Am I smart to get a Gteed Lifetime Annuity with Cash Refund option now that I'm single?

SoReadyToRetire

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Hello, intelligent people--

I'm about to pull the trigger on buying a Guaranteed Lifetime Annuity II from New York Life, at my Fidelity planner's suggestion. Would love to run it by you guys for your input first.

I'm newly divorced and as I wrote in a previous post, the ex got a BIG chunk of my money, so I'm now trying to plan for my single future. Recently I decided it would be a relief to have more guaranteed income.

I get ~$2250 net from SS each month after Medicare and taxes.

My assets are a fully paid home, a Fido Roth IRA curently worth $74K and a Fido Rollover IRA currently worth $890K.

I've been investing in new issue CDs in the Rollover IRA while rates were over 5%. About 50% of my portfolio is in NVDA stock, some in Fidelity Puritan Fund (blended) and the rest is in cash.

Current plan is to take the $355K currently sitting in cash and buy a Guaranteed Income Annuity II, with cash refund option, from NY Life. That would give me another $2K/month income starting 12/1/24. And with the refund option, of course, if I die before I've been paid back the initial $355K, whatever remains would come back into my estate.

This would give me a total guaranteed income of about $4234/month for life (I'm 66; my life expectancy is 89). My monthly expenses are $4,200, which includes $2K "play money".

This plan would leave me with about $610K in the IRA's that can continue to grow, plus all my expenses would be covered. It would allow me to be less nervous about the day-to-day performance of my portfolio, and I'd still have that $610K cushion.

I know pulling $355K out of my IRA, in addition to the $110K I already had to pull out for the divorce, will be a BIG tax hit. But at least it'll all be in one year. I have cash in my checking account to pay the tax bill, and I can appeal the IRMAA that will most likely happen.

Does this seem reasonable to those of you with experience with these things? Are there any major drawbacks that I'm not considering?

Would love to hear opinions on this, as I'm supposed to be deciding by Monday whether to do it. Thank you!
 
IF I were to go this route, I would invest the remaining rollover IRA funds in a growth equity fund like FXAIX that matches the S&P 500. You said you don't need those funds and have a ROTH IRA @ $75K, AND $2K monthly disposable from a guaranteed income of SS and that annuity, so you certainly are not on the edge of anything financially at risk for covering your expenses during your lifetime, so may as well let that pot of money grow.

If you decided you did want to draw down that $610K and assuming FXAIX will get you a 7% earning and 3% inflation, drawdown calculators show you can begin now pulling out over $3,600 a month with a 3% inflation protection and it will take you to 86 years old. Over $3,100 a month will take you to 91 years old. The longer it sits growing, the larger the draw as the account increases in value and the years to draw down decreases as you get older.
If the $610K is left to grow for 28 months at 7% and assuming 3% inflation rate, you'll have enough to draw down your full $4,200 monthly expenses for 20 years (to age 88+). That'll fully fund you 100% back-up.
 
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Hello, intelligent people--

I'm about to pull the trigger on buying a Guaranteed Lifetime Annuity II from New York Life, at my Fidelity planner's suggestion. Would love to run it by you guys for your input first.

I'm newly divorced and as I wrote in a previous post, the ex got a BIG chunk of my money, so I'm now trying to plan for my single future. Recently I decided it would be a relief to have more guaranteed income.

I get ~$2250 net from SS each month after Medicare and taxes.

My assets are a fully paid home, a Fido Roth IRA curently worth $74K and a Fido Rollover IRA currently worth $890K.

I've been investing in new issue CDs in the Rollover IRA while rates were over 5%. About 50% of my portfolio is in NVDA stock, some in Fidelity Puritan Fund (blended) and the rest is in cash.

Current plan is to take the $355K currently sitting in cash and buy a Guaranteed Income Annuity II, with cash refund option, from NY Life. That would give me another $2K/month income starting 12/1/24. And with the refund option, of course, if I die before I've been paid back the initial $355K, whatever remains would come back into my estate.

This would give me a total guaranteed income of about $4234/month for life (I'm 66; my life expectancy is 89). My monthly expenses are $4,200, which includes $2K "play money".

This plan would leave me with about $610K in the IRA's that can continue to grow, plus all my expenses would be covered. It would allow me to be less nervous about the day-to-day performance of my portfolio, and I'd still have that $610K cushion.

I know pulling $355K out of my IRA, in addition to the $110K I already had to pull out for the divorce, will be a BIG tax hit. But at least it'll all be in one year. I have cash in my checking account to pay the tax bill, and I can appeal the IRMAA that will most likely happen.

Does this seem reasonable to those of you with experience with these things? Are there any major drawbacks that I'm not considering?

Would love to hear opinions on this, as I'm supposed to be deciding by Monday whether to do it. Thank you!
A few things.

First and foremost, there is no need to take $355k out of your IRA and take a big tax hit. If that is what your Fidelity planner is suggesting then immediately fire him/her. I'm guessing that you misunderstand the proposed annuity purchase. Typically, the IRA purchases the annuity and then you can withdraw the ~$2k monthly annuity benefit from the IRA. That is more tax efficient in that the purchase of the annuity doesn't result in a any tax hit at all.

Also, while its probably too late now, pulling $110k out of the IRA for the divorce sounds strange. Why didn't you just transfer $110k of IRA money to your ex? That would not have been a taxable event.

The pricing is ok. immediateanities.com indicates that a 66yo male in NY depositing $355,000 for a fixed annuity to start in a month would receive $2,163 with a cash refund feature. Blueprint income has a NY Life annuity that would pay $2,043/month.

However, if you really live to be 89 and receive 23 years of payments then you'll get your $355k back and 4.23% interest. Not that bad.
 
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Did I read that right? 50% in NVDA? You mentioned protection from market risk. My #1 priority would be to reduce overexposure to single stock risk by taking gains, using options, stop loss orders, etc. I bet it's tough to sell such a phenomenal winner (I wouldn’t know,LOL). I know that’s not the response you were looking for. Glad to see you are focused on moving forward.
 
That’s not smart financial advice.
My opinion:
1. Don’t the annuity. Inflation will eat away at your fixed payments over your life, and the broker probably earns a huge commission.
2. Diversify you stock holdings. I’m a small time investor in NVDA and realize there’s a good chance the stock price could drop 50% over the next 3 years. Instead of investing solely in NVDA, consider buying Fidelity Select Semiconductor fund FSELX, which holds 41 semiconductor stocks, of which NVDA is the largest holding at 25%.
3. Consider investing a portion of your cash in a SP500 index fund such as FXAIX. The SP500 returns over the past 30 years have averaged 10%.
4. Consider investing some of your cash in brokered CD’s and build a CD ladder. I think it takes 3 mouse clicks to buy a CD at Fidelity. Make sure you stay under the FDIC limit $250K per bank and only buy call protected CD’s.

Good luck.
 
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Did I read that right? 50% in NVDA? You mentioned protection from market risk. My #1 priority would be to reduce overexposure to single stock risk by taking gains, using options, stop loss orders, etc. I bet it's tough to sell such a phenomenal winner (I wouldn’t know,LOL). I know that’s not the response you were looking for. Glad to see you are focused on moving forward.
Good catch. I also noted that but forgot to include it in my reply. IMO you should never have more than 5% in any single stock.
 
I think the first two answers in this thread are quite good.

I just wanted to add two comments:

1. Pulling the money out to buy the annuity means that tax bill, which is probably 30% of the value of the annuity considering federal and state taxes. If you don't pull the money out (and I wholeheartedly agree with @pb4uski that it is far wiser to leave the money inside the IRA), then that $100K+ you don't spend on taxes could grow to $400K in twenty years. Heck of an opportunity cost.

2. Who decided that you have a Monday deadline to decide? If the "advisor" (as I suspect), then I think that is a sales tactic designed to pressure you into making a quick decision and to prevent you from investigating or thinking about it too much. I can't think of a single good investment that has that sort of time criticality to purchase.

If it were me, I (a) wouldn't buy the annuity, and (b) if the advisor actually did suggest you take the money out of the IRA to purchase it, I'd cut off ties with the advisor immediately and with prejudice.
 
I agree with the other posters. Do not purchase the annuity in the manner suggested. Also, I do not believe the IRA sale is on the list of allowable reasons to appeal an IRMAA charge.
 
If you skipped the return of premium feature wouldn't the annuity cost less and leave you more to invest for growth?
 
^^^^ No, the premiums are not so different.

from immediateannuities.com... 66yo male in NY, income to begin in 1 month;

$2,000/month no refund: $311,688
$2,000/month with 10 years certain: $315,789
$2,000/month with full refund: $328,317
 

This is an link to Immediate Annuities wherein they discuss the process of buying the annuity without taking a taxable withdrawal to fund the purchase, rather there appears to be a transfer of funds. I would want a confirmation in writing that NY Life is properly setting up the account to satisfy IRS requirements in that regard.
 
2. Who decided that you have a Monday deadline to decide? If the "advisor" (as I suspect), then I think that is a sales tactic designed to pressure you into making a quick decision and to prevent you from investigating or thinking about it too much. I can't think of a single good investment that has that sort of time criticality to purchase.
Monday is Sept. 30, the last day of the month. I don't know how these things work, but I suspect the advisor wants the commission to hit this month!
 

This is an link to Immediate Annuities wherein they discuss the process of buying the annuity without taking a taxable withdrawal to fund the purchase, rather there appears to be a transfer of funds. I would want a confirmation in writing that NY Life is properly setting up the account to satisfy IRS requirements in that regard.
I think in the OPs case that Fidelity is the broker/agent so he won't have a separate account with NY Life, but rather the NY Life annuity will just be another investment in his IRA just as if he bought a stock or bond.
 
A few things.

First and foremost, there is no need to take $355k out of your IRA and take a big tax hit. If that is what your Fidelity planner is suggesting then immediately fire him/her. I'm guessing that you misunderstand the proposed annuity purchase. Typically, the IRA purchases the annuity and then you can withdraw the ~$2k monthly annuity benefit from the IRA. That is more tax efficient in that the purchase of the annuity doesn't result in a any tax hit at all.

Also, while its probably too late now, pulling $110k out of the IRA for the divorce sounds strange. Why didn't you just transfer $110k of IRA money to your ex? That would not have been a taxable event.

The pricing is ok. immediateanities.com indicates that a 66yo male in NY depositing $355,000 for a fixed annuity to start in a month would receive $2,163 with a cash refund feature. Blueprint income has a NY Life annuity that would pay $2,043/month.

However, if you really live to be 89 and receive 23 years of payments then you'll get your $355k back and 4.23% interest. Not that bad.
Thank you very much for your always helpful and informative reply, pb4uski.

You're most likely right--the annuity would be purchased INSIDE my IRA. That was a question I emailed to my advisor after we talked, but he hasn't responded yet. Makes a lot more sense that way.

I handled the divorce money incorrectly because when I asked my divorce lawyer about tax implications, all he said was "I'm not a tax attorney. Talk to a tax attorney." At the time, I was watching my money fly out the window by the minute, and the ex was putting me under tremendous emotional stress, so the last thing I wanted to do was spend more money on ANOTHER attorney. I just wanted it all to be over. Big mistake, which I'll now be paying for. :mad:

So you're saying this isn't a terrible move for me, to buy this annuity?
 
Did I read that right? 50% in NVDA? You mentioned protection from market risk. My #1 priority would be to reduce overexposure to single stock risk by taking gains, using options, stop loss orders, etc. I bet it's tough to sell such a phenomenal winner (I wouldn’t know,LOL). I know that’s not the response you were looking for. Glad to see you are focused on moving forward.
Ha ha--I knew somebody would get stuck on that piece of info! I fully intend to reduce my exposure to NVDA, but I don't feel that now is the time. I think their 4th fiscal quarter earnings are going to be another catalyst for a big rally. Thanks for replying. :)
 
I have 2 fixed income deferred term annuities bought using my IRA. They are not a taxable events. Only when benefits/payouts happen, they are taxable on the amount of the payout.
 
IF I were to go this route, I would invest the remaining rollover IRA funds in a growth equity fund like FXAIX that matches the S&P 500. You said you don't need those funds and have a ROTH IRA @ $75K, AND $2K monthly disposable from a guaranteed income of SS and that annuity, so you certainly are not on the edge of anything financially at risk for covering your expenses during your lifetime, so may as well let that pot of money grow.

If you decided you did want to draw down that $610K and assuming FXAIX will get you a 7% earning and 3% inflation, drawdown calculators show you can begin now pulling out over $3,600 a month with a 3% inflation protection and it will take you to 86 years old. Over $3,100 a month will take you to 91 years old. The longer it sits growing, the larger the draw as the account increases in value and the years to draw down decreases as you get older.
If the $610K is left to grow for 28 months at 7% and assuming 3% inflation rate, you'll have enough to draw down your full $4,200 monthly expenses for 20 years (to age 88+). That'll fully fund you 100% back-up.
Skipro33, so are you saying that if I put the majority of the $610K left in the IRA after the annuity into FXAIX (or similar), I can IMMEDIATELY start taking out ANOTHER $3600/month (on top of my SS and the annuity income) and the money will still last until I'm 86? Wow. If I can do that, seems I don't even need the annuity. What am I missing? (And what drawdown calculators are your using, please? I haven't seen one of those.)
 
That’s not smart financial advice.
My opinion:
1. Don’t the annuity. Inflation will eat away at your fixed payments over your life, and the broker probably earns a huge commission.
2. Diversify you stock holdings. I’m a small time investor in NVDA and realize there’s a good chance the stock price could drop 50% over the next 3 years. Instead of investing solely in NVDA, consider buying Fidelity Select Semiconductor fund FSELX, which holds 41 semiconductor stocks, of which NVDA is the largest holding at 25%.
3. Consider investing a portion of your cash in a SP500 index fund such as FXAIX. The SP500 returns over the past 30 years have averaged 10%.
4. Consider investing some of your cash in brokered CD’s and build a CD ladder. I think it takes 3 mouse clicks to buy a CD at Fidelity. Make sure you stay under the FDIC limit $250K per bank and only buy call protected CD’s.

Good luck.
Thank you, AI18, for the suggestion of FSELX. Sounds like a much better choice at this point than just NVDA.

I have been buying brokered CDs for awhile, as I mentioned in my original post, using the criteria you mentioned.
 
Why not just keep it simple? Pull about 4% per year from your $890K roll-over IRA. That would be almost $3K/month. If markets go south or even side ways, you could cut back for a while on your withdrawals.

Have you run your numbers through FIRECalc?

How is your advisor paid? That could tell you a lot. Is s/he a fiduciary?

I NEVER like to have to do something in a couple of days. I've lost more money DOING something than NOT doing something.

I'm no expert but my bias is I don't particularly like annuities but YMMV. Good luck.
 
I think the first two answers in this thread are quite good.

I just wanted to add two comments:

1. Pulling the money out to buy the annuity means that tax bill, which is probably 30% of the value of the annuity considering federal and state taxes. If you don't pull the money out (and I wholeheartedly agree with @pb4uski that it is far wiser to leave the money inside the IRA), then that $100K+ you don't spend on taxes could grow to $400K in twenty years. Heck of an opportunity cost.

2. Who decided that you have a Monday deadline to decide? If the "advisor" (as I suspect), then I think that is a sales tactic designed to pressure you into making a quick decision and to prevent you from investigating or thinking about it too much. I can't think of a single good investment that has that sort of time criticality to purchase.

If it were me, I (a) wouldn't buy the annuity, and (b) if the advisor actually did suggest you take the money out of the IRA to purchase it, I'd cut off ties with the advisor immediately and with prejudice.

I think I misunderstood when I said that I'd be withdrawing the money to buy the annuity. I'm relieved to hear from you guys that isn't the case; my tax bill will already be big enough this year without adding that!

The Monday "deadline" isn't really a deadline; it's the date I next meet with my advisor. The quote he gave me is good for 7 days (until Wednesday).

Thanks for reinforcing that taking the money OUT of the IRA to buy an annuity would be a terrible move!
 
Why not just keep it simple? Pull about 4% per year from your $890K roll-over IRA. That would be almost $3K/month. If markets go south or even side ways, you could cut back for a while on your withdrawals.

Have you run your numbers through FIRECalc?

How is your advisor paid? That could tell you a lot. Is s/he a fiduciary?

I NEVER like to have to do something in a couple of days. I've lost more money DOING something than NOT doing something.

I'm no expert but my bias is I don't particularly like annuities but YMMV. Good luck.
Hmmm--I had not really considered just doing the 4% withdrawals. I will now, hearing how much they'd be! Thanks, Koolau.

I used FIRECalc religiously before I retired. I haven't run it since the stupid divorce. :( I'll do that now.

And yes, my advisor is a fiduciary.
 
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If you skipped the return of premium feature wouldn't the annuity cost less and leave you more to invest for growth?
He quoted me $355K for cash refund option, $332K without. So yes, but I hate the idea of dying early and not getting that big chunk of money back. My family could use it.
 
I have 2 fixed income deferred term annuities bought using my IRA. They are not a taxable events. Only when benefits/payouts happen, they are taxable on the amount of the payout.
RetiredHappy, what is the difference between fixed income deferred term annuities and the one I'm considering? Do you know?
 
RetiredHappy, what is the difference between fixed income deferred term annuities and the one I'm considering? Do you know?
By deferring, the funds have opportunity to grow before income starts. I bought the 2 deferred fixed term income annuities when I was 53. The first would start when I turned 60 and pay for 10 years and the other at 70 that would pay for 15 years. Since I retired at 53, I wanted some assurance of income stream, much like creating my own pension. The actual payout, not adjusted for net present value, was 2.5 times of the investments. I have alot of money in my taxable brokerage account and my spouse also has a large IRA account which we only withdraw up to RMD amounts These are the "other" money that we fall back on, to make up whatever else that we need to live on.
 
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I agree with the other posters. Do not purchase the annuity in the manner suggested. Also, I do not believe the IRA sale is on the list of allowable reasons to appeal an IRMAA charge.
But divorce is an allowable reason to appeal, correct? I need to check on that immediately.
 
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