If you wanted to hire a financial advisor, you need to find one who is a fiduciary 100% of the time (not just part of the time). This is not easy to find but they exist. If the first thing out of FA's mouth is annuities they probably aren't a fiduciary. You can also try Stan The Annuity Man to discuss the annuity proposal. They appear to be pretty straightforward in how they sell annuities but I don't have any actual experience with them.
Set me straight on annuities and why are they so bad
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SevenUp
Full time employment: Posting here.
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If my math skills haven't deteriorated too much, you have $3 million invested. Presumably you have been intelligent enough to accumulate that much. To a first approximation, you could spend 4% * $3 million = $120K/yr, plus any Social Security benefits when they start, without any problems at all for the rest of your lives.
Would that amount be enough for you?
I'm going with a MYGI. Much more straight forward than those index annuities.
Big advantage - can defer the tax for years in the meantime.
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Yes it is close to $3M as of today. 99% of it is qualified in 401Ks and Rollover IRAs. For planning purposes we are taking SS at age 70. Problem is, $120K before tax is not enough to cover expenses, including medical. So, we are trying to retire too early and/or our expenses are just too high.
jazz4cash
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Yes, I factored that in. You can see it in the post #35 screenshot.
Al18
Thinks s/he gets paid by the post
It just takes a few minutes to setup a 5 year CD ladder at one of the online brokerages. I just checked Fidelity - a five year, non-callable CD ladder will give you 4.87% APR. Invest no more than 250K at each bank (FDIC limit) and you will get your interest, guaranteed.
pb4uski
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The reason that FA's push annuities is because they get good commissions. For other products they get much less.
You say bonds are complicated for you. They are complicated and simple at the same time. The simple part is that it is just a promisory note between you and the issuer... they'll pay you $x in interest and $y at maturity in n years. The complicated part are the bells and whistles of call provisions and the like.
Many posters here would buy a ladder of bonds with the first bond maturing at the beginning fo the year that your annuity payments start and each subsequent rung of the ladder maturing a year later. Properly designed, that would provide guaranteed cash flow that you seem to desire. Any of the major brokerage bond desks can build a ladder based on criteria that you define.
The best advantage of a bond ladder is that if for some reason that money is needed then you can just sell all or part of the bond portfolio.
Or a plain vanilla deferred joint life annuity might do the trick and is easier to understand and guaranteed. According to immediateannuities.com a $561,000 premium would buy a joint life annuity of $4,705/month or $56,460 a year starting in 9 years in a simple, easy to understand contract. However, it would still lock away that money.
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CRLLS
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All I can say, with a small bit of experience in a similar type equities investment, if YOU don't understand the contract that you sign, then it is a bad investment, period. Investments, including guarantees, should be understood. The more complicated things are (count the number of pages in the contract), the seller is making the money with lower risks and not you. In my case, I read all of the many, many pages, knew the risks better than the advisor and went forward. At the end of the 5-year contract, I made nothing and lost nothing per the contract. This was coming out of 2008 when the markets were at their bottom and went nowhere but up during the term.
It is great to ask about whether your understanding is right here. Many here have given you their views. If you decide to go forward, it is your responsibility, not anyone here, not the FA, and not the issuing insurer. I again repeat, you are the one who has to understand it. If then you decide for it, then go ahead with eyes wide open.
It is great to ask about whether your understanding is right here. Many here have given you their views. If you decide to go forward, it is your responsibility, not anyone here, not the FA, and not the issuing insurer. I again repeat, you are the one who has to understand it. If then you decide for it, then go ahead with eyes wide open.
athena53
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Look up "asset allocation". Many people here are doing very well by investing in a mix of 4 or 5 passive ETFs (i.e., no high-priced brainiacs trying to pick and choose the best of sectors). Typically it's some combination of a bond ETF such as BND, cash, SPY, DJI and QQQQ. Re-balance every quarter so you keep the same weights as the performance in each sector varies. My portfolio is far messier than that (which I regret sometimes and I'm starting to simplify), but this is the advice I'm going to give my son when he inherits. He's good with money and he understands investments but it's never going to be a hobby.
So I just went out to the very simple to use annuity calculator on the Fidelity Investment website. I did a calculation for my wife ($500K investment) and myself ($250K investment) both starting income on 6/1/2032 (8 yrs), both with joint survivorship. The total between the two is $6738 per month or $80856. Is this the type of plain vanilla annuity you are talking about? Is this a deferred fixed income annuity?
Guaranteed Income Estimator
Here is a simple plan that you can compare to your annuity. Buy 10 $85k face value US Treasury Strips. I just ran this on Fidelity in 10 minutes:
| Date | Face | Discount | Cost |
May-31 | $ 85,000.00 | 0.73149 | $ 62,176.65 |
May-32 | $ 85,000.00 | 0.70188 | $ 59,659.80 |
May-33 | $ 85,000.00 | 0.67003 | $ 56,952.55 |
May-34 | $ 85,000.00 | 0.63971 | $ 54,375.35 |
May-35 | $ 85,000.00 | 0.61059 | $ 51,900.15 |
May-36 | $ 85,000.00 | 0.58193 | $ 49,464.05 |
May-37 | $ 85,000.00 | 0.55278 | $ 46,986.30 |
May-38 | $ 85,000.00 | 0.52512 | $ 44,635.20 |
May-39 | $ 85,000.00 | 0.49739 | $ 42,278.15 |
May-40 | $ 85,000.00 | 0.47046 | $ 39,989.10 |
| $ 508,417.30 | |||
| Balance | $ 241,582.70 | ||
| Balance 16 years at 6% | $ 613,705.02 |
This gives you 10 years of guaranteed income to take you to SS presumably. It costs you a little over $500k and leaves $250k to compound in your portfolio of 16 years. If rates drop you can choose to cash a big capital gain. If rates rise you still get your $85k per year. If you die your heirs still have the money. If you need $50k to fix your house you still have the leftover portfolio. In 2040 you can reevaluate and make the same choice. Annuities will pay much higher cause you are closer to the grave.
Do you see the benefit of controlling your own money? You are paying a lot for a "guarantee" that you can do yourself for almost nothing. Do it in an IRA and you don't have to worry about "phantom" income. Do it taxable and you have to file one additional form each year and pay tax on the accrued interest.
Chuckanut
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You might start with a bond ladder going out from 1 to 5 years perhaps using a step approximately every 6 months. They are not hard to create, you just need to know which levers to pull and buttons to push on the website of organizations like Schwab and Fidelity.
Being a novice at building ladders, I built my first ladder from 3 months to 18 months using $6000 split into six piles of $1000 each so as to practice with the online software. Silly? Perhaps so, but I was not going to bet the farm on my first attempt to do something new. (I can be a very belt and suspenders guy at times.) Once I understood how it worked and that I had not made any 'dumb' mistakes, I built another, more serious ladder with my remaining investment funds with steps from 1 to 5 years in approximately 6 month steps. It worked well. I still have a few 5+% CDs out there that will last several more years. As each CD or treasury matures you can decide to reinvest it all, part or none of it depending on your spending needs and how the interest rate curve looks.
Anyway that's what I did with my non equity money. Take what you wish and leave the rest.
imbatman
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Never seen this tool, interesting. I just played with it and got results indicating a 6.37% fixed annual payout inclusive of interest and return-of-capital (with the 20-year guaranteed model). Of course, I wouldn't put anything more than $250K into any single annuity provider (that is the maximum that most states will insure, including yours in Virginia). Also the keyword on this tool is "estimator" and you end up with a Fidelity sales guy similar to yours, I assume, before you find out the real details and provider.
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pb4uski
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I didn't go through the whole thing but it looks like a plain vanilla deferred joint life annuity. You pay $x up front and receive $y per month for life as long as one or the other of you live starting on a particular date. Totally uncomplicated. You know the deal when you sign on the dotted line.
SecondCor521
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You have created another false dichotomy for yourself: hire a dishonest FA or fail yourself. You left out the option that I would choose: learn to DIY. It takes effort but it's not rocket science and nobody cares about your money and your investing outcomes than you do. People here can help, and there are plenty of free resources out there, although you do have to separate the wheat from the chaff.
I think you've actually hit the nail on the head. The solutions are obvious: either work longer or reduce expenses, or both.
The bond and CD ladders that people are suggesting can work for guaranteed income, but those are providing maybe 5-ish% now, which is nice that it's guaranteed, but I gather from your numbers not enough to make it work on the timeline you're hoping for. So that goes right back to the previous paragraph: either work longer or reduce expenses or both.
By the way, the desire to retire now, with your current expenses and your current asset base, is what is causing you to try and reach for safer and more return. This is your kryptonite and what is making you susceptible to the FA's charms. (My Dad had a similar weakness where he wanted to take his girlfriend on a nice vacation where she wanted to go.) FAs and timeshare salespeople are very clever and subtle about finding out what your pain point / weakness is and exploiting it. You probably didn't even notice that part of the conversation, because it happens early, quickly, and easily. There's a lot of smiling, nodding, and maybe even some good food when it happens.
pb4uski
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Went through the link. Yes, those options look quite straight forward. Just keep in mind that your money will be inaccessible other than monthly benefit payments.
TheWizard
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I have no experience with the product the OP is talking about.
What I have are immediate annuities from TIAA which I started in 2013.
Sadly, TIAA products are not available to the general public.
I see no reason to fool with annuity products until you're ready to start receiving income the following month.
My TIAA Traditional annuity is nominally fixed income but gets increased every few years regardless.
My annuity based on CREF Stock is variable and based on performance of that fund (QCSTIX) which is easy to monitor.
I'll stop now since this is a significant deviation from the OP's situation...
What I have are immediate annuities from TIAA which I started in 2013.
Sadly, TIAA products are not available to the general public.
I see no reason to fool with annuity products until you're ready to start receiving income the following month.
My TIAA Traditional annuity is nominally fixed income but gets increased every few years regardless.
My annuity based on CREF Stock is variable and based on performance of that fund (QCSTIX) which is easy to monitor.
I'll stop now since this is a significant deviation from the OP's situation...
relevant thread on bogleheads: Expected return on Fixed Indexed Annuity - Bogleheads.org
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Take a breath and take your time. You don’t need to anything right this minute or this week or this year. There are very simple strategies to get you where you want to be. You’ve started the discussion here and you seem willing to listen. Listen, and do some research and you’ll be confident in no time.
I’m a CPA and frankly, I learned more about my retirement portfolio options here than I did anywhere else. Admittedly, I only worked a short time in a CPA firm and spent most my time in industry, but the information you need to retire is very specific to retirement and not many people understand it. The people here do understand it because they’re living it. There is also a good range of people here. There are those that rely on a portfolio that is 100% equities and those that only have fixed income products and a lot in between. Take it all in and figure out a plan that you feel comfortable with.
I suggest that you move from your spreadsheets to a tool like FireCalc. Retirement planning tools are a great way to get your head around the financial side of retirement.
FWIW, when I retired, I took my pension as a monthly payment instead of a lump sum. There is sound logic to having some different streams of income. Unfortunately though, nothing is guaranteed in life. In terms of annuities and non-cola pension, inflation will significantly decrease their buying power. In my case, I keep in mind that while I have my expenses covered now with my pension and SS, my portfolio needs to cover inflation (at a minimum).
Again, read and learn. You can absolutely do this. Take your time. And, remember, there will always be a FA or an annuity salesperson ready to take your money if you ever decide that’s how you want to roll.
Closet_Gamer
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OP, I think simplicity is the main reason to do an annuity and why I will consider one. Even 30 year bonds will need to be re-invested (God willing) and I don’t take for granted that when I or DW are in our 80s that we will be up to the task.
If that’s what you’re after, then an immediate/deferred annuity may be sensible.
But every word the company adds to the contract to make it more complicated than that is benefiting them, not you. There is a zero percent chance they are adding complexity that costs them money. Zero.
I think you’ve gotten excellent advice from many super knowledgeable people.
Best next step:
Walk away for a month. In that month do loads research on your other questions.
When the annuity guy calls (and he will), ask him if he is a fiduciary and will put that in writing. If he says no, then remember you are dealing with a salesperson. He is doing this because he lost his used car job.
To OldShooter’s point, if after that you still think the annuity is a good idea, it’s your money. I’m doubtful people here can tell you more about the (lack of) merits for that investment. They can and will give lots of good advice on other topics.
Best of luck.
If that’s what you’re after, then an immediate/deferred annuity may be sensible.
But every word the company adds to the contract to make it more complicated than that is benefiting them, not you. There is a zero percent chance they are adding complexity that costs them money. Zero.
I think you’ve gotten excellent advice from many super knowledgeable people.
Best next step:
Walk away for a month. In that month do loads research on your other questions.
When the annuity guy calls (and he will), ask him if he is a fiduciary and will put that in writing. If he says no, then remember you are dealing with a salesperson. He is doing this because he lost his used car job.
To OldShooter’s point, if after that you still think the annuity is a good idea, it’s your money. I’m doubtful people here can tell you more about the (lack of) merits for that investment. They can and will give lots of good advice on other topics.
Best of luck.
OldShooter
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Yes. Here are a couple of points I emphasize in my Adult-Ed investing class:
- Rule of Thumb: The more complicated an investment product is, the more likely it is that it was designed to make money for the seller, not to make money for you.
- If you don't understand an investment, don't buy it.
Annuities are confusing and that is part of the allure for companies to write them. This plays into risk aversion. If they were simple and risk free there would be no need for a commissioned sales person to pitch them. You get what you pay for.
I have on off the wall question. Scenario 1 would be if the S&P goes through an exceptionally prolonged down cycle during the drawing years of your annuity. What happens? Scenario 2 would be the opposite and the S&P goes through an exceptionally prolonged bull market cycle and far exceeds the expected appreciation. Do you benefit and to what degree?
Are you protected from a prolonged bear market and also allowed to participate in a prolonged bull market or are you assuming some risk that you would otherwise be taking on if you owned SPY outright?
If you are getting a partial heads-I-win-tails-you-lose benefit here, what is it and is the 1% or whatever you're paying for that privilege worth it?
jazz4cash
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
I see the product linked in be BH post is F&G which is one of the insurers that OP is considering.
Lewis Clark
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Here is a different take on annuities. I saw the comment as a reply to this post on EarlyRetirementNowcom. Safety First – SWR Series Part 61 - Early Retirement Now
"However, the other potential benefit of annuities is cognitive decline insurance. Everyone who reads this blog is obviously capable of, and enthusiastic about, managing their own portfolio, withdrawals, glidepath, etc. But that ability is likely to weaken with age, at least for many. “Mailbox money” from an annuity that can be spent carefree could provide some relief to a DIYer that begins to experience cognitive decline later in life (which might otherwise lead to portfolio mismanagement, dramatic underspending, or harmful overspending).
I’m not sure what my personal strategy will be. I could see waiting until age 70, when SS has kicked in, and buying an annuity that pushes guaranteed income up to some stopgap level. Not because it’s a mathematically optimal strategy (it won’t be), but as insurance against declining ability to manage your own portfolio."
It may also be worth considering an annuity for a second-to-die spouse who has little interest in managing money.
"However, the other potential benefit of annuities is cognitive decline insurance. Everyone who reads this blog is obviously capable of, and enthusiastic about, managing their own portfolio, withdrawals, glidepath, etc. But that ability is likely to weaken with age, at least for many. “Mailbox money” from an annuity that can be spent carefree could provide some relief to a DIYer that begins to experience cognitive decline later in life (which might otherwise lead to portfolio mismanagement, dramatic underspending, or harmful overspending).
I’m not sure what my personal strategy will be. I could see waiting until age 70, when SS has kicked in, and buying an annuity that pushes guaranteed income up to some stopgap level. Not because it’s a mathematically optimal strategy (it won’t be), but as insurance against declining ability to manage your own portfolio."
It may also be worth considering an annuity for a second-to-die spouse who has little interest in managing money.
