Fidelity Retirement Planner keeps advising Annuities

[rkser]

Fidelity Retirement Planner hypothetically shows we are leaving quite some money behind to children/charities but it keeps advising us to buy Lifetime Income Annuities.

Do not know what to make of this advise ? is it just Fidelity trying to make some commissions or do we really need some kind of SPIA ??

We are retired DIY and our yearly living expenses presently all come from taxable accounts + 1 SS, namely Dividends + selling some long term etf shares.
Second SS is due at age 70 in a year.

I will appreciate any feedback on buying/ignoring a Lifetime Income Annuity.

 

[TheWizard]

A certain amount of annuity or pension income, in addition to SS, helps insulate your situation from overdependence on portfolio withdrawals.
But I don't know anything about Fidelity's retirement planner...

 

[Koolau]

I know Vanguard wants me to let them have some sort of management of my funds which would make them some money. So it wouldn't surprise me that FIDO wants to make some money from you - but I wasn't aware that they handled Lifetime Annuities. It wouldn't surprise me if they did.

Lifetime Annuities do have a theoretical advantage to some people. You can't outlive the income which just could be important if you live a long time or if you end up in a nursing home or similar.

I took a (very) quick look at annuities and rejected the idea. It would add one more back-up to my back-ups - which I didn't think I needed. Without knowing more about your situation, I couldn't comment on whether they might be appropriate for you (not that I'm an expert.)

 

[SnowballCamper]

I don't know how the planner works but if it asks you about risk tolerance and you're very risk averse then that could be why.

 

[GravitySucks]

Have small Annuity bought through Fidelity and the planner still points to Consider Adding Income. It’s just the marketing dept. giving prime space to a high earning product.

Happy with mine as it filled an insurance need but I’m not adding.

 

[jazz4cash]

i know the planner has been revised but I was not aware that it is promoting specific products. That is new. I still use it for updates but I’ve never seen that. I have an free Fidelity advisor and I would review it with him before making a decision. I was surprised when he arranged to meet with an LTC specialist. It was a good no pressure meeting.

 

[Koolau]

I still recall a transition occurring at my Megacorp's Credit Union. At first, no financial products were offered (other than CDs and savings accounts, etc.) Then, slowly, they began to offer "product" like annuities and then indexed annuities and variable annuities.

At first, the sales pitch was subtle and low pressure. I met a woman who offered indexed annuities. I read every word of the prospectus and told her I still couldn't figure it out nor could I even guess what the total costs were. She gave me the best advice I ever received from a "commissioned sales person." She said "It sounds like you should be looking at a place like Vanguard and invest in traditional mutual funds." It took a while but that's exactly what I eventually did. I still give thanks for her advice to this day.

BUT eventually, the CU replaced her with high pressure sales people as shark-like as any I've met from the big insurance companies.

I hate to see the big investment houses like FIDO going that way. I suppose they feel like it's the only way to make enough money, but it bothers me a bit. YMMV

 

[rkser]

The same Fido planning software has our withdrawal rate as 2.7% for our given life span with plenty left behind.

I will talk it over with our Fido Advisor, but for now it does not make sense from our end.

We already have two 3yr CD like MYGAs bought through Fidelity, which are a part of our fixed income but they are not life time income annuities.

 

[rk911]

If our SS and pensions somehow disappear we could survive quite nicely on a 2% WR of our nest egg, Of course that assumes it didn't dissolve along with SS and our pensions,

 

[Dtail]

The same Fido planning software has our withdrawal rate as 2.7% for our given life span with plenty left behind.

I will talk it over with our Fido Advisor, but for now it does not make sense from our end.

We already have two 3yr CD like MYGAs bought through Fidelity, which are a part of our fixed income but they are not life time income annuities.

Kind of almost a long term MYGA type security.

 

[pb4uski]

Ignore them.

 

[nwsteve]

I think the message is to have some regular sources of income not subject to market swings to help reduce need to liquidate portfolio at the "wrong" time. We have a small pension and a regular income stream coming our rental and DST income from 1031 conversion earlier this year.
Obviously, every portfolio/investor has an amount best suit to the individual's risk horizons and cash needs.
'

 

[ncbill]

SPIA main advantage is mortality credits that boost your payment.

Especially for those whose income could use a boost.

But the fixed payment gets killed by inflation if you start it early, e.g. 60s.

So MaxiFiPlanner recommends only annuitizing (SPIA) for me age 80 or later.

Personally I'd pick a TIPS ladder instead since I don't need a 'return boost' for my fixed income.

 

[TickTock]

The same Fido planning software has our withdrawal rate as 2.7% for our given life span with plenty left behind.

I will talk it over with our Fido Advisor, but for now it does not make sense from our end.

FWIW, I've been reading Jane Bryant Quinn's How To Make Your Money Last. She likes SPIAs in certain circumstances, but in her Summing Up she advises against a SPIA if you have a WR of no more than 2-3% and are living comfortably on the money. You already have enough income to last for life.

Personally, at that WR I'd advise against it unless your risk tolerance is low and your prone to selling equities after a market drop.

When you discuss it, I'd ask the advisor why they recommend a SPIA for you. What problem is it trying to solve?

 

[rkser]

We keep 2 years of expenses in money market to avoid possible selling equities at a wrong time although it is a drag on the portfolio.

It may more be the fault of the Fidelity Planning Software &
I am curious if others on the forum who follow the Fidelity Planner Software have come across any such scenarios.

 

[mrfeh]

We keep 2 years of expenses in money market to avoid possible selling equities at a wrong time although it is a drag on the portfolio.

It may more be the fault of the Fidelity Planning Software &
I am curious if others on the forum who follow the Fidelity Planner Software have come across any such scenarios.

I usually run the Fido tool a couple times a year, and have never received the "buy an annuity" advice. Perhaps that's because our WR is so low, or maybe I haven't run it since they've made changes. Hard to say if it's marketing, or if it's good advice.

SPIAs are not universally frowned upon. If you want another opinion, perhaps post your portfolio and expenses over on bogleheads and see what they say.

Jim Otar wrote a book: Unveiling the Retirement Myth where annuities are recommended for folks who haven't absolutely won the game. It is long and dense, but you may be interested if you really want to get into the weeds.

 

[Chuckanut]

Compromise. Make your own pseudo-annuity using a CD/Treasury ladder.

 

[engineernerd]

Someone on another thread did point out a good (if depressing) reason to buy lifetime annuities: dementia risk.

I would add, risk of misplacing our trust. Apparently as we age we become more prone to trusting rascals, which could have a devastating effect on our finances if we are controlling a large portfolio of liquid assets.

It makes sense to think about who would take care of our finances if we became unable, and to set things up to make that go well. Including, perhaps, adding an additional guaranteed no-effort income stream to make their job easier.

There is also of course a risk that the annuity provider will fail to actually pay out. This risk used to be low but business ethics and government oversight are both in a downward spiral nowadays, so I don’t think it can be ignored.

 

[Lorenzo]

I may consider buying a good-sized SPIA when I get into my mid 80s, figuring it could provide for long-term care, yield a higher rate of return than a CD/bond ladder, and with my wife being separately taken care of and I not planning to leave money to any other heirs I have no further need for the money. Under my will, a charity gets whatever crumbs are left.

 

[TickTock]

I may consider buying a good-sized SPIA when I get into my mid 80s,

If you're seriously considering it, I'd suggest comparing it to a DIA.

 

[jazz4cash]

There is also of course a risk that the annuity provider will fail to actually pay out. This risk used to be low but business ethics and government oversight are both in a downward spiral nowadays, so I don’t think it can be ignored.

Good points. If I buy a SPIA because I need $1500/ month secure income the premium might be $300k. My State Guaranty Assoc limit is $250k but the real risk is losing lifetime income. If they payout $250k that only provides ~14 yrs of income. Could they reduce the payout by income already received?

 

[Al18]

I can’t imagine Fidelity suggesting you buy a SPIA from one insurer above your state limits. If you need that much income, they would likely suggest 2 SPIA from different insurers, 150K each.

Fidelity also offers 3-10 year MYGA that you can withdraw up to 10% each year. That sounds better to me, and you’re not locked in for life.

 

[rkser]

There is a List of A++ rated Insurance companies on the Fidelity site, one can buy the SPIA or a MYGA from or can go

Again, I think it is the Fidelity retirement planning software which is suggesting a SPIA & I am not about to run go buy one.

We do have two 3 yr MYGAs .

 

[imjustawarrior]

There is a place for a SPIA. From what I have seen, one should wait until 75-80 before purchasing one. Fidelity will let one add a COLA rider, but there is no inflation indexed SPIAs anymore from what I understand.

I think Fidelity tries to sell them to make money.

The Fidelity products may be fine, but I usually see people suggest using Immediate Annuities

 

[DJRR]

The annuity is presented as an option if you "examine your retirement income" or similar section. Fidelity caters to do it yourselfers and I imagine they have a barbell with a lot who are too aggressive at one end and too conservative at the other. Surveys I have seen show that the average person "feels" better when they have a guaranteed income, so I assume Fidelity presents that as an option. As others said, the mortality credits give you a higher safe withdrawal rate to start but are not inflation adjusted unless you pay a lot for it. They split your expenses into fixed and variable, so I imagine the advice is to cover your fixed expenses with social security and an annuity and fund your variable expenses out of investments. People that don't worry about covering their fixed expenses tend to have a more worry free retirement, but it comes at a cost.