Future income annuity

[VacationForever]

I would join and search this forum, I think you will get some good input:


http://www.early-retirement.org/forums/f28/deferred-income-annuity-71609.html

Thank you. I am reading the link and resonate wih the sentiments.

 

[billymach4]

I looked at this type of product a few years ago and I got interested again this week. Any suggestions for good companies to buy from - New York Life...etc?

Interest rates are very low currently, does it affect the rates of the offered products, should one wait for rates to recover some before buying?

Thank you very much!

In a world of low interest rates it affects the Life Insurance companies for sure. Life Insurance companies must invest heavily in Long Term Corporate Bonds.
The current issue of bonds for the last 10 years has been paltry. Many of the older bonds are coming due in their portfolios. The interest curve has been on a negative decline, and will take years to swing back up.

 

[bogey21]

My take is that Future Income Annuities are for those who aren't interested in leaving an estate but rather intend to spend their savings while living and are concerned about running out of money because they lived longer than they anticipated. IMO a Future Income Annuity starting at say 85 is kind of like insuring for this possibility.

I personally have no need for this product because I am already living on a combination of my Pension (annuity) and Social Security (another annuity) both of which are adjusted annually for inflation. My guess is that if one buys a Future Income Annuity at a young enough age, the cost should be reasonable. Considerations would be cost, the quality of the Company you are buying from, and an inflation kicker if one is available.

George

 

[gmarine]

Through wealth management I already have an advisor and he is totally against annuities.

Smart man. You have a good advisor, take his advice.

 

[Blues]

I'm planning to purchase an annuity at a greatly discounted rate. It will cost me approximately $100K, and will yield an additional $829 per month, plus inflation indexing, for the rest of our joint lifetimes between me and my wife.

Where am I going to get such a deal? By deferring Social Security until age 70, though I'll be retired at age 65. I know we've talked about it on other threads, but it really is the best annuity deal going. Good enough that I can't pass it up.

Other than that, I don't really believe in annuities. But I may run the numbers for the type of future income annuity discussed in this thread, just to see. I don't expect it to be a reasonable payback unless rates go up, which they may do in the near future. We'll see after a couple of Fed rate hikes.

Bob

 

[bogey21]

As I see it a Future Income Annuity is a tool for those who have a nest egg and no desire to leave an estate. The Future Income Annuity enables them to more comfortably deplete their nest egg.

George

 

[Blues]

I don't know, George. I see fixed immediate annuities as a better way to deplete your nest egg worry-free. The problem with using a future income annuity is that you may get the money after you're too frail to really enjoy it.

I'm considering using a future income annuity as a replacement for Long Term Care insurance. I really don't like the way the industry has structured LTC policies. One financial pundit likens it to committing to payments for a Mercedes, and finding out later that they're going to substitute a Chevy while continuing your Mercedes payments. IOW, because they can change the rules at any time, after years of payments, I don't want to play the game.

The idea of using an FIA annuity for future long-term care is that you're not likely to need LTC until your 80s. At that point you get a big boost of income that can be used to pay for LTC. The down side is that you're taking the chance that something will happen in the interim, in your 60s or 70s. So it only works if you have sufficient assets to take care of that case. But it's an idea that my FA started to throw out at me one time. I haven't been back to see him to pursue it further, but it's worth thinking about.

Bob

 

[VacationForever]

Ah... but I am not looking at future/deferred income annuity for "old" age. But to buy young and use it when not so old - buy at 55, use at 65. I see it as another source of income. Our SS + MRDs will give us enough to live on comfortably but when there is downturn in the economy we would like to reinvest the MRD withdrawals and that's when having a "fixed" income element comes in handy.

I already have high benefit LTCI which will also take care of increased income needs due to aging.

My main goal is to leave as much savings as possible to the next generation.

 

[billymach4]

please ignore or delete.

 

[billymach4]

I looked at this type of product a few years ago and I got interested again this week. Any suggestions for good companies to buy from - New York Life...etc?

Interest rates are very low currently, does it affect the rates of the offered products, should one wait for rates to recover some before buying?

Thank you very much!

Please read the following stories regarding New York Life before you consider purchasing an annuity.

http://tugbbs.com/forums/showthread.php?t=232991

 

[Sugarcubesea]

I would join and search this forum, I think you will get some good input:


http://www.early-retirement.org/forums/f28/deferred-income-annuity-71609.html

Thanks, I'm about 15 years away from retiring...

 

[bogey21]

I'm considering using a future income annuity as a replacement for Long Term Care insurance.

An interesting thought. I guess it depends on one's age, health, parent's longevity, cost of LTC Policy and the annuity. Maybe a series of Future Income Annuities, say one kicking in at age 70, one at age 75, one at age 80 etc. I'm guessing but I expect these would be relatively inexpensive if purchased at a young age, say 35 years old. I'd probably want an inflation kicker if buying so young.

George

 

[bogey21]

My main goal is to leave as much savings as possible to the next generation.

It is interesting how rational people can look at things differently. My choice is to leave no estate but rather to help my potential heirs while I am still alive. For example I fund 529s for my Daughter's kids; pay for Health Insurance for one of my Sons; and make Auto Lease Payments for another Son. I look at the way they are living their lives. As long as they have not gone off the deep end, I will help.

George

 

[WinniWoman]

It is interesting how rational people can look at things differently. My choice is to leave no estate but rather to help my potential heirs while I am still alive. For example I fund 529s for my Daughter's kids; pay for Health Insurance for one of my Sons; and make Auto Lease Payments for another Son. I look at the way they are living their lives. As long as they have not gone off the deep end, I will help.

George

Very good way to look at it. If it weren't for my parents thinking the same way, we never would have had our 1st timeshare, as they gave us the money to purchase it as early inheritance.

Currently agonizing over whether or not to help our son out with a car purchase. Want to help him, but also want him to help himself and he might need to learn something by struggling a bit.

My parents never had any annuities. They had only about $300K at most, and a nice, well maintained home in Rockland County, NY. They did some traveling in their 50's, 60's and early 70's. Paid for our wedding. They were very generous with their money. Helped their grandchildren some with college tuition and gifts and so on. Would lend money to us if needed. No debt. Frugal in some ways, not in other ways.

Father was disabled since his 50's. His businesses had gone bankrupt 3 times! Mom retired at 65 from insurance claims dept. and worked part-time by choice until around 70.

They lived well enough. Had medical issues and expenses- meds, etc. Dad spent last 8 months of his life going between the hospital and nursing home (just within the limit of Medicare coverage). Dad died at 78 (COPD/heart); Mom had part-time home care for a year (my brother assisted with paying this)and then the last 3 months of her life in Assisted Living with Hospice-privately paid. Mom at 81 (cancer/dementia). Ended up leaving my brother and I some money plus the house. They had no LTC insurance.

Amazing- they managed just fine without a ton of money and annuities. (Both took their SS at FRA)

Of course, everyone's situation is different.

 

[Jason245]

For those who don't know how to manage money (people who live pay check to paycheck ) etc.. annuities are probably better. Think of all the bankrupt lotto winners who took the lump sum.. now imagine these people getting 200k in retirement money available to them..

Sent from my SAMSUNG-SM-N910A using Tapatalk

 

[VacationForever]

It is interesting how rational people can look at things differently. My choice is to leave no estate but rather to help my potential heirs while I am still alive. For example I fund 529s for my Daughter's kids; pay for Health Insurance for one of my Sons; and make Auto Lease Payments for another Son. I look at the way they are living their lives. As long as they have not gone off the deep end, I will help.

George

You are probably not familiar with my situation. I do have a child / adult now, that I will always be looking out for, while I am alive or dead. I would not say look after as he is very intelligent and has a college degree but has his own challenges. He does not drink, do drugs or anything of that sort, just a very nice person but has to deal with some challenges that life has dealt him. We also do maximum gifting to him each year.

 

[winnipiseogee]

Before retiring I was a partner in a Wall St firm that specialized in banks and insurance companies. My colleagues continue to be on CNBC most every day. I just consider myself a very sophisticated investor and I recognize that because of the fees annuities really are pretty crummy.

That said I've bought 3 rather large annuity contracts over the last 5 years. We live in a resort community where most of the folks are 65+ (my wife and I just turned 40). I've noticed two things living with people who are all retired. The first is that managing retirement savings causes people LOTS of stress. The second is that people start having difficulty making good investment decisions somewhere in their 70s (no not everyone but lots of folks). People especially become more susceptible to scams as they age. The folks that seem happiest in retirement are those with pensions. They know what they have to spend each month and they don't worry about outliving their money.

I used to wonder who was dumb enough to buy annuities. For me the emotional benefit of not having to stress as we age outweighed the mediocre returns. I've bought enough that between the annuity and social security we don't have to worry about our basic life expenses. Its a huge psychological benefit knowing we are all set.

Just my 2 cents. Oh and to be clear I'm talking about immediate and deferred income annuities. Variable annuities are a whole different scam that should be avoided like the plague

 

[Talent312]

I'm considering using a future income annuity as a replacement for Long Term Care insurance.

A financial adviser from Raymond James (not mine) said recently: For those who'll retire with a decent pension, a LTC policy is unnecessary. You already have a LTC policy -- it's your SS benefit and pension.

Instead of sending my $$ to an insurance company, I think I'll do just fine managing my own portfolio, as I have for the last 20 years.

As for getting scammed in my later-years... Anyone who's survived a TS hard-sell, should be smart-enuff.

 

[bogey21]

I've noticed two things living with people who are all retired. The first is that managing retirement savings causes people LOTS of stress.......For me the emotional benefit of not having to stress as we age outweighed the mediocre returns.

I couldn't have said it better. When I retired my Company set up an Early Retirement Window so my successor could bring in his own team. There were 12 of us that participated. Eleven elected the Lump Sum Option. I elected monthly pension payments (an annuity).

Eight of the eleven who took the lump sum have nothing left today (15 years later) out of the million dollars or so they collected. I have lunch with the three who have something left from time to time. I am not exaggerating when I tell you that all three always want to have lunch in places that have CNBC on TV in the background. Trust me, they are all stressed out.

I firmly believe that the absence of stress has had a major impact on my longevity.

George

 

[WinniWoman]

Before retiring I was a partner in a Wall St firm that specialized in banks and insurance companies. My colleagues continue to be on CNBC most every day. I just consider myself a very sophisticated investor and I recognize that because of the fees annuities really are pretty crummy.

That said I've bought 3 rather large annuity contracts over the last 5 years. We live in a resort community where most of the folks are 65+ (my wife and I just turned 40). I've noticed two things living with people who are all retired. The first is that managing retirement savings causes people LOTS of stress. The second is that people start having difficulty making good investment decisions somewhere in their 70s (no not everyone but lots of folks). People especially become more susceptible to scams as they age. The folks that seem happiest in retirement are those with pensions. They know what they have to spend each month and they don't worry about outliving their money.

I used to wonder who was dumb enough to buy annuities. For me the emotional benefit of not having to stress as we age outweighed the mediocre returns. I've bought enough that between the annuity and social security we don't have to worry about our basic life expenses. Its a huge psychological benefit knowing we are all set.

Just my 2 cents. Oh and to be clear I'm talking about immediate and deferred income annuities. Variable annuities are a whole different scam that should be avoided like the plague

But- the interest rates on immediate annuities stink right now. Heck- you could keep your money in CD's and withdraw as they come due or something like that. You could even have a financial advisor or a CPA handle the withdrawals from your accounts for you. Or- an adult child. At least when you pass and if there is money it goes to your heirs- not the insurance company.

Also- if someone is lucky enough to have a pension, I see no problem with taking a lump sum provided it is rolled over into an IRA directly. You have the minimum distributions you have to take our every year anyway from retirement accounts. If you just take those minimums, plus your SS, hopefully that will be enough for basics. It all depends on the amount of funds one has. Yes- there are some people who don't know how to handle money- young, old or in between. Those people need someone to tell them what to do and handle their affairs.

That said- I get where you are coming from. I considered an immediate annuity at one point, but the interest rates plummeted before I had a chance to pursue it.

May I ask what resort community you reside in in NH? We are in the early stages of investigating places to live up there. You can send me a private message.

 

[WinniWoman]

I couldn't have said it better. When I retired my Company set up an Early Retirement Window so my successor could bring in his own team. There were 12 of us that participated. Eleven elected the Lump Sum Option. I elected monthly pension payments (an annuity).

Eight of the eleven who took the lump sum have nothing left today (15 years later) out of the million dollars or so they collected. I have lunch with the three who have something left from time to time. I am not exaggerating when I tell you that all three always want to have lunch in places that have CNBC on TV in the background. Trust me, they are all stressed out.

I firmly believe that the absence of stress has had a major impact on my longevity.

George

If these people had a million dollar pensions and are broke after 15 years-it is not because they didn't opt for an annuity. It is because they are stupid.

And- what kind of job pays out a million dollar pension? I was stupid for not working wherever they worked!

 

[Jason245]

If these people had a million of dollars pension and are broke after 15 years-it is not because they didn't opt for an annuity. It is because they are stupid.

And- what kind of job pays out a million dollar pension? I was stupid for not working wherever they worked!

The Federal government pays out Million Dollar pensions to its employees (as annuities).

Especially the old Retirement system.

Under current retirement system, you get ~1% of top 3 salary / year of service. Lets assume you work for 40 years and top out @~$80k.

40% of 80K = $32k/year (~2.66k/month).

On top of that, it is indexed for inflation and they contribute money towards TSP and you are eligible for Social Security.

I would say that $32k Pension + ~24k Social security (~56k/year indexed for inflation), is probably worth about a Million Bucks (and that doesn't even take into account TSP retirement savings).

The people broke after 15 years are like most lotto winners, they don't know how to handel such large sums of money, and make uneducated decisions. For most people, the best bet in that type of situation is to either:

A) put retirement money into some type of Trust managed by an institution (like Vanguard).
B) Buy an Annuity.

Neither of those options produces outstanding returns, but they do a few things:

1) help you manage your budget (if you don't know how to do it yourself or are not very good at it).
2) help ensure that you don't make stupid decisions with the money.
3) Help ensure that if the spouse who knows how to manage money should pass, the other spouse isn't stuck trying to figure out how everything works and/or makes a big mistake.


As an Aside, People with annuities live longer then those without... (something about wanting that "EXTRA Check")

 

[VacationForever]

I've noticed two things living with people who are all retired. The first is that managing retirement savings causes people LOTS of stress. The folks that seem happiest in retirement are those with pensions. They know what they have to spend each month and they don't worry about outliving their money.

I used to wonder who was dumb enough to buy annuities. For me the emotional benefit of not having to stress as we age outweighed the mediocre returns. I've bought enough that between the annuity and social security we don't have to worry about our basic life expenses. Its a huge psychological benefit knowing we are all set.

You have said what has been my sentiments. Our current plan is to put my entire IRA into laddered deferred income annuities. My husband will start his MRD at 70. Between SS, MRD and deferred income annuities, we should be comfortable. Our non-IRA will grow untouched and only used if we have an emergency. All our investments are managed anyway so we don't sweat over what to invest.

 

[WinniWoman]

The Federal government pays out Million Dollar pensions to its employees (as annuities).

Especially the old Retirement system.

Under current retirement system, you get ~1% of top 3 salary / year of service. Lets assume you work for 40 years and top out @~$80k.

40% of 80K = $32k/year (~2.66k/month).

On top of that, it is indexed for inflation and they contribute money towards TSP and you are eligible for Social Security.

I would say that $32k Pension + ~24k Social security (~56k/year indexed for inflation), is probably worth about a Million Bucks (and that doesn't even take into account TSP retirement savings).

The people broke after 15 years are like most lotto winners, they don't know how to handel such large sums of money, and make uneducated decisions. For most people, the best bet in that type of situation is to either:

A) put retirement money into some type of Trust managed by an institution (like Vanguard).
B) Buy an Annuity.

Neither of those options produces outstanding returns, but they do a few things:

1) help you manage your budget (if you don't know how to do it yourself or are not very good at it).
2) help ensure that you don't make stupid decisions with the money.
3) Help ensure that if the spouse who knows how to manage money should pass, the other spouse isn't stuck trying to figure out how everything works and/or makes a big mistake.


As an Aside, People with annuities live longer then those without... (something about wanting that "EXTRA Check")

Wow. Pretty good deal.

I like your point #3- usually one spouse is not on top of the money situation- no matter how hard you try to get them involved and to understand it. The trust idea is good also.

 

[bogey21]

And- what kind of job pays out a million dollar pension? I was stupid for not working wherever they worked!

Maybe yes, maybe no. In the case at hand I went to my key employees in the early 80s and asked them if they were willing to make a trade, significantly below market annual raises going forward for enhanced Pension Benefits. They chose the latter and we adopted the policy. It worked for them and it worked for the company. The company was able to retain valuable experienced employees for the next 20 years at below market wages and the employees were able to get big Pensions when they retired.

George