OK, I have read all your replies several times and I respect your advice on NOT purchasing a fixed indexed annuity. It seems unanimous. But how else can I start receiving a guaranteed monthly income to supplement my SS? That CD that 73ss454 (sounds like a Chevelle I once owned..
) suggested might do it...for a while. I don't have much time. I'm expecting to be told to go home this week as the work isn't there anymore. It's not only the threat of being laid off that bothers me, it's working in a place where I haven't had a raise in past 8 years. Lost my health ins., vacations, sick days etc. I can't gamble with my savings as it will be used for my income. The days for making money are over. I just need money to live on from now on. BTW. That PenFed CD was only 2.4% at 5 years.
Hi Ralph and welcome to the forums sorry to hear about your ugly job situation.
Sadly there are no guarantees, despite what insurance salesman tell you. Insurance companies can and do go broke, and while this doesn't happen often and sometimes they get bailed out like AIG, the 5% is only guaranteed if you correctly read all of the fine print and the insurance companies stays in business.
I am going to suggest an alternative which still gets you the $15,000 year you need to live on, likely will provide you with a modest increase in income to help offset inflation and probably would leave you with a decent size nest egg for kids or to use if a nursing home is necessary. Historically this would have worked for most of the last 100 year, but we live in really challenging times so no guarantee
This is a variation of the couch potato portfolio developed by
Scott Burns.
One of your first steps is to call Vanguard and ask them for help, with $300K portfolio they will probably suggested talking to a Vanguard financial planner and I think the $250 is probably money well spent.
In a nutshell I suggest taking 1/2 the $300,000 and buying Vanguard Total Bond Market Admiral Index Fund, (VBTLX) and the other 1/2 and buying the Vanguard Total Stock Market Admiral Index Fund (VTSAX). You then forget about it as much as possible for a year. At the beginning of next year you look at the total amount take 5% of the total. That is your spending money for the year. You then do what is called re-balancing. You sell which ever fund went up more and buy which ever fund went down (or up less). Meaning that you start each year with 1/2 your money in bonds and 1/2 in the stock fund.
But what happens if the market tanks like it did in 2008? My income will go down but I really need $15,000 a year to get by. Well you have two choices the 100% safe choice is to take 5% no matter what. The slightly riskier approach is to set a floor on the minimum you withdrawal. In your case to be competitive with the annuity I'd suggest $15,000. So you spend from your nest egg either $15,000 or 5% of the remaining balance which ever is more.
Here is what your spending and assets would have like if you had retired and started doing this 5 years ago. As you can see in 2008 your total asset dropped well below the starting level however by this year they came back above the starting level and in 2011 you could spend $15,663 which considering you have not had a pay raise in 8 years would be something.
| Couch | 2006 | 2007 | 2008 | 2009 | 2010 | |
| | | | | | |
| Total Bond Returns | 4.36% | 7.02% | 5.15% | 6.04% | 6.53% | |
| Total Stock Returns | 15.63% | 5.57% | -36.99% | 28.83% | 17.26% | |
| Bond start | $150,000 | $156,743 | $158,279 | $125,581 | $139,976 | |
| Stock start | $150,000 | $156,743 | $158,279 | $125,581 | $139,976 | |
| Bond End | $156,540 | $167,746 | $166,431 | $133,166 | $149,117 | |
| Stock End | $173,445 | $165,473 | $99,732 | $161,786 | $164,136 | |
| Total | $329,985 | $333,220 | $266,163 | $294,953 | $313,253 | |
| Withdrawal | $16,499 | $16,661 | $15,000 | $15,000 | $15,663 | |
| Remaining Funds | $313,486 | $316,559 | $251,163 | $279,953 | $297,590 | |
Now there are tons of caveats to my proposal and ways of making changing withdrawal or investments to make either safer or giving you more spending money, but as starting place l I believe it is worth considering. I should point out that if you start out doing this 15 years ago you'd be withdrawing about $17,500 each year on the other hand if you started 10 years you have less than $300,000 in your portfolio,
perhaps would run out of money in the next ~20 years.
To board regulars I realize I am ignoring inflation, not following the 4% SWR rule and making a few other changes, but I am trying to present a plausible alternative to 5% fixed index annuity that is simple to understand.
