Need help deciding if SPIA makes sense in our case ?

[rkser]

We are 68 & 63, both retired, the asset allocation of investments in the nest egg are 80% of VTI & VXUS stock ETFs in taxable &VTI in Roth accounts, & 20% of CDs & BND in IRAs. We presently Roth convert yearly the fixed income in the IRAs to VTI in Roth accounts & stocks keep going up in our Portfolio.

DW started her Social Security last year at 62 & I will claim mine at age 70. We pay taxes in 24% Tax Bracket, carry no debt, own our house free, & we mostly sell VTI in taxable for yearly living expenses in addition to the dividends from taxable accounts & live very comfortably in our present withdrawal rate of 2%.

We do not expect to outlive our money & probably will leave (projected by Fidelity Planner) sizable money to our 2 kids. I suppose when the 50% market down turn comes along & our investments are reduced by 50%, our withdrawal rate will go up from 2% to the customary 4%.

The dividends around $90 -100k from VTI & VXUS in taxable keep getting deposited in our bank

Then WHY am I thinking of a SPIA with around 10 % of our savings ?

Please help me sort out our monthly/yearly income needs, we spend annually around $160k

 

[Al18]

Instead of buying a SPIA, consider investing in a CD in your taxable account, every time you sell a CD in your IRA. This will give you some spending money when stocks go down, and this will maintain your overall stock/fixed income asset ratio.

 

[Koolau]

I only think in terms of a SPIA if you don't have enough stash to "reliably" and consistently have monthly or yearly income FROM your stash. IOW if a down turn would put you short from time to time.

Sounds like you have plenty of stash, so find the best way (aka tax efficient) to cash in some of your stash to fill your bank account as needed. I'd not want to give up control of my stash money in an SPIA unless I couldn't find a reliable way to keep the check book flush otherwise.

Monthly income is nice to have, but you can make that happen with your stash directly. Good luck and remember that YMMV.

 

[brett]

Cannot help you. We are in a similar financial situation. I also have a company pension (unindexed). Our income from this and Govt. pensions cover our living expenses.

Looked at this when we retired at 59. FA strongly suggested that we hold off making a decision until age 72 or more. Actuarial/annuity rates would be better.

Very thankful we followed that advice. The monies did far better in the market than any annuity would have provided.

Looked at it again last year. Decided not to based on our math and our financial situation. I also looked at combining an annuity with term insurance. The numbers did not work even though I discounted the term amount to reflect the declining 'value' real value of the annuity to us.

I have no doubt that for some who want pensionize part of their equity and who may have a different financial or personal situation it may make sense.

 

[Exchme]

An SPIA is an insurance product, to insure against running out of money if you live a long time. Like all insurance products, there are substantial costs. Since your withdrawal rate is so low, you have no need to buy insurance against something that is wildly unlikely to happen (or if a financial apocalypse did happen, the company offering the annuity would be broke too).

 

[Flyfish1]

I agree with Koolau above, seems that you have a sufficient stash to generate income and I certainly would not be in favor of an SPIA. Are you worried that the dividend stream will reduce as you sell off VTI shares and later VXUS? What prompted the SPIA discussion - desire for more income? Why not create a dividend income stream from the Roth's or frankly any of your accounts. Lots of options to create better dividend income than VTI/VXUS.

 

[jazz4cash]

Then WHY am I thinking of a SPIA with around 10 % of our savings ?

I don’t know either! Our situation seems similar and the ONLY reason I MIGHT consider SPIA is so DW can SWAN with fixed guaranteed income if I am not around to juggle transfers and distributions.

 

[Al18]

I think many couples use RothIRA withdrawals when one passes away. The advantage is taxes won’t be affected by RothIRA withdrawals.

 

[mrfeh]

An SPIA is an insurance product, to insure against running out of money if you live a long time. Like all insurance products, there are substantial costs. Since your withdrawal rate is so low, you have no need to buy insurance

+1

However, I would not be 80% equities.

 

[gcgang]

If you don’t have “regular” income outside of SS, doing the SPIA will reduce sequence of returns risk and may give you greater peace of mind.

It’s probably not the “optimal” financial decision.