What I'm asking now, and please don't respond with venomous rage, is wouldn't this be a very bad time to get an annuity and since we're in cash now should we perhaps wait and see if CDs go back up?
I
would not get a variable annuity right now because interest rates are low. I have considered the possibility of an "immediate income annuity" in 3 years when I officially retire. I would not even do one of those for more than 5 years due to inflation. I also may not do one at all....for this reason - I can't find a logical reason to do so ...other than...not wanting to deal with my money...and that is not a good reason (until I can no longer write my name in which case I will not care). Ask yourself this question: Can I annuitize myself". If the annuity company can pay me $3000 a month, can I simply allocate a years worth of pay to cash on a rotating basis and pay myself $3000 a month?
There are many pitfalls to annuities. For ex:...with variable annuties..if you have funded it with after tax money...when they start to pay out...you will be taxed again...because they pay out "growth first". It is only when you invade "basis" that it becomes a net of tax distribution to you. If you have funded it with "before tax" money...then it doesn't matter. However, most do not recommend putting what is already tax deferred money into ...another tax deferred vehicle. What's the point?
If you choose the annuity route...get the salesman to run scenarios....during the withdrawal phase thru all sorts of market conditions (not just the accumulation phase which looks good on paper).
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Recently we were listening to the radio and heard the market was up or down 1 or 2 % for the day and my teenage son said, "Isn't that a lot?" but we seem to have gotten used to that much volatility. I think my question is - if we can't stomach gradually losing money to inflation can we afford to take a hit on principal?
The problem is one doesn't have a crystal ball...which makes predicting the future impossible. We can only do what makes sense for ourselves.
Also, it depends on what you call principal. I don't consider growth on investments principle. I consider principle the money I saved and contributed. So...if my growth over the last decade equates to $400,000 and due to market conditions I lost $200,000...I'm still $200,000 ahead of where I would have been had I done nothing. Does it still hurt? Yep. The other thing that hurts is ..it is likely that I already paid tax on some of those gains...that were then lost. Which is why diversification ...in all asset classes is critical and asset allocation percentages is critical.
Also, if you look at history, there have been periods - the 80's I believe, when you could have bought stocks and they wouldn't have come back for 20 years. Don't remember the exact figures.
If you think this is not a worthy topic of conversation, or that I shouldn't bring it up before reading 10 books please tell me without calling me names.