Annuity advice

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Midwest Dave
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Annuity advice

Post by Midwest Dave »

I am 60 and my spouse 59. We are planning to retire at age 65. We plan to begin drawing social security at age 66. No pensions. Current retirement assests 1.9 million 50/50 aa. Projected retirement spending 120k annually. Minimum spending 75k. Combined social security 55k. Both active and no health issues.

I am considering buying a deferred annuity to provide 2k per month at age 70. Cost 250k.

My thinking - provide, with ss, virtually all basic income. Extra withdrawls as market permits.

Thank you in advance for your input.
He who knows he has enough is rich.
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ObliviousInvestor
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Re: Annuity advice

Post by ObliviousInvestor »

Two thoughts:

1) Generally, delaying Social Security (especially for the spouse with the higher Primary Insurance Amount) is a better deal than buying an annuity from a private insurer.

2) It is uncommon for it to make sense for both spouses to claim Social Security at the same age, given that the result of having the higher-PIA spouse delay is an increase in benefits as long as either spouse is still alive, whereas having the lower-PIA spouse delay only results in an increase in benefits as long as both spouses are still alive.
Mike Piper | Roth is a name, not an acronym. If you type ROTH, you're just yelling about retirement accounts.
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Midwest Dave
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Re: Annuity advice

Post by Midwest Dave »

Our ss benefits are identical.

I understand delaying benefits is a "better deal". However, if after I retire and before I reach age 70, I would have to fund 100% of expenses from our savings. If the market is good, no problem. If not, I'll be in the sell low position, and I don't want that. Having our basics covered would simplify life and remove some risk of significant market fluctuations.
He who knows he has enough is rich.
Leeraar
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Re: Annuity advice

Post by Leeraar »

I agree. Defer SS before you buy an annuity.

Buy Mike Piper's book on Social Security and subscribe to his newsletter. (Search on "Oblivious Investor").

I would not buy a deferred annuity. My plan is to delay SS until age 70 then to buy nominal a SPIA in the amount needed to ensure our minimum required income. Then, as inflation erodes the SPIA amount (and my defined benefit pension) over time, buy further SPIAs as needed.

This is largely a matter of preference. When I am age 72 I will know what our income requirements are. To buy a deferred annuity ten years earlier, I would have to guess.

Near as I can tell, if you delay SS to age 70, you might be at your minimum spending need with assured income. Your savings are such that you should consider investing for your heirs. (Up the AA somewhat.)

L.

(Edited for ty[po.)
Last edited by Leeraar on Fri Sep 05, 2014 1:17 pm, edited 1 time in total.
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BL
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Re: Annuity advice

Post by BL »

That $250k could probably fund a good part of the delay of SS, to get the COLAd SS annuity increase.
Leeraar
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Re: Annuity advice

Post by Leeraar »

Midwest Dave wrote:Our ss benefits are identical.

I understand delaying benefits is a "better deal". However, if after I retire and before I reach age 70, I would have to fund 100% of expenses from our savings. If the market is good, no problem. If not, I'll be in the sell low position, and I don't want that. Having our basics covered would simplify life and remove some risk of significant market fluctuations.
Dave,

Plan a visit to your local SS office to understand your options. If you take one SS entitlement and defer the other, that will only cut your age 66 benefit by half, if that.

At retirement age 66 (or now) put five years' living expenses in VFSUX or similar and live off that while you defer SS. You then don't care what the market does.

Deferring SS is a MUCH better deal than any annuity, and it is, in effect, buying an annuity.

You can play with annuities and their terms at http://www.immediateannuities.com Prices for inflation-indexed annuities are a little harder to come by.

L.
Last edited by Leeraar on Fri Sep 05, 2014 12:18 pm, edited 1 time in total.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
lhl12
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Re: Annuity advice

Post by lhl12 »

Agreed - defer taking SS before buying an annuity.
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BL
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Re: Annuity advice

Post by BL »

If one is deferred, that person can take Spousal ss at FRA and self at age 70.


EDIT: The above is a middle of the road choice, with one full SS at FRA and one deferral (One self SS and one spousal until deferred second at age 70. I believe the increase from deferral is about 8%/year.).
Last edited by BL on Fri Sep 05, 2014 12:52 pm, edited 1 time in total.
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Midwest Dave
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Re: Annuity advice

Post by Midwest Dave »

So if I want to take advantage of my current financial position, you would recommend taking the 250k and putting it in a cd now and draw it at 50k per year at age 65 and defer ss until age 70.
He who knows he has enough is rich.
Leeraar
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Re: Annuity advice

Post by Leeraar »

Midwest Dave wrote:So if I want to take advantage of my current financial position, you would recommend taking the 250k and putting it in a cd now and draw it at 50k per year at age 65 and defer ss until age 70.
Yes. (Some kind of CD or T-bill or bond ladder.)

L.
You can get what you want, or you can just get old. (Billy Joel, "Vienna")
trueblueky
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Re: Annuity advice

Post by trueblueky »

Let's use an example with current year dollars.
Take SS for both at 66 -- 2x $2,000 = $4,000/month
Take SS for both at 70 -- 2x $2,640 = $5,280/month
Take SS for one at 66 and spousal for the other until 70 --
$2,000 + $1,000 at 66 = $3,000/month for 4 years, then
$2,000 + $2,640 at 70 = $4,640/month thereafter

These all break even around age 82 (12.5 years). After that, the one with the highest monthly payout wins. Unless you know some reason that your personal life expectancy is less than 82 (family history, existing medical condition), waiting until 70 is best if you can afford it, which you clearly can.

Ask SS about file and suspend. There, one partner gets the spousal benefit from 66 - 70, then both get full at 70. That could well be the best in your situation.
$1,000/month at 66
Then, $4,640/month at 70
Payback compared to both taking SS at 66 is 9 years, 4.5 months.

corrected -- 8 Sept
Last edited by trueblueky on Sun Sep 07, 2014 2:08 pm, edited 1 time in total.
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ObliviousInvestor
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Re: Annuity advice

Post by ObliviousInvestor »

Thanks for recommending the book, Leerar!

I agree with the others who have said that having one spouse delay until 70 while collecting a spousal benefit (via a "restricted application) sounds like a good idea here -- and having the other spouse delay as well (via "filing and suspending") is still likely a better deal than a private annuity.
Mike Piper | Roth is a name, not an acronym. If you type ROTH, you're just yelling about retirement accounts.
Johm221122
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Re: Annuity advice

Post by Johm221122 »

BL wrote:That $250k could probably fund a good part of the delay of SS, to get the COLAd SS annuity increase.
This was my thought also

John
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Frugal Al
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Re: Annuity advice

Post by Frugal Al »

trueblueky wrote:Let's use an example with current year dollars.
Take SS for both at 66 -- 2x $2,000 = $4,000/month
Take SS for both at 70 -- 2x $2,320 = $4,640/month
There's an error in the example. By waiting until age 70, the $2000 would increase 32% (8%/year, non-compounded), to $2,640, not the $2,320 noted. Making it $5,280 for the couple, combined, a $1,280/month increase just for waiting 4 years.

I agree with Oblivious Investor, it seldom makes sense to purchase a retail annuity, only to turn around and claim SS earlier than age 70. Why underutilize the best inflation adjusted annuity available?
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