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

[mathjak107]

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.

That isn’t the same situation…..

I retired at 61 and was going to delay to 70 …

But we were fronting our selves the ss we were not getting plus the regular draw from our portfolio.

That was extra ss money we were laying out was money that could be invested or was invested .

I was working one day a week enjoying what I did but I made to much to collect .

So I decided that since in the year I would be fra I could earn a lot more so I filed at 65 .

Even though I had planned to wait until 70 , mentally it was hard to wait , mr ss check is banging on the door going use me .

So we did . Plus my wife couldn’t get 4500 a year in a spousal adder .

So everyone is going to have a different situation so there is no one answer .

But if I had plans to buy an annuity I would have waited and spent down as it would be silly to spend more and get less then delaying gave me

 

[Tracer]

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.

The annuities were purchased largely from an inheritance with after tax dollars. The monthly payments I get from the insurance companies are mostly tax-free. I have already gotten back all that I put into them.

At the time I had no income and too young to collect SS. I had a pretty good size IRA and Roth IRA as well as some other non-qualified investments and some bank cash and CD's. I'm divorced. No working wife to help out. I needed a stable base to live on. The annuities and SS are doing that just fine. It's given me peace of mind. My IRA's have grown quite a bit over that time and I have yet to dip into them. Except for RMD's, I haven't had to. I'm planning some traveling soon and will probably need a new car within a couple of years so I'll probably have to start dipping into the stash. The Fidelity retirement calculator says I should be good to 100 if, god willing, I make it that long and still have some inheritance left for my daughter and grandkids.

 

[TheWizard]

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.

Yes, it's better to delay SS is you're in decent health and have a goodly amount of retirement savings.
Getting a new job to get to your desired retirement age is another good idea...

 

[almost there]

The annuities were purchased largely from an inheritance with after tax dollars. The monthly payments I get from the insurance companies are mostly tax-free. I have already gotten back all that I put into them.

At the time I had no income and too young to collect SS. I had a pretty good size IRA and Roth IRA as well as some other non-qualified investments and some bank cash and CD's. I'm divorced. No working wife to help out. I needed a stable base to live on. The annuities and SS are doing that just fine. It's given me peace of mind. My IRA's have grown quite a bit over that time and I have yet to dip into them. Except for RMD's, I haven't had to. I'm planning some traveling soon and will probably need a new car within a couple of years so I'll probably have to start dipping into the stash. The Fidelity retirement calculator says I should be good to 100 if, god willing, I make it that long and still have some inheritance left for my daughter and grandkids.

Several ways to look at it. If your IRA's and Roth IRA's are in tact & growing. And you have been retired for years without needing them. Living off SS and an annuity. And a current ret. plan with the IRA's that takes you over 100. It sounds like you won the game. Nothing wrong with that. Congrats.

I have done something similar. To sum things up, I will have (4) buckets close in size (monthly) at 62 I will draw from. With a couple extra buckets I will probably never use. Together the (4) will keep me at the top of the 12-15% tax bracket. Which is where I want to be. Or till they change the tax laws.

Personally, I would not be comfortable using a lot of my IRA / Roth / savings 1st to take SS at 70. But rather stretch smaller annual IRA distributions out over a longer 20-25 year period. And use that to control my annual income. And get the IRA down to where RMD's are not an issue. In my IRA / case, the plan is $30k a yr. for 20 years. Thanks to Roth conversions.
I like keeping the buckets close in size, and know I am more comfortable having a good amount of cash at all times over a larger SS check. To me, thats putting too much faith in one bucket. At the expense of another. One I have little control over. Do I think SS will be in tact & the same as it is now in 20-30 years? Yep. Am I 100% sure of it? Nope.... If I had a large pension that covered my expenses, I would probably wait till 70. But, I don't. And manage my buckets accordingly. Not banking on one more heavily than another. Even though they are all rock solid. Aside from the one I am not 100% in control over.

 

[youbet]

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.

That applies when making the decision between a pension and a lump sum too. The pension carries the risk of default. The lump sum is in your pocket.

 

[mathjak107]

While it could happen , it really hasn’t happened to a highly rated annuity company .

Even aig’s insurance arm was just fine in 2008 and needed no bail out

 

[TheWizard]

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

OP is not proposing to buy a regular SPIA.
He is planning to annuitized some long-term TIAA Traditional with a significant loyalty bonus, thus a payout well above an SPIA at the same age.

Details were provided in earlier posts. Delaying SS until age 70 is an excellent idea for many of us as well and is what I did...

 

[Koolau]

I'm not a fan of purchased annuities though I have a modest company pension and SS which are, effectively, annuities. It is nice knowing a certain amount of money is coming in each month. Having said that, you pay for the privilege of the annuity company returning your money each month. I'd rather do it myself and lay off the risk by being willing to make cuts in spending later on if need be. Very much a YMMV situation. Good luck with your decision.

 

[pb4uski]

... 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.

Not mathjak here, but that is what I and many others here are doing. I saved that money to spend in my retirement, not to hoard it.

And after 10 years of funding living expenses, two new vehicles paid for in cash, our Florida condo paid for in cash, taxes on $800k of Roth conversions, etc we have as much as we started out with so it's work out fine.

 

[Tracer]

Annuities like other insurance products are a gamble. If you’re healthy and live a long life, you can come out way ahead. I’m sure these companies make a large amount of their profits by those who die before ever getting back their original investment that the company gets to keep.

 

[almost there]

Annuities like other insurance products are a gamble. If you’re healthy and live a long life, you can come out way ahead. I’m sure these companies make a large amount of their profits by those who die before ever getting back their original investment that the company gets to keep.

Yep. Same as a pension / gamble wise. A lot of folks had defined benefit pensions that turned into "cash balance plans". After fully implementing the then new 401k. With annuity options. Insured up to around $5000 a month. Mine was less than that, and took it when the rate was around 5 1/2% 6 yrs ago. Best decision I have made. Could have rolled it into a IRA, but my plan is to get that money out, rather than to add to it.

 

[TheWizard]

Annuities like other insurance products are a gamble. If you’re healthy and live a long life, you can come out way ahead. I’m sure these companies make a large amount of their profits by those who die before ever getting back their original investment that the company gets to keep.

I've explained this before, that pensions and lifetime annuities work on a pooled concept where money "left over" from folks who die on the early side goes to pay those long-lived folks who live into their 90s.

Insurance companies definitely make a profit on the composite, actuarially managed annuity business and this is important, so that they stay strong and are unlikely to go bust.

If you don't believe my explanation about pooled money and short vs long lived retirees, that's completely fine...

 

[mathjak107]

Investing over decades of time has usually beaten annuity products even if you live to 90-95.


this annuity sounds fabulous .

it is the prudential bond index deferred annuity with a guaranteed 5.50% growth rate .

so lets look under the hood .

this annuity is linked to a bond index .
it will give you the higher of what the index does or a guaranteed 5.50% .
sounds sweet .

so we see if we give them 100k at age 55 and let it grow for 10 years that with a 2.50% expense , there is no way the bond index will beat the guarantee of 5.50% which includes expenses .
so basically the index is for show .
[

we see below if we give them 100k at age 55 and defer to 65 to start , we have the 100k compounding to 180,209 .
you really did get 5.50% . but now watch how that goes away .
you cant take that 180k nor can heirs get it . it sits in a virtual account not your account and it is used only as a base for your annuity draw .
so you gave them 100k at age 55 , you start drawing money at 65 .
it takes until age 76 to get your own money back out . that is 20 years at zero return .
you see the first penny of their money at 77 . your return for 21 years is now .44% .
even if you lived to 90 you saw less than 4%
so because they control how much of the virtual account you actually see they can guaranttee you anything and it does not matter .
if you notice while you are deferring and growing out of the 5.50% each year you get they are only allowing you to see 1/10% more of it

by the way , what your heirs get is your actual account balance less all the money drawn out over the years , less the 2.50% expense each year .
after a number of years that is likely zero and you are running only on the virtual account balance no one can touch

 

[almost there]

Some are better than others. Thats for sure.. And some like several forms of income (buckets) with different risk levels. If I had to rely solely on the stock market in retirement. I would still be working. As I would not be able to relax. Just me.

 

[Koolau]

Some are better than others. Thats for sure.. And some like several forms of income (buckets) with different risk levels. If I had to rely solely on the stock market in retirement. I would still be working. As I would not be able to relax. Just me.

Yeah, me too. I want some income of some kind coming in while the markets do their thing. My pension and SS allow me to more or less ignore the ups and downs of the markets. YMMV

 

[TheWizard]

Yeah, me too. I want some income of some kind coming in while the markets do their thing. My pension and SS allow me to more or less ignore the ups and downs of the markets. YMMV

Well stated.
My commercial real estate VA from TIAA has been increasing my payment each month over the past year while the stock market has been correcting.
So I'm happy for that and have a negative withdrawal rate for now...