Recently retired: Best strategy to fund expenses?

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islandlife
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Joined: Mon Nov 09, 2015 8:12 am

Recently retired: Best strategy to fund expenses?

Post by islandlife »

I am 60 and have been retired for about a year. I have a $60 k annual pension and a spending burn rate of about $120 k per year. (Yes, I am enjoying retirement!). In addition to the pension I have about $3 M in investments, $2.5 M in 401 and $500 k in brokerage accounts, life insurance, etc. and about $500 k in net real estate value. I recently attended a retirement seminar at which the speaker touted the benefits of annuities. I have been convinced that annuities are poor investments so they have been "off my radar". But the speakers comments did get me thinking that it might be a good idea to place about $500 k of 401 k money in a 10 year fixed annuity and bridge the gap to 70 and social security. I asked my insurance carrier for a quote and the indicated annual interest rate was 0.89 % ...yikes! given the treasury and other fixed instruments, however, maybe this is not that horrible. Granted this annuity would not be not inflation protected (not going to worry about it in a 10 year term) and I need to be considerate of the tax implications of about $116 k of income plus other taxable assets, but does it make sense to put 20% of the 401 to work as the income stream? I am going to have to spend down the non-401 assets or withdraw 401 assets to support the expense spending. Trying to figure out the best way to do this. If I do this fixed annuity should I reduce the bond investment %....currently 30%? What have I not considered? PS. I will ask multiple sources for quotes on the fixed annuity
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Watty
Posts: 21863
Joined: Wed Oct 10, 2007 3:55 pm

Re: Recently retired: Best strategy to fund expenses?

Post by Watty »

You will likely get better responses if you edit your post to put it in this something like format.

viewtopic.php?f=1&t=6212

You don't have to include everything more details would really help.

There is a wiki on annuities if you have not seen it.

https://www.bogleheads.org/wiki/Category:Annuities

Except for rare special complex estate planning purposes virtually all annuities are poor choices except for single premium immediate annuities (SPIA) because of all the high costs so you need to be very careful.
islandlife wrote:I asked my insurance carrier for a quote and the indicated annual interest rate was 0.89 % ...yikes! given the treasury and other fixed instruments, however, maybe this is not that horrible.
Yes it is.

Without even looking around the first place I looked has two year CDs that pay 1.3%.

https://www.penfed.org/Certificates_Overview/#tabs-2

islandlife wrote: But the speakers comments did get me thinking that it might be a good idea to place about $500 k of 401 k money
One of the few positives about non-SPIA annuities is some tax advantages is and you don't get those in a retirement account.

He or she was just trying to get a big commission by selling you junk.
islandlife wrote:I have a $60 k annual pension and a spending burn rate of about $120 k per year. (Yes, I am enjoying retirement!). In addition to the pension I have about $3 M in investments, $2.5 M in 401 and $500 k in brokerage accounts, life insurance, etc. and about $500 k in net real estate value.
It sounds like you need about $60K a year from your $3 million. That is only a 2% withdrawal rate and the "safe withdrawal rate" is normally considered to be about 4% and that is adjusted for inflation. You are doing find and your portfolio will likely grow a lot over the next ten years.

https://www.bogleheads.org/wiki/Safe_withdrawal_rates

run your number in Firecalc

http://www.firecalc.com
islandlife wrote:I recently attended a retirement seminar at which the speaker touted the benefits of annuities.
It was a sales presentation not a seminar. The first question that you should ask with financial advisor is "Do you have a fiduciary responsibility to me." If they say no or give you a bunch of gobbledygook then they are a sales person. They may very well be a good sales person and come across as a nice person and have answers to your objections. That just means that they are good at their job, not that they are giving you good advice.
t3chiman
Posts: 87
Joined: Wed Mar 18, 2015 12:34 pm

Re: Recently retired: Best strategy to fund expenses?

Post by t3chiman »

islandlife wrote:...it might be a good idea to place about $500 k of 401 k money in a 10 year fixed annuity and bridge the gap to 70 and social security. I asked my insurance carrier for a quote and the indicated annual interest rate was 0.89 % ...yikes! ...
First, congrats. If you felt you were in a rat race prior to retirement, you can console yourself with the notion that you won it.

You may be overthinking the annuity issue. You could just plunk the $500k into Vanguard Growth and Income Fund, and tell Vanguard to send you $5k per month till the money runs out. It might never happen: the fund has been around for 30 years, returning close to 10%. Even the 2007-2008 debacle reduced the returns to only 6% or so.

Meantime, get out there, enjoy the advantages that money can bring: travel a bit, fine dining, sponsor a charity, help a relative, etc..

HTH
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Christine_NM
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Location: New Mexico

Re: Recently retired: Best strategy to fund expenses?

Post by Christine_NM »

What have I not considered?
Consider not attending any more retirement seminars.

You are too young for an annuity. Wait till you are 75 or so and then see what is available.
18% cash 44% stock 38% bond. Retired, w/d rate 2.5%
technovelist
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Re: Recently retired: Best strategy to fund expenses?

Post by technovelist »

Annuities, especially SPIAs, have a perfectly valid place for people who otherwise would have to worry about running out of money in retirement.

But you're not one of those people. Just keep withdrawing from your savings and you will be fine.

On the other hand, the tax consequences of how you take your money out of your savings are another issue, which as you have already figured out you are going to need help with...
Last edited by technovelist on Sat Jun 18, 2016 11:17 am, edited 1 time in total.
In theory, theory and practice are identical. In practice, they often differ.
livesoft
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Re: Recently retired: Best strategy to fund expenses?

Post by livesoft »

livesoft wrote:Have you read Jane Bryant Quinn's "How to Make your Money Last"? I personally think you are looking at this too simplistically and her book will help you think differently about all this.
Please read the book.
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