Would love input on retirement investment options?

[Itsagrind]

Here's my situation: wife and I are 64 years old and retired. We have $545,000 in non-qualified funds, invested in stocks and money market. We have $1.8 million in non-qualified assets. Pensions of $3700 per month on both lives. We plan on taking social security at 67, which will bring in $5500 per month.

Of the $1.8 million, $500K is invested in a variable annuity that will yield $2500-2750 per month on both lives beginning next year.

The question...how to best deploy the remaining $1.3 million. FA is suggesting taking another 500K in purchasing annuity, giving us another $3000 in guaranteed income, and then, with about $14,500 in gross income guaranteed (which is more than enough for us to live on comfortably), invest the remaining $800K of qualified funds aggressively.

We are fairly risk averse, so I do like the idea of having the $14,500 of guaranteed monthly income...thoughts? I know so many think annuities are the devil, but this plan feels sensible to me. Thank you! (We own our home and have zero debt.)

 

[aja8888]

Annuities are the devil if you care about inflation eating away at your purchasing power, otherwise, they are OK. FA's like to sell them because they make a HUGE commission and usually, that's why they recommend them! Looks like you have enough money to live well and long if your health is good. What are your retirement goals? Travel a lot, leaving an inheritance for kids, etc?

 

[SevenUp]

FA's like to sell [variable annuities] because they make a HUGE commission and usually, that's why they recommend them!

+1. And the insurance company providing the annuity also wins. Itsagrind, thus among you, the advisor, and the insurance company, 2 out of 3 come out ahead.

See Open Social Security: Free, Open-Source Social Security Calculator for suggested SS start dates.

Do you have anything in traditional accounts for which you should consider Whether, when, and how much to convert?

 

[sengsational]

I'd calculate how much spending above and beyond pensions and SS for the next 10 years. Whatever percentage that is of my investable net worth that was would become my cash + bond allocation. The remaining would be my equity allocation. I'd invest in a way that let me spend the cash bond money without tax implications should the market stay low for a long time. I'd stick with those asset allocation percentages "forever."

You might consider some retirement calculators, like FIRECalc, or I tried a new linear programming based open source tool called owlplanner. Without doing any numbers myself, with much of your expenses covered with pension and SS, you should be free to invest a good bit in equities.

 

[Itsagrind]

Annuities are the devil if you care about inflation eating away at your purchasing power, otherwise, they are OK. FA's like to sell them because they make a HUGE commission and usually, that's why they recommend them! Looks like you have enough money to live well and long if your health is good. What are your retirement goals? Travel a lot, leaving an inheritance for kids, etc?

Totally understand that FA's make big commissions on annuities. Then again, wouldn't they make sizable commissions on managing that 500K at one percent over, say, 25 years? As for goals, we are very cautious and probably don't travel/enjoy as much as we should. We have two sons, both of whom are launched in their careers and doing very well. Leaving a big inheritance for them, while nice, is not "necessary." I appreciate your reply!

 

[Itsagrind]

+1. And the insurance company providing the annuity also wins. Itsagrind, thus among you, the advisor, and the insurance company, 2 out of 3 come out ahead.

See Open Social Security: Free, Open-Source Social Security Calculator for suggested SS start dates.

Do you have anything in traditional accounts for which you should consider Whether, when, and how much to convert?

We are going to convert about 50K per year the next three years from IRA to Roth. TOTALLY understand the downsides of annuities...BUT, for a "nervous" type of investor, there's something really nice about having those guarantees. Need to change my mindset, I suppose. Thanks for giving me pause! Much appreciated.

 

[Itsagrind]

I'd calculate how much spending above and beyond pensions and SS for the next 10 years. Whatever percentage that is of my investable net worth that was would become my cash + bond allocation. The remaining would be my equity allocation. I'd invest in a way that let me spend the cash bond money without tax implications should the market stay low for a long time. I'd stick with those asset allocation percentages "forever."

You might consider some retirement calculators, like FIRECalc, or I tried a new linear programming based open source tool called owlplanner. Without doing any numbers myself, with much of your expenses covered with pension and SS, you should be free to invest a good bit in equities.

Good thinking and I really appreciate your input. Be well and thank you!

 

[Al18]

The commissions on MYGA’s are low (typically 1% and built into the payout). MYGA and essentially CD issued by insurance companies. They range from 3-10 years and most are paying 4%-5.5% per year. Most offer 10% maximum payout per year with no penalty and at the end of the annuity you get your money less withdrawals back.

 

[Chuckanut]

IMHO, diversification is the best thing most of us retired people can do. I would look at your asset classes and what each contains. See if you are well diversified in regards to types of assets and risks. If one asset type takes a big hit, can you still live well off the others? Do you have multiple sources of income so that if one cuts back its payments, the others still provide ample funds to pay the rent and put food on the table?

Always keep the overall risk/reward ratio at a level where you can sleep well at night. This way you won’t be tempted to do something rash.

 

[38Chevy454]

In very rough calculation, the proposed $500K annuity is providing $30-33K/yr; and a conservative 4.5% CD or similar very low risk investment would provide $22.5K/yr. So the big question is would you give up approx $10K/yr and then have the full $500K still available in your account vs having the additional $10K/yr and the $500K is gone and you will never see it again? The $500K if invested a CD could be used for any emergency funding required, whereas if you had the proposed annuity the emergency funding would have to come out of your other savings.

You can see I am not a fan of annuity, I don't like the loss of the principal. Sure the annuity pays a little more on the $500K each year. Only you can decide if that increased payout is worth the tradeoff of loss of principal.

 

[aja8888]

Totally understand that FA's make big commissions on annuities. Then again, wouldn't they make sizable commissions on managing that 500K at one percent over, say, 25 years? As for goals, we are very cautious and probably don't travel/enjoy as much as we should. We have two sons, both of whom are launched in their careers and doing very well. Leaving a big inheritance for them, while nice, is not "necessary." I appreciate your reply!

They make the commission right away on the annuity. They don't have to wait 25 years.

 

[Al18]

There is no loss of principle with a MYGA

 

[SnowballCamper]

With your stated risk aversion, and substantial assets, it seems like you're a good candidate to use a TIPS ladder for guaranteed income.

 

[bada bing]

Your individual situation will dictate, but deferring SS until age 70 is a better "annuity purchase" for most situations than you'll get from an insurance product. Check into deferring SS first, before you write the full check to your FA.

I'm not anti-annuity myself, as long as its a SPIA or MYGA. It's important to recognize that SPIAs and other income annuities are insurance products though and not competitive investment products. It's generally not recommended to buy more income annuity than needed to cover basic budget, because that's the shortfall you are insuring against.

 

[TickTock]

The question...how to best deploy the remaining $1.3 million.

We are fairly risk averse, so I do like the idea of having the $14,500 of guaranteed monthly income...thoughts?

TOTALLY understand the downsides of annuities...BUT, for a "nervous" type of investor, there's something really nice about having those guarantees. Need to change my mindset, I suppose. Thanks for giving me pause! Much appreciated.

1. Take a step back - what problem are you trying to solve/risk are you trying to manage with the $1.3 million?

2. You've mentioned that you're risk-averse. What kind(s) of risks? Market performance, longevity, having liquid funds for unexpected expenses, leaving a legacy?

The answers will point you in the right direction. Changing your mindset may or may not work; there are different approaches to generating retirement income.

You might want to figure your basic living expenses and fund any gap with a bond ladder or SPIAs, and leave the rest in a more aggressively invested AA. Or not. It's your and your DW's retirement, so the right answer is up to you two.

 

[DrRoy]

If the FA takes a % of assets every year, fire them and keep the fee.

 

[VanWinkle]

Most financial advisors would find that your current guaranteed income floor is sufficient. You can produce enough income with a conservative investment vehicle to increase your monthly income and still have control of your savings. You can get investment handling for ..30 with several companies including Vanguard, Fidelity, and Charles Schwab. There is no one more concerned about your money than you, so take an interest in learning some of the basics and you'll reap the benefits that your financial advisor is taking now.

 

[Exchme]

Your first mistake is paying an advisor 1%/year. You can manage money yourself super-easily and pocket the difference. That 1% compounded over your remaining lifetime means the advisor walks off with a quarter of your assets. AUM advisors are often tied to one family of funds that themselves have high costs, so it may be much worse than that. (When we had an advisor, the funds had 0.55-0.85% fees on top of his 1%). The best way to avoid future financial problems is to have more assets, so the very best thing you can do is fire the advisor and move to very low cost index funds.

You didn't tell us about the annuity you already own, but advisors often sell variable or indexed annuities because those have 6-8% sales commissions and ongoing 2-3% fees, and fees are what advisors often maximize, not your financial health.

As mentioned by others, the future is inherently risky, nothing you can do about that. In fear of market risk, buying more annuities increases your inflation risk and inflation is the big enemy in a well funded retirement. So maximize the only inflation adjusted annuity available by waiting to claim SS and otherwise stick to a stock/bond portfolio.

 

[pjigar]

Like others have said, inflation is your biggest long term risk. e.g. Purchasing power of $14,500 will be only $7,855 after 20 years with a modest 3% inflation. Most people can't imagine the ravages on inflation over long term because compounding (and negative compounding) is magical.

 

[corn18]

Does the $3700 pension have a COLA?

What are your actual monthly expenses?

 

[TickTock]

We plan on taking social security at 67, which will bring in $5500 per month.

Also consider delaying SS to 70 before buying more annuities.

 

[pb4uski]

Here's my situation: wife and I are 64 years old and retired. We have $545,000 in non-qualified funds, invested in stocks and money market. We have $1.8 million in non-qualified assets. Pensions of $3700 per month on both lives. We plan on taking social security at 67, which will bring in $5500 per month.

Of the $1.8 million, $500K is invested in a variable annuity that will yield $2500-2750 per month on both lives beginning next year.

The question...how to best deploy the remaining $1.3 million. FA is suggesting taking another 500K in purchasing annuity, giving us another $3000 in guaranteed income, and then, with about $14,500 in gross income guaranteed (which is more than enough for us to live on comfortably), invest the remaining $800K of qualified funds aggressively.

We are fairly risk averse, so I do like the idea of having the $14,500 of guaranteed monthly income...thoughts? I know so many think annuities are the devil, but this plan feels sensible to me. Thank you! (We own our home and have zero debt.)

IMO you have plenty, arguably too much, in annuities between pension, VA and SS as it is so I wouldn't do more other than consider deferring starting SS which is effectively buying a COLA life annuity.

Your FA is recommending more annuities because it benefits him/her. The problem with annuities is that other than they typical 10% free withdrawal, the money is locked up and inaccessible other than with a significant surrender charge.

Between your pension, the VA annuity bnefit and SS you'll have $140k+ of guaranteed income. that should be plenty unless you are living really high off the hog.

I suspect from what you wrote that your retirement will be successful whether you were all bonds or all stocks, so just pick an AA that allows your risk averse mind to sleep well at night.

Rather than buy another annuity, consider a TIPS ladder that provides $36,000 of inflation adjusted income. A 10 year ladder would cost ~$330,000.

And definitely dump the 1%/year FA and DIY.

 

[mrfeh]

If the FA takes a % of assets every year, fire them and keep the fee.

+1

No reason to buy the annuity, and no reason to pay the FA 1%.

Bogleheads® investing start-up kit - Bogleheads

 

[skywalker]

Here's my situation: wife and I are 64 years old and retired. We have $545,000 in non-qualified funds, invested in stocks and money market. We have $1.8 million in non-qualified assets. Pensions of $3700 per month on both lives. We plan on taking social security at 67, which will bring in $5500 per month.

Of the $1.8 million, $500K is invested in a variable annuity that will yield $2500-2750 per month on both lives beginning next year.

The question...how to best deploy the remaining $1.3 million. FA is suggesting taking another 500K in purchasing annuity, giving us another $3000 in guaranteed income, and then, with about $14,500 in gross income guaranteed (which is more than enough for us to live on comfortably), invest the remaining $800K of qualified funds aggressively.

We are fairly risk averse, so I do like the idea of having the $14,500 of guaranteed monthly income...thoughts? I know so many think annuities are the devil, but this plan feels sensible to me. Thank you! (We own our home and have zero debt.)

I would strongly suggest that you ask the Boglehead community for portfolio input. There are some really smart people who subscribe, some of which are also on this blog. Be sure to take the time to format your request using the community preferred template. For anyone to provide you good investing advice it requires knowing the details as well as you goals. Good luck and here's a link to the submission template... https://www.bogleheads.org/wiki/Asking_portfolio_questions

 

[dickoncapecod]

Here's my situation: wife and I are 64 years old and retired. We have $545,000 in non-qualified funds, invested in stocks and money market. We have $1.8 million in non-qualified assets. Pensions of $3700 per month on both lives. We plan on taking social security at 67, which will bring in $5500 per month.

Of the $1.8 million, $500K is invested in a variable annuity that will yield $2500-2750 per month on both lives beginning next year.

The question...how to best deploy the remaining $1.3 million. FA is suggesting taking another 500K in purchasing annuity, giving us another $3000 in guaranteed income, and then, with about $14,500 in gross income guaranteed (which is more than enough for us to live on comfortably), invest the remaining $800K of qualified funds aggressively.

We are fairly risk averse, so I do like the idea of having the $14,500 of guaranteed monthly income...thoughts? I know so many think annuities are the devil, but this plan feels sensible to me. Thank you! (We own our home and have zero debt.)

Just my opinion, but investing aggressively in equities doesn't seem consistent with being relatively r I sk averse --- particularly with investment grade debt at multi-year highs and well-run bond closed end funds yielding 11+% to 14+% likely in perpetuity.
Regards, Dick
PS. check the rate of return that is not your own money coming back at you on the annuity. You CAN earn at least as much without giving someone else your principal.