't do that.

Gross $5K
Net $4200.

Med. Ins. $650.
Med. Co-Pays/RX's $50.
PIMI/HOA/Utilities/Home maint. $2400.
Car Pmnt/Ins. $600.

Phone $105.

Total $3805.

I have not included life ins. prem., gas, food, clothes. I know the house is costing me alot, but how do I get rid of it? The home is fairly new, does not need any repairs, in a safe neighborhood (nothing fancy, gated 55+ neighborhood), taxes are very high (I have it reassessed each year)

You may want to consider a short sale on your house. It would be hard to lose that much money but it is unlikely to recover enough to ever get your money back out of it. I live in Vegas, so see this kind of situation a lot.

I wish you luck!

 

[aaronc879]

Is the pension COLA'd? If it is then I think you should be fine. I don't think it makes sense to do an annuity when you already have a large(IMO) pension. I'd keep the lump-sum cash to help with any emergencies. It also gives you the option of selling your house and paying the difference. For now you can just use a few hundred a month from the MM to cover any shortfall with your expenses if needed.

 

[nanaS]

My life ins. is not much. I think about $25 mo. It is just enough for funeral expenses and a little extra. I can cancel my land line, it is $18. I would like to rent out the house, if I didn't live here, I would be in the red about $500 mo. If I rented a room, I could get about $400 extra in my pocket. Have considered that. Cross my fingers for a good renter.
I bought at the absolute worst time, Dec 05. I live in central California.

 

[rescueme]

I assume you go from SSDI to SS?

SSD "converts" to SS at your FRA without changing your monthly benefit.

The name is changed, but the important thing as you are not "income tested" and allowed to earn more than SSD will allow, without loss of benefit. The current earnings test is just over $1k/month (adjusted every year) before you may lose benefits.

 

[rescueme]

As far as the annuity discussion, I would agree with the consensus so far, even though I have an annuity (SPIA - or Single Preimum Income Annuity).

Your mentioned annuity is a fixed-term indexed annuity (e.g. tied to return of the market) with variable payouts over the 10-year period, which also tend to have high expenses.

I'm not about to start an annuity discussion (even though many know I can ) but my personal opinion (FWIW) is that in your case, with the level of liquid/invested assets, it might not be a good option for you.

 

[clifp]

Nana a few more thoughts, and a bit of tough love.

My sympathies about having a disability that caused a large drop in income. That said a pension/plus SSDI of 5K month is actually quite a lot. I think it is probably more than most retirees on this (affluent) forum have. This income level is more than 2/3 of US families (many with more than one earner) make.

Your retirement saving of 210K can generate additional income but it won't be all that significant. The general rule of thumb here is 4%=$8,400 or $700/month. However, this assumes a large investment in the stock market which I guessing your aren't comfortable with. Furthermore this is a lousy time to be an investor, with no good options.

Certainly taking on a renter is an option. I've had mixed success with renters in my house but sometimes it works out.

Quite frankly your problem is not your income but your spending. The cost of living in Bakersfield is pretty much average for the country. If you are having troubles meeting your bills I'd urge to carefully examining your expense, and keep your MM and 401K for future capital needs.

First and foremost pay off any and all loans,especially credit cards. There is no point having money earning basically 0% interest in money market and than pay even a low interest rate of 3%.

Next scrutinize all expenses. No need for life insurance for a retired single woman, without a car loan you can probably raise the deductible on your car insurance. I guess the iPhone is your allowed luxury, but kill the land line.

I'd also shop around for medical insurance $650/month while not super high is probably worth shopping around for since I see Kaiser's offer $500/month plans for 60 year old woman in Bakersfield.

Finally the big expense is housing. Your housing expense if roughly 1/2 your income which is too high a ratio. It seems to me given that you have retired with a disability that you are a prime candidate for a loan modification and would qualify as a hardship case.

One thing to consider is that between your 401K and MM you can actually purchase a home for cash in you same neighborhood. You can walk away from your existing house and suddenly your housing expense drops to insurance, HOA, and taxes which is probably in the range of $400-$500/month. At which point you should be easily able to make ends meet. Now I am not advocating you walk away from your mortgage since your are only moderately underwater.

Armed with this information I would contact the bank and ask that they reduce your interest rate to the current levels of around 4%. Tell them that they have two options, work with you to make your existing payments more affordable,or risk you stop making any payments on your house. It will take them probably a year to evict and which point you simply buy another house for cash.

Good luck.

By all accounts working with banks is extraordinarily frustrating but I think it should enable you to cut your expenses hundreds of dollars a month.

 

[chinaco]

I didn't notice your location when I first looked. California explains the home value loss.

+1 on clifp's response.


There isn't much I can add to what other have stated other than getting down to the nitty gritty details.

Hopefully you can restructure your debt and get a one of the low rates currently available... i would stick with fixed loans on a refi. Plus, it looks like you are paying PMI... I would ditch the PMI... IMO PMI is just a waste of money if you have the money to pay down the debt so you have 20% equity in the house. You cannot earn a return on an risk equivalent basis with the assets you hold!!! example: house worth 150k. 20% is 30k. PMI is lets say $125/mo. So you are financing 30k at lets say 6% on the mortgage paying another 5% for PMI and your fixed investment today you are getting 3% at best... but in reality your money market is probably yielding 0%. While the real numbers may be different... you get the picture.

Aside from the home issue and your debt... You also have a general spending problem. It is not a criticism, just an observation.

Create a budget and stick with it. Trim spending by eliminating things you do not really need or use, and look for substitutes that are lower cost. A couple of examples: shop P&C insurnace every few years to see if you can get a better deal. Consider ditching the iPhone and the data and phone plan... use a prepay cell phone and get a home internet line with a home phone using a cheap voip solution... look around there are some really low cost ones available). Just some ideas. Remember $20/mo here and $50/mo there adds up!!


For your long-term budget and planning... If your pension is a nominal pension (no cost of living adjustment)... remember at 3% inflation the spending power will cut in half in roughly 20 years. This means you will have less to spend in the future (in effect)... plan accordingly!!!

 

[obgyn65]

Hello nanaS - I would be cautious about this.

I have been speaking with a fin. advisor who is encouraging me to take my money out of my 401K and get a Aviva annuity which is 7.25%. .