Annuity vs Managed Payout

Is this 400k your only source of savings? How high is SS income? What are yearly expenses?

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At Fidelity.com, a fixed annuity estimator says that $400,000 buys a joint-life, 20 year minimum, income stream of about $28,000 per year. You might also check out Fidelity Growth and Guaranteed Income Annuity, which is a variable annuity that initially pays out 5% per year. On policy anniversaries, if 5% of the principal balance exceeds your current payment, the payment ratchets up to that amount, so your payment can increase, but it can never decrease. These are at least worth comparing to your advisor's proposal. Disclaimer: I have no connection to Fidelity Investments except being a satisfied customer.

Dave

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Do you *need* that $25k or is there some flexibility (ie. can you take less in years where markets are underperformin)? Do you have other assets and investments?

If you want the payouts to start right now, you can find an immediate joint fixed annuity which will pay out $2100/mo ($25,200/yr) for as long as one or both of you is still alive - starting today - costing around $360,000 right now. If you cannot chance having less in any future years, this may be worth considering, though as young as you are, you'd be taking a huge inflation risk. You might compromise and put, say, half of the money into such an annuity, guaranteeing you a minimum floor of income (say, buying you about $1200/mo) and putting the rest into a moderate, diversified portfolio which allows for more growth, say a 60/40 stock/bond portfolio or some similar broad multi-asset portfolio.

You can certainly go into annuity-based products or index-linked products, but the guarantees they provide have very substantial costs. I'd be quite wary of most of them. The Aviva products have withdrawal charges which start as high as 16% in the first year and last as long as 10 years to lock you in. And all those "index links" they sell you on - which make it sound like your investment will grow at the rate of the stock indices - are not that at all - they are "linked" to the index, often by complex formulas with caps and exluding the dividends of the indices. Make sure you fully understand exactly what these things do before you buy one. Note, too, that in the sales materials, they often cherry-pick time periods for "illustrations" which make these things look like they'll make you rich. Again, be wary - some of those sales materials are amazingly, absolutely amazingly slick.

Which is not to say that these products are bad or inappropriate all the time. But they are a lot of the time.

In the meantime, (ie. during the accumulation/deferral phase), your money is already in a 401k - a tax-deferred account - and the tax-deferral that a deferred annuity product offers you adds no value. The only part of the annuity product which is offering value until you annuitize are the guarantees and they may or may not be worth what you pay for them.

I wouldn't make this a big deal. Drawing $2083/mo ($25,000/yr) while $400,000 is earning 6% would pay for 53 years. Lowering the assumed return to 4% pays for 25 years. No inflation protection.

I'd put it in a fund like Vanguard Wellesley and tell them to direct deposit $2100/mo to my checking and forget it.

If you want absolute guarantees, an immediate life annuity on you would pay around $27,000/year without inflation protection or survivor benefits for spouse. Less if you want to leave a survivor benefit to spouse. But you give up principal with an annuity.

You pays your money and you takes your chances.

-HW "Skip" Weldon Columbia, SC

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Convert the 401k to an regular IRA to give yourself more options. Then, consider converting the regular IRA to a Roth IRA.

Do you want that income to continue to your wife, should you die first?

It would be better to rely on your non-taxed deferred savings first to reduce your tax burden. If you wish to purchase an immediate annuity with your non-taxed deferred savings wait until you are 70 to get the shorter 160 month depreciation.

-- Ron

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How about 1/3 in each (1/3 remain where is) if there is no clear winner or loser?

To me "Managed income" sounds like the original concept of hedge funds (when they really tried to hedge).

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Hey all you guys, thanks for the straight advice. Better than the brochures, but not as pretty. :>)

This $25K/yr is to supplement my (& wife's) SSs and pensions at $75K/yr for a total budget of $100K. This is what we are and will, I assume, continue spending in retirement. I have a few small investments, some ready cash, and good health insurance, but the 401k is the big enchilada. My wife is set when I croak with my life insurance, my SS, her pension, and selling the house. She plans to move into one of those "Be happy, do everything for the retirees" villas. Hoping to bounce my last check. Kids don't need it. Does that make it clearer?

Chip

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