Purchasing SPIA through Fidelity

[misanman]

A substantial percentage of my retirement funds are in an IRA at Fidelity and I think that at least a part of my withdrawal strategy will consist of a SPIA. Fidelity seems to offer immediate annuities (or maybe just facilitates securing same) through insurance company business partners.

Is it reasonable to purchase the SPIA directly from the IRA?

I have to admit that this is a bit of a mystery to me. What are the best alternatives?

 

[73ss454]

Pen Fed 5% 10yr CD starting in January.

 

[Disappointed]

Pen Fed 5% 10yr CD starting in January.

Do you need to be a member at Pen Fed?
Is there a minimum?
Is the deposit insured?

Thanks,

mP

 

[REWahoo]

Do you need to be a member at Pen Fed?
Is there a minimum?
Is the deposit insured?

Yes - see #7 here: https://www.penfed.org/howToJoin/overview.asp
Not sure about a minimum - check the PenFed website
Yes - to $250K

 

[73ss454]

Do you need to be a member at Pen Fed?
Is there a minimum?
Is the deposit insured?

Thanks,

mP

I think REW gotcha covered.
You need to be a member and it costs $20 one time fee
I'm not sure about the minimum.
The deposit is insured.

 

[Hamlet]

How can Pen Fed be paying 5% interest when everyone else is actually loaning money out at 4%?

Doesn't that rate seem too good to be true in this environment?

 

[73ss454]

It's guaranteed, why do you care?

 

[FIREd]

I am a new-ish Penfed member and as far as I can tell, the 5% 10-yr CD deal is not available to new members.

 

[HFWR]

I am a new-ish Penfed member and as far as I can tell, the 5% 10-yr CD deal is not available to new members.

Well, pfffft...

 

[ziggy29]

I have nothing against using an SPIA for part of one's retirement income stream, but interest rates are so low now that I think this is a terrible time to open one. When the Fed has called off the "war on savers" and rates increase, it might be worth a look then.

 

[FinanceDude]

Probably the worst internal SPIA rates in forever.............

 

[rescueme]

I purchased an SPIA in mid-2007 via Fidelity with a portion of my 401(k) rollover funds.

If you wish to discuss off-line, I'm here.

I don't want to post anything on-line, since I'm sure we'll get plenty of remarks from the "opinion" crowd who have never gone through the research process nor even have an SPIA or understand the reasons of getting one early in retirement (regardless of current interest rates) ...

 

[misanman]

Don't need yet - just planning for the future

I have nothing against using an SPIA for part of one's retirement income stream, but interest rates are so low now that I think this is a terrible time to open one. When the Fed has called off the "war on savers" and rates increase, it might be worth a look then.

Maybe I should have mentioned that I'm not ready for a SPIA right now - just trying to plan for the future. Ideally, if/when I'm ready to act on this, interest rates will have increased.

 

[REWahoo]

Is it reasonable to purchase the SPIA directly from the IRA?

Yes. This might help: How to Buy an Annuity With Your IRA - WSJ.com

 

[Hamlet]

Because it doesn't make any sense.

I don't want to buy a CD on the assumption that it will have to be bailed out by the government. It's kinda like guide rails on a road-- I'm glad they are there, but I'd prefer to avoid situations that require their use.

I can't imagine a way for Pen Fed to survive if they are willing to borrow money at 5% in this environment.

It's guaranteed, why do you care?

 

[REWahoo]

I can't imagine a way for Pen Fed to survive if they are willing to borrow money at 5% in this environment.

I suspect they are offering this rate because they believe interest rates will change markedly over the 10 year term of the CD - or that the surrender penalty will compensate them if the CD is terminated early. In any case, I doubt they will sell enough of these CD's to place the financial well being of the credit union in jeopardy...

 

[73ss454]

Remember that 10 years is a long time and at some point based on the past the interest rates will rise. When the rates rise it will even the playing field. This is what they are betting on. I wouldn't worry since it is guaranteed money up to I think 250K.

 

[haha]

I have been a member for several years, and have current CDs, but when I go to the website, all I find is CDs up to 7 years.

Can someone give a link?

Ha

 

[REWahoo]

Ha, check this thread: http://www.early-retirement.org/forums/f28/penfed-cd-reservation-offer-51751.html

 

[FIREd]

I have been a member for several years, and have current CDs, but when I go to the website, all I find is CDs up to 7 years.

Can someone give a link?

Ha

Go to "account actions", then "certificate options". You should see a link at the top right corner of your screen.

Correction from my previous post: as a new member, I opened my first CD at PenFed yesterday (I could only get the 7-year CD at 3.49%) but today I was able to see (and take advantage of) the promotional CD offer after logging in to my account. So it looks like it is available to anyone with at least one CD at PenFed.

 

[haha]

Thnx guys

Ha

 

[brewer12345]

A substantial percentage of my retirement funds are in an IRA at Fidelity and I think that at least a part of my withdrawal strategy will consist of a SPIA. Fidelity seems to offer immediate annuities (or maybe just facilitates securing same) through insurance company business partners.

Is it reasonable to purchase the SPIA directly from the IRA?

I have to admit that this is a bit of a mystery to me. What are the best alternatives?

When the time comes, shop insurers outside those who Fido plays with. You might get a better deal. I would also pay close attention to carrier risk. I personally prefer (strongly) to buy long term types of insurance from mutual companies rated Aa3/AA- or better.

 

[Hamlet]

Except that they are also offering 10/1 ARMs for a little over 4%.

Explain to me how they are going to make money borrowing at 5% to lend out at 4%? They'll make some money on points and closing costs, but overall this seems like it must be a losing deal for them.

Either this is a lose-leader that they are offering in very limited ways for marketing purposes, or they have lost their minds.

I suspect they are offering this rate because they believe interest rates will change markedly over the 10 year term of the CD - or that the surrender penalty will compensate them if the CD is terminated early. In any case, I doubt they will sell enough of these CD's to place the financial well being of the credit union in jeopardy...

 

[REWahoo]

Explain to me how they are going to make money borrowing at 5% to lend out at 4%?

Volume?

 

[brewer12345]

Except that they are also offering 10/1 ARMs for a little over 4%.

Explain to me how they are going to make money borrowing at 5% to lend out at 4%? They'll make some money on points and closing costs, but overall this seems like it must be a losing deal for them.

Either this is a lose-leader that they are offering in very limited ways for marketing purposes, or they have lost their minds.

Let's pretend you are a lender, and a non-profit one at that. You have scads of savings and checking deposits sitting around that you pay almost nothing in interest to house. The cost of funds is great, but you also know that rates will eventually rise and you will have to pay more on these deposits. What you can invest in is a mix of floating rate (credit card, HELOC, etc.) receivables and fixed rate stuff (mortgages, car loans, etc.). The floating rate stuff is naturally matched with your savings accounts, as both tend to move in rates at the same time. Not so the fixed rate stuff. So you need to put on a portion of fixed rate longer term deposits to hedge your interest rate mismatch. You could go to Wall Street and either borrow money or pay up for derivatives to protect you, or you could just pay up in the deposit market and benefit your members (what you are supposed to do anyway). So you originate a bunch of 5/5 ARMs at 4% and you finance it with half floating rate deposits, 40% 3 to 5 year CDs at an average of 3% and 10% with long term CDSs at 5%. Cost of funds is roughly 1.7%. Voila, you have an interest margin of 2.3%, which should be more than enough to cover your overhead (which is modest because you run lean) and credit losses (which are miniscule because of your very tight underwriting standards and the fact that a large number of your borrowers are employed by the US Govt).

Or maybe you have lost your mind and just want to give money away before 2012 arrives and the Mayans turn out to be correct.