Introducing myself - with a question..

[Wannabefree]

Hi. I'm Kathy and I'm 55 years old. My husband has been retired from a civil servant job and receives a pension and a disability. He has been retired over 2 years and this last year underwent life-changing surgery - a double transplant. It got me thinking that it is time for me to retire and spend time with him and family as life is too short. He brings in approximately $90k annually. In addition, we have about half a million in retirement funds but we do have two homes - one in NY and one in FLA. I know we can pay expenses with his retirement income but I want to take a "bridge" annuity for 5 years from my plan. My broker suggested purchasing an annuity for about $274,000 which would pay me around $1k after taxes a month - and I could surrender it at the end of 5 years and get most of my purchase price back. I'm not sure why withdrawing about $75k would cost $275k?? I would just like some validation that this sounds correct. I don't have any experience with annuities - not do I know with whom I should discuss.

Anyone out there have any advice? Thanks so much for your time.

[chemist]

I am new here but I will offer one piece of wisdom: "annuities aren't bought, they are sold". Meaning your broker will make a big fat commission off selling you the annuity.

Conventional wisdom around here (and these are some pretty smart people on this board) is that you can invest the money yourself, withdraw 4% a year, increasing it every year for inflation (does your annuity do that?) and not run out of money for 30+ years.

At a bare minimum you should see what Vanguard offers in their annuity. They have lower costs than most because they don't pay big fat commissions to brokers.

But I would seriously question whether you really need the annuity at all.

[Wannabefree]

Thank you very much for that response. Hmmm... that makes me wonder! I need to find out if I am permitted to make withdrawals without the 10% penalty under any other circumstances. Must dig further...

Thanks for your prompt response! I did post this on another thread - didn't think anyone was home! LOL

[REWahoo]

Wanna, welcome to the forum.

I'm not sure what sort of annuity your broker suggested but I'd be very, very careful if I were you. About the only sort of annuity that I'd consider would be a SPIA (Single Premium Immediate Annuity). The other varieties are often designed to provide great benefits to the seller (commissions, hidden fees) and lesser benefits to the purchaser.

You can check out what sort of monthly income a $274,000 SPIA will buy you by inputting some numbers here: Immediate Annuities - Instant Annuity Quote Calculator.

Hope that helps.

[Rich_by_the_Bay]

Welcome, Kathy. I am not an authority in annuities but have learned something about them.

Sounds like you need a fixed annuity for 5 years. For a sanity check on prices, check www.immediateannuities.com. For low cost fixed annuity prices you should also check Vanguard here. Don't expect to see an effective interest rate much higher than 4% or even less.

If you decide to look at lifetime annuities, your husband's health may actually give you a higher payout than standard.

Be aware than annuities are not a favorite product among many members here (they have very high associated fees, among other reasons). But SPIAs (single premium immediate annuities) are sometimes a good option under specific circumstances. In your case it might be preferable to a lifetime annuity with surrender options, as is being proposed.

[REWahoo]

Quote:

Originally Posted by Wannabefree Thanks for your prompt response! I did post this on another thread - didn't think anyone was home! LOL

We're here, as you can see.

I deleted your other post as it was a duplicate.

[TeeRuh]

Kathy you may be looking at the type of annuity that Scott Burns discusses in a recent article. here His advice: don't. (I have a lot of respect for Burns.)

t.r.

[Wannabefree]

Thank you all - I apologize for the duplicate post! I love LAW & ORDER and now I feel like I'm talking to an old friend - lol.

I am looking for my own little income for 5 years to come out of my 401k ($360,000) just until I can collect at age 60 a monthly check from railroad retirement (eligible at 60 instead of SS 62). I'm not sure how else to get my money without the 10% penalty.

I look forward to suggestions, though! I do need to talk to my work plan administrator about whether I can withdraw from there or if I need to roll into IRA. As you can see, I know nothing........

Thanks.

[brewer12345]

Wanna, most (all?) 401k plans allow you to take out money without the penalty starting at age 55. Ask the benefits people if this is the case for your plan. If so, I would just set aside (in a "stable value" or money market fund option) the amount you wish to withdraw over 5 years and use that fund within the 401k to draw from. Do not purchase an annuity for this purpose.

[Rich_by_the_Bay]

What Brewer said. If all you want is bridge income for 5 years and are older than 55, you should be able to draw from your 401k. Don't forget, of course, that while there is no penalty you will have to pay income tax on those 401k withdrawals.

[Leonidas]

Welcome to the forum.

Take a look at IRS Publication 575, under "Special Additional Taxes" and you'll see that if you leave your employer during the calendar year that you turn 55, or later, you aren't subject to the 10% penalty. There is another way that anyone, regardless of age, can qualify for, but it can be confusing for some and the consequences of an error can be expensive. Since you qualify for this I say take the easier route.

Caveat: You work for the railroad? RR employees have some different rules that I don't have the first clue about, so, you may want to double check with whoever handles the 401K or with an adviser who works with RR people and knows the rules just to be sure there's not some special kind of gotcha that only affects RR employees.

[Wannabefree]

Thank you, Brewer, Rich and Leon - After researching further the links supplied (thanks, Guys) I realize that I should not be using an annuity. I need to talk to benefits BUT I haven't given notice yet so I have to wait. Meanwhile, I banked my last few months pay and have about $20k on hand for emergencies. I knew about rule of 55 but it seemed cloudy to me - in that it said "some employers won't let you make periodic withdrawals". So, I might take a lump - maybe $50g, knowing that I have to withhold tax on that. The balance will be for my 'monthly withdrawals'... and no, I don't work railroad - my husband did. I work private sector with no pension. I should have taken the RR job and then this conversation wouldn't be happening. lol.

I am very glad I posted in here and got your input because I was going down an entirely wrong path. I know now what to do.

Thanks!!!!!!! MERRY CHRISTMAS! HAPPY NEW YEAR!!

[clifp]

Quote:

Originally Posted by Wannabefree Thank you, Brewer, Rich and Leon - After researching further the links supplied (thanks, Guys) I realize that I should not be using an annuity.

Gosh the annuity salesman must hate this forum.. How many annuities have we unsold over the years

Withdrawing money from your 401K is almost certainly the best way to bridge your needs. If by some chance you can't do that, cause the 401K administrator won't allow it.

There is another option called the 72(t) which will let you access your money penalty free prior to 59.5. Probably no need to learn about but it is available.

[JOHNNIE36]

Quote:

Originally Posted by Wannabefree Thank you very much for that response. Hmmm... that makes me wonder! I need to find out if I am permitted to make withdrawals without the 10% penalty under any other circumstances. Must dig further...

I know for a fact that you can take equal monthly distributions off your retirements without triggering the 10% penalty. There are some rules and regulations concerning this type distribution so you should check this out with a tax advisor. Look it up on IRS.gov for starters and see what you can gather from their information and then see the tax advisor about the "why's and wherefores".

[Wannabefree]

Thank you for your input. When I did my original research, I thought the only way I could do a withdrawl without penalty at 55 was if my admin would allow it OR if I moved everything to IRA and took SEPP under 72t. I do need to speak to my accountant - but so far the accountants I spoke to (cpa friends) had no clue what I was talking about.... I will research further - I WILL retire - but I probably won't take an annuity!

[Dawg52]

Quote:

Originally Posted by Wannabefree Thank you for your input. When I did my original research, I thought the only way I could do a withdrawl without penalty at 55 was if my admin would allow it OR if I moved everything to IRA and took SEPP under 72t. I do need to speak to my accountant - but so far the accountants I spoke to (cpa friends) had no clue what I was talking about.... I will research further - I WILL retire - but I probably won't take an annuity!

Congrats on your decision. Retirement is great and as others have said, you can accomplish what you want without the annuity. Good luck with it all.

[Leonidas]

Quote:

Originally Posted by Wannabefree Thank you for your input. When I did my original research, I thought the only way I could do a withdrawl without penalty at 55 was if my admin would allow it OR if I moved everything to IRA and took SEPP under 72t.

I know that if you (or spouse) were still working that your employer/plan administrator can make it difficult to make early withdrawals. Usually those kind of withdrawals are limited to avoid foreclosure on a primary residence, pay medical expenses, college tuition, etc. But I've never heard of restrictions on withdrawals once the individual has stopped working for that employer.

Like a 72(t) SEPP, you want to make sure that the 1099-R is coded properly to show that the withdrawals were made under an exception to the penalties for early withdrawal.

[LOL!]

One aspect of retirement planning is to know the expected income of a surviving spouse. When one spouse dies, sometimes income streams vanish and the surviving spouse needs to be able to pay bills when that income goes away.