Hello all. I am considering investing in an annuity as part of retirement planning. I've stayed away from them over the years for the obvious reasons, but now I think one may be the best for us. Allow me to explain. My wife is part of a pension plan and has an IRA we've maxed out. I have IRAs (both Traditional and Roth) that I max out too, but the company I work for recently ended their Defined Benefits Plan. The upshot was I was able to roll over quite a bit of cash from said, but the downside is I'm stuck with no employer retirement plan. So, I'm starting to do my homework on where to park retirement funds over and beyond my IRAs. Any thoughts I what would be a good investment vehicle for this scenario? Thoughts on annuities? Thanks all!
"Try the Steak Tartare. It's off the menu - Louis'll make it for you." That's certainly one option that could be worth looking at. And at least one company I'm aware of has an exemption to the IRS penalty that usually doesn't allow withdrawals prior to age 59.5. Better variable annuities will pay you a stream of income for life that will be a guaranteed minimum annual income of the larger of a certain % (usually around 5%) OR whatever the actual investments did that year, and will also offer annual "stepups" in income of the greater of that same guaranteed % increase OR account appreciation that year. There is typically a death benefit to beneficiaries, and it's shielded to them from taxes and creditors since it's an insurance product. Better variable annuities have the ability to act as pensions - paying out income for life, regardless of what is left of the actual account value. Also, some of the better companies even offer the ability to transfer living benefit payments to beneficiaries, even multiple beneficiaries across multiple generations in at least one company I'm aware of. They also offer a longterm care benefit for the account holder(s). At least one also offers a full refund of principal as a death benefit (like a bond, of sorts) - as long as $1 or more was left in the actual account value. Downsides - There is generally a surrender period of several years where you have to keep most of the money with the same insurance co to avoid penalties, and the fees are pretty high for all of these benefits they offer, since they are gambling on you, your lifespan, etc. Another thing to look into is the investment choices offered at each company. Many don't offer the best-performing underlying investment choices, which could mean that your actual investment performance and account value may not do so well, particularly once you start to take out withdrawals. The actual account value will be what you are stuck with if you ever decide to move the $ to another co or take it all out, and is what the death benefit will be. If you have a large amount of $, you might want to spread it out among more than one company, since you're also gambling on the insurance co - its solvency, ability to pay, etc. Better companies include Lincoln, Jackson, MetLife, Prudential, and Nationwide. Other products you might consider as well could be universal / variable life insurance for tax free appreciation of investment and transfer of wealth to beneficiaries, protection from creditors, etc. Great for high income / high net worth people in the $200k+ income / $5 mil + net worth clubs. Similar to annuities in that fees tend to be quite high and investment choices may not be so great. Also muni bonds for tax free income and higher yielding corporate and emerging markets bonds as well. Diversify - don't bet too heavily on any municipality, company, or government.
LOL! I was wondering if anyone would get the Wall Street reference. Anyway, thanks for the great write up JR Ewing. It sounds like I a variable annuity might just fit the bill. I will continue doing my homework on this one. Do you have any thoughts on those offered through State Farm? Agreed, Munis might also make sense. I'll see what Vanguard has to offer in that department.
I know State Farm is a very good company overall. I know quite a few people who are agents around here who do very well. Whoever you talk to, have them explain everything in detail before you commit - fees, potential upsides and downsides, surrender period, etc. Put together a list of questions to ask beforehand. And don't let anyone talk you into putting EVERYTHING into one product or even into the insurance product basket. I'd be leery of "indexed" annuities and also fixed annuities at this time when rates in general are as low as they are. The general idea with an annuity from their perspective is that they will take your money and invest it, make money on fees you will pay them, and that they will sooner or later have to pay you out a certain amount of money for whatever length of time. They hope to pay you out less than the $ they are making off your principal, and they won't have to pay you much if you die early. Death benefits and any living benefits to beneficiaries they would offer will generally cost you extra in my experience, and if you don't add them they keep what's left over. And they generally don't work like a bond that returns your principal every so often after so many years of interest payments. Just a few things to keep in mind. They can be great as an addition to a portfolio for the right person, but not something to put all or even a majority of your total money in IMO.
I'll correct my previous post on one point. Death benefits are actually standard strictly on the amount of anything that would be left over on your account value at death. So if you die before you've withdrawn all the money, that amount left over will go to a beneficiary. The insurance co shouldn't take it. But get that in writing.
I think so. I'm intrigued by the idea of an annuity. I'm interested in buying one myself as soon as I have the cash flow to make it happen. I wouldn't use it as a sole retirement option, but it's a great addition.
Agreed with this. I wouldn't ever bank on an annuity as a sole source of retirement funds. I am looking at this as a supplement.
I'm no expert -- far from it -- but given that you have a pension plan and two maxed out IRAs, my guess is your projected retirement income will be quite healthy. You will have Social Security income as well. That's good for you. Perhaps you might want to talk to a retirement planner and/or a CPA/income tax specialist to perhaps reduce your tax liabilities for you in retirement and (later) your heirs. I can tell you that the Fidelity people are very insistent on reviewing the accounts' ownership and inheritance status, making sure information is up to date, whenever I go muck around with the MRDs each year. I was doing that MRD business today, and a rep found some paperwork that had slipped through the cracks. I appreciate the extra attention.
Personally, I plan to retire in about 14.5 years or so, and I'm not expecting any social security. If it's still there, great - a little icing on the cake. But I'm not counting on it in any way.
I misspoke earlier. MRD should have been RMD = Required Minimum Distribution. JR, I expect Social Security to eventually evolve into a means test but that will take a long time as no politician wants to touch that third rail. But with the $18T national debt overhanging the taxpayers of this country, we're in trouble.
