About to Pull the Trigger on Lifetime Annuity - Would appreciate opinions

[pb4uski]

.... And not touching my lumpsum 401K, because of the annuity - that will probably grow faster to compensate for not taking anything from my 401k

Will this create a tax torpedo for you once you are subject to RMDs?

 

[aja8888]

Right. Falling down is dangerous at those age. I read Christopher Plumber, the actor, died because he fell down.

Sorry to hear about your DW needing oxygen. I guess those are the portable oxygen cannisters.

I guess no more international travel at those age, just nearby domestic travel 2-3 hours away at most.

We have a portable oxygen concentrator (Inogen brand unit) that we bought. It runs on big lithium batteries. We have 4 batteries and she can go 8 - 10 hours without recharging a battery. At home we have a "floor model" concentrator.

International travelling on Medicare is tricky as I don't believe it's covered. Most travelers buy a separate insurance policy when leaving the country.

There are lots of things to consider if you are old and feeble and travel a lot.

 

[cyber888]

Will this create a tax torpedo for you once you are subject to RMDs?

Yeah, well, at some point before I'm 68, I will have to buy that expensive Sports car, and withdraw a big amount

 

[ivinsfan]

Yeah, well, at some point before I'm 68, I will have to buy that expensive Sports car, and withdraw a big amount

Rmds don't start at 68 but I don't understand why you don't just leave that 4% money alone and pull spending money from retirement accounts.

 

[TheWizard]

Will this create a tax torpedo for you once you are subject to RMDs?

If doesn't need to.
I annuitized a lot more with TIAA at age 63. That just sets the baseline. But it also REDUCES the amount of tax-deferred money eventually subject to RMDs.

So then you just do Roth conversions of the appropriate amount and transition smoothly into RMDs at age 72 with no big bump...

 

[TheWizard]

Yeah, well, at some point before I'm 68, I will have to buy that expensive Sports car, and withdraw a big amount

I actually have been putting excess retirement income aside in my taxable account and Roth IRA for the past several years.
Now at age 72, I've got way more than needed to buy a newer Mustang convertible (present one is a 2008) but I'm waiting for this nasty chip shortage to resolve, among other things...

 

[TheWizard]

Rmds don't start at 68 but I don't understand why you don't just leave that 4% money alone and pull spending money from retirement accounts.

It's because he has a really super deal on a lifetime income annuity for that modest portion of his total accumulation...

 

[cyber888]

My example.... had a cash balance plan of 288k. Took the annunity 5.5 yrs ago. Pays $1518 monthly. So far, no regrets.

That's great man. I guess you sleep well at night

 

[cyber888]

I actually have been putting excess retirement income aside in my taxable account and Roth IRA for the past several years.
Now at age 72, I've got way more than needed to buy a newer Mustang convertible (present one is a 2008) but I'm waiting for this nasty chip shortage to resolve, among other things...

That's great Wizard !! You might want to check out the 2022 BMW 240 .. 0-60 in 3.7-3.8 seconds for about $53K.

 

[ERD50]

To be clear, I cannot withdraw that $155K for anything unless I put in a systemic withdrawal program, so I can never use it to buy a $50k car or for home repair.

You need to understand that this $155K is already in a Tiaa-cref traditional account with guaranteed income of 4.25 - 4.75% now that cannot be withdrawn - it's locked for years and years. But if I annuitize it for a "Lifetime income", I will be making near 6% instead of 4%+. I guess only Tiaa-cref holders can understand how Tiaa traditional works. So, no, it's not magical thinking.

OK, you have a lot of very specific constraints that don't apply to the general case. Unless someone comes up with another solution, I guess all you can do is weigh a constant W/D against the annuity.

I hope you find something that works for you.

-ERD50

 

[Emerson11]

Default Risk

In discussions of annuities, I rarely see a mention of default risk, but always see the word "guaranteed." In a worst case economic view where I might need to rely on "guaranteed" income, the company promising the guarantee could be in trouble, thus the guarantee would be worthless. Because of the often overlooked risk of default, I've decided against the extra costs involved in "guaranteed" income.

 

[almost there]

In discussions of annuities, I rarely see a mention of default risk, but always see the word "guaranteed." In a worst case economic view where I might need to rely on "guaranteed" income, the company promising the guarantee could be in trouble, thus the guarantee would be worthless. Because of the often overlooked risk of default, I've decided against the extra costs involved in "guaranteed" income.

With most, its up to around $3500.00 a month. As I recall.
Over that and you are out of luck. Worth looking into.

 

[pb4uski]

In discussions of annuities, I rarely see a mention of default risk, but always see the word "guaranteed." In a worst case economic view where I might need to rely on "guaranteed" income, the company promising the guarantee could be in trouble, thus the guarantee would be worthless. Because of the often overlooked risk of default, I've decided against the extra costs involved in "guaranteed" income.

IMO, the risk of insurer default is negligible. Certainly not full faith and credit, but very, very strong... IMO akin to a AA bond.

After significant reforms that were enacted in the mid 1990s after the Executive Life and Mutual Benefit Life fiascos, major insurer insolvencies have been rare and small. And then on top of that, the major rating agencies are stringent about insurer capital levels.... commonly many times what regulators would require before an insurer is subject to questioning.

So to default, an insurer would have to blow through reserves, required capital, have a block of busieness so bad that no other insurer would want to assume it and also blow through the state guaranty fund.... extremely unlikely and there hasn't been a major incolvency in a long, long time.

I remember when I worked in the industry in the 1990s that there was a claim that no annuitant had ever suffered a loss of principal and minimum interest... now there may have been instances where they didn't get the juicy returns that had been illustrated, but that the alwyas got back at least their principal and minimu required interest (which was typically around 3% back then).

 

[Emerson11]

I agree that the default risk is negligible under normal circumstances; however, I wouldn't need the "guarantee" unless circumstances were well beyond normal, as my balanced portfolio would be doing the job.

 

[aja8888]

IMO, the risk of insurer default is negligible. Certainly not full faith and credit, but very, very strong... IMO akin to a AA bond.

After significant reforms that were enacted in the mid 1990s after the Executive Life and Mutual Benefit Life fiascos, major insurer insolvencies have been rare and small. And then on top of that, the major rating agencies are stringent about insurer capital levels.... commonly many times what regulators would require before an insurer is subject to questioning.

So to default, an insurer would have to blow through reserves, required capital, have a block of busieness so bad that no other insurer would want to assume it and also blow through the state guaranty fund.... extremely unlikely and there hasn't been a major incolvency in a long, long time.

I remember when I worked in the industry in the 1990s that there was a claim that no annuitant had ever suffered a loss of principal and minimum interest... now there may have been instances where they didn't get the juicy returns that had been illustrated, but that the alwyas got back at least their principal and minimu required interest (which was typically around 3% back then).

My 401K got wrapped up in the MBL fiasco in the early 1990's. It took many years before I got it out and transferred, but I probably lost quite a bit of gains over the period it was tied up.

 

[meleana]

Well let's think about this for a second. SS is an annuity in that if you "age" it between 62 and 70 it continues to grow. Also the last one standing idea mean you wouldn't have a optimum survivors payment for your spouse. You don't mention your wifes age in 2026.


So you are cashing in SS early and then going to pay money for an annuity. Is this something you really want to do?


I vote no but it's your vote that counts. So I would say the annuity is not a "good" deal in my way of thinking.
You might consider sharing you and the spouses SS numbers at 62 FRA and 70

THIS^^^

 

[Maidensong]

Needing Supplemental O2 & travel

Right. Falling down is dangerous at those age. I read Christopher Plumber, the actor, died because he fell down.

Sorry to hear about your DW needing oxygen. I guess those are the portable oxygen cannisters.

I guess no more international travel at those age, just nearby domestic travel 2-3 hours away at most.

I've been using supplemental O2 since 2014, not 24/7, but during excursion or at higher elevations only, and we still travel because instead of O2 canisters, I have two portable oxygen concentrators. They are battery operated, suck in air and scrub out the nitrogen to give me 95% puffs of O2 with each breath. Other designs offer continuous flow if that's what your wife needs.

Using supplemental O2 doesn't have to mean the end of travel. My DH and I just completed a 121 day World Cruise on Viking, which ended with a three hop flight from Bergen to St Louis. My concentrators worked like champs.

If your wife can use a concentrator, travel can still be part of your life. But fair warning. They are considered a "luxury" and are not covered by insurance. Still, what price can you put on freedom?

In case anyone's interested, I blogged the whole cruise: https://roundtheworldwriter.blogspot.com/2022/01/one-more-sleep.html If you want to travel, there is always a way...

 

[Tracer]

I'm retiring next year at 59.5 (2023) and was thinking of getting a Lifetime annuity starting at 62.5 yrs old, because I don't have a pension and would expect some income stability to meet our monthly expenses.

Our monthly expenses this year (2022) is about $4000-$4100/mo including everything - housing, utility, food, travel, health insurance. (Just me and DW, no kids). And I expect when we get to the year 2026 (when I turn 62 yrs old), our monthly expenses will be around $4,800/mo with inflation. This $4,800/month includes about $12,000-$13,000 yearly travel expenses, which can be cut.

Was planning to get Social Security at 62 in 2026. Me and DW SS would be around approx. $3,600+/month with both our social security income. So, we have a shortfall of around $1,200/month which I might say is mostly our "travel budget", and so I thought of getting an annuity, and yes, I know that annuities does not adjust with inflation in the future - but as we age, we also may not travel that much into the future.

I called Tiaa-cref and also went to their website to confirm it, and I'm attaching the screenshots. Was going to put in $155K into a Lifetime annuity w/ a 10 year guarantee that if we pass away before 10 years, we can assign it to a beneficiary. The $155K will generate $1,306/month ($981 guaranteed + other amounts - these are premiums since I've been with Tiaa-cref for more than 23 years). In contrast, the $155K will only get me $787/month in ImmediateAnnuities.com.

So, our SS income of $3600/mo + Lifetime annuity of 1300/mo = $4,900/month in income.

So, with the annuity, we do not need to dip into my 401K savings until I need to buy big items like a new car or home repair.

What do you guys think ... $155K = $1,306/monthly income ? Good deal ?

I retired at 58 and have no pension either. My two SPIA's I purchased almost 15 years ago that pay over $2000 per month coupled with SS payments of $1600 give me a great deal of security to know that no matter what happens to my savings, IRA's and other investments, which amount to just under a mil, those annuity payments will always be there. The monthly income is not great, but having zero debt (home, cars, etc) at retirement sure helps that monthly income go a lot further and most months pays all my basic expenses.

 

[almost there]

IMO / Thats the secret to FIRE without a large
pension. Zero debt.
Its like a sleep aid. lol lol

 

[cyber888]

I retired at 58 and have no pension either. My two SPIA's I purchased almost 15 years ago that pay over $2000 per month coupled with SS payments of $1600 give me a great deal of security to know that no matter what happens to my savings, IRA's and other investments, which amount to just under a mil, those annuity payments will always be there. The monthly income is not great, but having zero debt (home, cars, etc) at retirement sure helps that monthly income go a lot further and most months pays all my basic expenses.

Wow, this is great feedback. Thanks. That's what I was thinking - I have no pension whatsoever. And by adding an annuity, the stock component going down during bad times won't worry me if I have a fixed base. I may have about $50K+ Heloc when I retire, but will slowly pay that Heloc off.

 

[mathjak107]

It makes no sense to buy an spia before delaying social security to 70 .

You can not buy any commercial annuity for the cost of those checks over the delay period that pays as much , can pass to a spouse , has tax advantages , is cola adjusted , etc .

Yet people make this mistake all the time …delaying ss is the best annuity you can buy

 

[Tracer]

It makes no sense to buy an spia before delaying social security to 70 .

You can not buy any commercial annuity for the cost of those checks over the delay period that pays as much , can pass to a spouse , has tax advantages , is cola adjusted , etc .

Yet people make this mistake all the time …delaying ss is the best annuity you can buy

My employer went bankrupt when I was 58. I started collecting SS at 62. I've been living off my SS, my annuity payments and now my IRA RMD's since then. Let me understand this. Are you suggesting that those who lose their jobs prior to retirement age without any income at all, start liquidating investments and live off their savings until 70? Just asking.

 

[Chuckanut]

It makes no sense to buy an spia before delaying social security to 70 .

You can not buy any commercial annuity for the cost of those checks over the delay period that pays as much , can pass to a spouse , has tax advantages , is cola adjusted , etc .

Yet people make this mistake all the time …delaying ss is the best annuity you can buy

+1

Bingo!

If you can afford an annuity, you can probably afford to delay SS. And you don't have to delay all the way to 70. If you can only afford to delay SS until 64 or FRA or 67, that is still better than nothing. It's not a binary choice between 62 or 70. There are nearly one hundred points between those ages where one can start SS.

 

[ncbill]

My employer went bankrupt when I was 58. I started collecting SS at 62. I've been living off my SS, my annuity payments and now my IRA RMD's since then. Let me understand this. Are you suggesting that those who lose their jobs prior to retirement age without any income at all, start liquidating investments and live off their savings until 70? Just asking.

But you did "liquidate investments" when you purchased the annuities all those years ago, even if you did so before you knew your employer would go under.

Given the general upward trend in equities over that period of time have you ever calculated what you'd have now given your preferred AA if you didn't buy the annuities?

Keep in mind withdrawals from a taxable portfolio would most likely have been taxed as LTCG versus annuities usually taxed as ordinary income.

 

[mathjak107]

Taxes on spias are terrible .

A 65 year old male would take about 14 years to get back what he gave the insurer …..

So it is actually 14-15 years before you see a penny of insurer money .

But the irs won’t wait that long and so they imply a return on each years money and tax you on it even though you may not even live long enough to get back what you handed them