Immediate Annuity question

[BarbH29]

Hi everyone,


I'm retiring in 3 weeks at 55! My husband will more then likely retire in another year or 2 (58, 59). We can live for the on his salary without any extra, he has the majority of our 401k. I have a small 401k about 300k that I currently have in Fidelity (2020 freedom, Dodge & Cox Income and HCAX).



The intention for my 401k has always been to use for home improvements and travel. We should be able to live comfortably on returns from his 401k when the time comes.



Do you think I should just keep my money where it is? I thought maybe a 5 yr immediate annuity (100k of it) and then put each months payout into savings/cd to be ready if needed so as not to get taxed on a lump sum. However because I'm under 59 1/2 would that monthly withdrawal get 10% penalty because its from an annuity rather then my employer 401k?


It is not out of the question that I may work part time after a year for something to do but I'm not including that in any calculations.


Appreciate any input!

 

[VanWinkle]

There may be better choices in your 401K than the Immediate Annuity. You could also consider a MYGA (multi year guaranteed annuity) if there are no better choices within you 401K.

"A multi-year guaranteed annuity, or MYGA, is a type of fixed annuity that offers a guaranteed fixed interest rate for a certain period, usually from three to 10 years. A MYGA is appropriate for someone who is closer to retirement, and prefers tax deferral and a guarantee of investment return"

I am not recommending this product, just letting you know it exists.

VW

 

[finnski1]

Hi everyone,


I'm retiring in 3 weeks at 55! My husband will more then likely retire in another year or 2 (58, 59). We can live for the on his salary without any extra, he has the majority of our 401k. I have a small 401k about 300k that I currently have in Fidelity (2020 freedom, Dodge & Cox Income and HCAX).



The intention for my 401k has always been to use for home improvements and travel. We should be able to live comfortably on returns from his 401k when the time comes.



Do you think I should just keep my money where it is? I thought maybe a 5 yr immediate annuity (100k of it) and then put each months payout into savings/cd to be ready if needed so as not to get taxed on a lump sum. However because I'm under 59 1/2 would that monthly withdrawal get 10% penalty because its from an annuity rather then my employer 401k?


It is not out of the question that I may work part time after a year for something to do but I'm not including that in any calculations.


Appreciate any input!

Well the 10% penalty would apply as soon as you withdrew the 100k and payed on that not the withdrawals afterwards from an annuity, So you would not escape that unless you did a SEPP withdrawal which is pretty rigid in how you must continually do the withdrawals or you may possibly qualify by being at your company for so many years and attaining age 55 when you separate. You should check in to those options.

Also I don't get the desire for an annuity when all your expenses are already covered. IMHO you would be better off to just let the 401lk keep growing and only take small amounts out of it each year if you really need to.

 

[BarbH29]

Well the 10% penalty would apply as soon as you withdrew the 100k and payed on that not the withdrawals afterwards from an annuity, So you would not escape that unless you did a SEPP withdrawal which is pretty rigid in how you must continually do the withdrawals or you may possibly qualify by being at your company for so many years and attaining age 55 when you separate. You should check in to those options.

Also I don't get the desire for an annuity when all your expenses are already covered. IMHO you would be better off to just let the 401lk keep growing and only take small amounts out of it each year if you really need to.

I would qualify for the 55 rule as I'm leaving the company that my 401k is currently in.


My thought on the annuity is if I need 40k in 2 years, I would accumulated it over 2 years and spread out the taxes rather then take 40k all at once. Just a thought!

 

[pb4uski]

5 year period certain annuities are paying next to nothing... 0.4% APR on the one I looked at. Hardly worth it.

Some 401ks have a stable value fund. Does your 401k have one? If so, what is it paying?

Also, what will your marginal tax bracket be once you are retired and your husband is still working?

You could just do $20k withdrawals each year for the next 5 years, pay the tax and then invest it in an online savings account (paying 0.6%) or short term CDs (paying ~0.8%) and still be ahead of the immedicate annuity.

 

[finnski1]

I would qualify for the 55 rule as I'm leaving the company that my 401k is currently in.


My thought on the annuity is if I need 40k in 2 years, I would accumulated it over 2 years and spread out the taxes rather then take 40k all at once. Just a thought!

Well that at least eliminates the 10% penalty but you of course would still pay tax on that 100k at whatever tax rate that puts you in. Could be significant.

So why not just take 20k each year as pb4uski suggested. Also the return he showed on annuities looks horrible.

 

[BarbH29]

5 year period certain annuities are paying next to nothing... 0.4% APR on the one I looked at. Hardly worth it.

Some 401ks have a stable value fund. Does your 401k have one? If so, what is it paying?

Also, what will your marginal tax bracket be once you are retired and your husband is still working?

You could just do $20k withdrawals each year for the next 5 years, pay the tax and then invest it in an online savings account (paying 0.6%) or short term CDs (paying ~0.8%) and still be ahead of the immedicate annuity.

Tax rate should be at 12% without withdrawals, so I think that I will keep the money where it is and withdraw as necessary. I appreciate the input, the annuity was a thought in my head but it is now gone!

 

[BarbH29]

5 year period certain annuities are paying next to nothing... 0.4% APR on the one I looked at. Hardly worth it.

Some 401ks have a stable value fund. Does your 401k have one? If so, what is it paying?

Also, what will your marginal tax bracket be once you are retired and your husband is still working?

You could just do $20k withdrawals each year for the next 5 years, pay the tax and then invest it in an online savings account (paying 0.6%) or short term CDs (paying ~0.8%) and still be ahead of the immedicate annuity.

Well that at least eliminates the 10% penalty but you of course would still pay tax on that 100k at whatever tax rate that puts you in. Could be significant.

So why not just take 20k each year as pb4uski suggested. Also the return he showed on annuities looks horrible.

I think that is the way to go..



If I did take the 100k and put into annuity I would not be required to pay taxes on the full amount, only the amount I got back each month, that was my original thought but now that you all helped me talk it out I will stick with withdrawing as needed!