Retirement income

[breezly]

Just had another meeting with my Fidelity rep last week. I'm getting ready to retire in about 6 months, so his focus in our meeting is to ensure that my portfolio will generate an income stream to support essential expenses, while discretionary expenses would come from selling investments. Currently, I have no income streams in my portfolio, so he is suggesting purchasing a fixed income annuity to cover my estimated $5K/month of essential expenses. I understand the logic of this thinking, but am uncomfortable moving a relatively large chunk of my portfolio to an insurance company to get a steady flow of checks every month.

What do others think of this advice?
Are there better ways to cover expenses during retirement?

My specifics -
Emergency Funds: Yes - CD's and savings - ~100K
Debt: None
Tax Filing: Married Filing Jointly
Tax Rate: 22% Federal, no state income tax
State: WA
Age: 66, wife is 64
Desired Asset Allocation: 60 stock/ 40 bond/fixed
Desired International Allocation: 20%
Portfolio size: ~3M

Taxable:
3.8% Fidelity Money Mkt (FZDXX)
9.8% Vang Total Stock Mkt Index (VTSAX) (.04)
3.5% 3 yr Annuity started 8/2023, 4.85%, MassMutual
0.2% Cash

His Rollover IRA:
10.0% Fidelity Infl-Prot Bond Index (FIPDX) (.05)
8.9% Fidelity Zero Large Cap Index (FNILX) (0)
3.3% Fidelity US Bond Index(FXNAX) (.03)
4.9% Vanguard Total Int Bond Index (VTABX) (.11)
13.7% 5 yr Annuity started 1/2024, 4.4%, USAA

His Roth IRA:
2.0% Fidelity Zero Large Cap Index (FNILX) (0)
0.9% Fidelity MidCap Index (FSMDX) (.03)
5.5% Fidelity Real Estate Index (FSRNX) (.07)
9.6% Fidelity Zero Int Index (FZILX) (0)

Her Roth IRA:
1.3% Fidelity Zero Large Cap Index (FNILX) (0)
5.2% Fidelity Zero Int Index (FZILX) (0)

His Roth 401K:
13.4% SSgA S&P 500 Index (SSSYX) (.01)
4.0% SSgA Russell Sm/Mid Cap Index (SSMKX) (.04)

Contributions:
$8000 His Roth IRA
$8000 Her Roth IRA
$30,500 His Roth 401K
$4,700 - His 401K Company Match

[livesoft]

I don't need any fixed income annuity. He is selling Fear, Uncertainty, and Doubt.

I just sell investments as needed to pay expenses. It is trivial to do. I simply do not care if stocks are up, down, or sideways. I sell them. If selling shares of an equity fund cause my asset allocation to change, then I rebalance in my tax-deferred account. Example: Sell VTI after it drops 20% in my taxable account and immediately exchange from BND to VTI in my tax-deferred account. I still have the same amount of VTI and it is as if I never sold any VTi.

See also: https://www.bogleheads.org/wiki/Placing ... ed_account

[sailaway]

At your age, you are really paying a premium for this security. In your shoes, I would try things out for awhile and see how comfortable you are. You can always buy an annuity later, when you are in a more ideal age range.

If the safety appeals to you, another option is to use TIPs to build a ladder/ liability matching portfolio.

[ruralavalon]

How much will your annual retirement spending needs total, including taxes and health care expenses?

How much will your annual Social Security benefits total (including spousal benefits) at retirement? At age 70?

With "Portfolio size: ~3M", you probably are good without any annuity.

[mhc]

Generating an income stream in retirement is easy.
1. Use dividends from taxable account
2. Sell something

It is really easy. Don't get fooled by fancy talk that one needs income streams. One needs money. Once you have the money, you can spend it. You don't have to annuitize it to spend it.

[jebmke]

I don't need any fixed income annuity. He is selling Fear, Uncertainty, and Doubt.

I just sell investments as needed to pay expenses. It is trivial to do. I simply do not care if stocks are up, down, or sideways. I sell them. If selling shares of an equity fund cause my asset allocation to change, then I rebalance in my tax-deferred account. Example: Sell VTI after it drops 20% in my taxable account and immediately exchange from BND to VTI in my tax-deferred account. I still have the same amount of VTI and it is as if I never sold any VTi.

See also: https://www.bogleheads.org/wiki/Placing ... ed_account

This is the second thread with questionable advice from Fidelity advisors. Maybe the word went out internally to push some changes down to clients.

[lakpr]

You can look at the good annuities, the "Multi-Year Guaranteed Annuities" or MYGAs. They are CD like in that they will provide a stream of income, and at the end of the contract period you get your principal back.

https://www.blueprintincome.com/
https://www.immediatennuities.com/

These MYGAs are offered by insurance companies, not banks, they are not therefore "insured by FDIC" etc. There is a State Guaranty Association in each state that regulates these entities, but even so, I do not advise to commit more than $250k in them, plus I'd stick with A rated or better insurers to increase the likelihood that the insurance company will still be alive at the end of the contract period.

The yields are attractive, you get 4.9% from A+ rated insurers and 5.1% from A rated insurers, up to 10 years in the future.
Quotes for a 64-year old in Washington state:
https://www.blueprintincome.com/fixed-a ... 1&rating=A

[jebmke]

Just eyeballing the numbers, $3 million would probably cover twice the "essential expenses" or more. If Social Security income will add income, it seems to me the need for an annuity doesn't exist. You pay an implied insurance premium when you buy an annuity. My rule for insurance is to only buy insurance if I need insurance.

[tibbitts]

I'm not sure what the OP's SS claiming strategy is, but it's certainly not long (a few years) until SS will presumably enter the picture? So I'm not seeing the "no income streams."

Having somewhat made this bet myself, though on a much smaller scale (through a non-COLA pension purchase), and basically lost the bet to unexpected (by me) inflation, I wouldn't make this much larger annuity purchase. The pension terms were more favorable than any annuity available at the time (not sure about now.) Show me an unrestricted-COLA annuity, and I might be interested.

[TomatoTomahto]

I don't need any fixed income annuity. He is selling Fear, Uncertainty, and Doubt.

I just sell investments as needed to pay expenses. It is trivial to do. I simply do not care if stocks are up, down, or sideways. I sell them. If selling shares of an equity fund cause my asset allocation to change, then I rebalance in my tax-deferred account. Example: Sell VTI after it drops 20% in my taxable account and immediately exchange from BND to VTI in my tax-deferred account. I still have the same amount of VTI and it is as if I never sold any VTi.

See also: https://www.bogleheads.org/wiki/Placing ... ed_account

This is the second thread with questionable advice from Fidelity advisors. Maybe the word went out internally to push some changes down to clients.

Abigail Johnson didn’t become the richest person in Massachusetts by pushing low cost indexed funds.

[baldtaxguy]

I have the same portfolio size and timeline to retirement. An annuity is not on my list of to do's. $3m + SS (whenever it starts) works more than well.

[Harmanic]

I don't need any fixed income annuity. He is selling Fear, Uncertainty, and Doubt.

I just sell investments as needed to pay expenses. It is trivial to do. I simply do not care if stocks are up, down, or sideways. I sell them. If selling shares of an equity fund cause my asset allocation to change, then I rebalance in my tax-deferred account. Example: Sell VTI after it drops 20% in my taxable account and immediately exchange from BND to VTI in my tax-deferred account. I still have the same amount of VTI and it is as if I never sold any VTi.

See also: https://www.bogleheads.org/wiki/Placing ... ed_account

This is the second thread with questionable advice from Fidelity advisors. Maybe the word went out internally to push some changes down to clients.

Abigail Johnson didn’t become the richest person in Massachusetts by pushing low cost indexed funds.

Or "free" ones like ZERO funds. The way I see it, the full paying customers are subsidizing those who use the low cost or free investments.

[Harmanic]

I just sell investments as needed to pay expenses. It is trivial to do.

It is also possible at Fidelity to set up automatic distributions on a monthly, quarterly, or annual basis. You can also set up which funds to draw from or default to proportional, which draws from all of them. Makes it as easy as an annuity without the expense. You can even use the uniform life tables of the IRS to have it increase payments each year even before RMD age, like a variable annuity.

[Kosh976]

I retired 4 years ago. We've had no income stream of note during those 4 years. It simply isn't needed. We pull from an IRA when we need money.

I do not believe you need to buy a fixed income annuity. You should easily be able to support 6K/mo by selling from your 500K taxable account or by building a TIPS bridge in the IRA.

Once SS starts I'm guessing you'll have your essential expenses covered, or close to it.

[livesoft]

It should be noted that the OP already has some annuities. I can see how a salesrep could see the OP as someone to sell annuities to.

...
3.5% 3 yr Annuity started 8/2023, 4.85%, MassMutual
....
13.7% 5 yr Annuity started 1/2024, 4.4%, USAA

[Claudia Whitten]

Currently, I have no income streams in my portfolio, so he is suggesting purchasing a fixed income annuity to cover my estimated $5K/month of essential expenses. I understand the logic of this thinking, but am uncomfortable moving a relatively large chunk of my portfolio to an insurance company to get a steady flow of checks every month.

What do others think of this advice?

I don't like it.

https://www.investopedia.com/articles/r ... alfund.asp

[jebmke]

It should be noted that the OP already has some annuities. I can see how a salesrep could see the OP as someone to sell annuities to.

...
3.5% 3 yr Annuity started 8/2023, 4.85%, MassMutual
....
13.7% 5 yr Annuity started 1/2024, 4.4%, USAA

Yes, I see that now. So can the advisor

[BirdFood]

Just had another meeting with my Fidelity rep last week. I'm getting ready to retire in about 6 months, so his focus in our meeting is to ensure that my portfolio will generate an income stream to support essential expenses, while discretionary expenses would come from selling investments.

Did he explain his reasoning for this? Because it's a pretty artificial distinction.

Currently, I have no income streams in my portfolio, so he is suggesting purchasing a fixed income annuity to cover my estimated $5K/month of essential expenses. I understand the logic of this thinking,

I don't.

You say that you have no income streams, but your portfolio is showing annuities. Did you already buy these annuities? Those certainly sound like income streams. (I have no idea whether they're GOOD income streams but they're income streams.) And you are not far from Social Security, another income stream.

And, again, it's not as if your money is no good unless it comes from an "income stream" as opposed to from selling assets.

[protagonist]

I would not consider a fixed income annuity. I agree with your concerns. Plus, they are expensive and you get no inflation protection.
If you are looking for a safe, reliable income stream that will cost very little and will be easy to manage, I would consider a TIPS ladder. You can do that at Fidelity, Vanguard or Schwab with no fee for auctions and only a small bid-ask spread on the secondary market.

At age 66 and 64 I would try to delay SS as long as possible, if you are not taking it already.

[steadyosmosis]

Since 2008, I do what Livesoft described.
I've been retired for years.
Works great.
(Salesmen'Advisors' can see you coming.)

[breezly]

Thank you all for the advice! Just what I was looking for. It appears to be unanimous that the fixed income annuities are deemed expensive and unnecessary. I had the same gut feeling, but wanted some re-assurance that I wasn't missing something.

The initial annuity purchase suggestion came from the same advisor. I was not as concerned about these at the time (maybe I should have been?). The advisor was making the distinction between my existing MYGAs annuities and his recommended fixed income annuity - one being an interest payment and the other an income stream. I don't really see the difference.

I like the idea of just selling investments as needed for expenses. Thanks for the advice and the link livesoft!

Unclear when to start taking SS as well. This would cover a good chunk of my essential expenses, but it seems like it would be wise to push that out until I'm 70 in order to maximize the benefit.

How much will your annual retirement spending needs total, including taxes and health care expenses?

Estimating about $10K/month

How much will your annual Social Security benefits total (including spousal benefits) at retirement? At age 70?

$3751/mo if I start when I retire at 67, $4751/mo if I wait until 70 to start collecting.

Just had another meeting with my Fidelity rep last week. I'm getting ready to retire in about 6 months, so his focus in our meeting is to ensure that my portfolio will generate an income stream to support essential expenses, while discretionary expenses would come from selling investments.

Did he explain his reasoning for this? Because it's a pretty artificial distinction.

He indicated this was to ensure you have the funds to meet essential expenses, with the assumption that potentially you could lose everything in the market.

The TIPS ladder sounds like a potentially appealing path - I'll look into that.

For now, I will leave my investments as they are and stay away from fixed income annuities. Appreciate all of the timely replies - Thanks!

[Hacksawdave]

Just had another meeting with my Fidelity rep last week. I'm getting ready to retire in about 6 months, so his focus in our meeting is to ensure that my portfolio will generate an income stream to support essential expenses, while discretionary expenses would come from selling investments. Currently, I have no income streams in my portfolio, so he is suggesting purchasing a fixed income annuity to cover my estimated $5K/month of essential expenses. I understand the logic of this thinking, but am uncomfortable moving a relatively large chunk of my portfolio to an insurance company to get a steady flow of checks every month.

What do others think of this advice?
Are there better ways to cover expenses during retirement?

You already have some funds that produce income through bond payments, stock dividends and two annuities. While the income does not equate to $5K a month that I know of, it does produce something. I am a bit surprised the ‘rep’ has not brought this up before unless he is new to your account.

Your taxable VTSAX would produce about $4K in dividends per year, the total bond funds around $8,200, the TIPS fund FIPDX will vary, but about $3,500 in distributions. I would do some homework to find out what each fund is distributing in income and add the amount from the two annuities. I do not know of the contract provisions of when you can take income from those.

If you have been paying for and receiving advice from this ‘rep’ for quite some time, it might be good to lose them. Pointing out to a mid-60 year-old six months away from retirement that “Gee, we need to generate an income stream to support essential expenses” is not doing one’s job. I put my own plan together five years out from early retirement at age 56 on where the income comes from.

[heyyou]

Steady readers here have likely seen all of this before, but it may be new to the OP.

The RMD portfolio spending method is applying your age-based RMD % to your entire portfolio balance (plus spending annual dividends and interest). There are RMD % numbers for people of all ages due to inherited traditional IRAs that are required to be started at being spent down, even if the inheritor is a minor. The spending method was developed by professors Sun and Webb at Boston College's Center for Retirement Research.
https://crr.bc.edu/wp-content/uploads/2 ... 19-508.pdf

The above is a DIY portfolio spending method that has no fees other than the operating fees of the funds where the assets are invested. It would also serve well for determining how much to spend annually from a specified portion of a portfolio. Some retirees dread a variable income source, but I welcome those minor annual adjustments since they are either helping portfolio longevity or boosting withdrawals if the portfolio has had recent growth. You can see next year's income change as your portfolio value fluctuates this year, so there is not a late December surprise.

I second the recent suggestion to delay Social Security for its larger income that is also boosted by its annual inflation increases. Having done that myself years ago, I now welcome the compounded annual boosts to my noticeably larger SS income.

[ruralavalon]

Thank you all for the advice! Just what I was looking for. It appears to be unanimous that the fixed income annuities are deemed expensive and unnecessary. I had the same gut feeling, but wanted some re-assurance that I wasn't missing something.

The initial annuity purchase suggestion came from the same advisor. I was not as concerned about these at the time (maybe I should have been?). The advisor was making the distinction between my existing MYGAs annuities and his recommended fixed income annuity - one being an interest payment and the other an income stream. I don't really see the difference.

I like the idea of just selling investments as needed for expenses. Thanks for the advice and the link livesoft!

Unclear when to start taking SS as well. This would cover a good chunk of my essential expenses, but it seems like it would be wise to push that out until I'm 70 in order to maximize the benefit.

How much will your annual retirement spending needs total, including taxes and health care expenses?

Estimating about $10K/month

How much will your annual Social Security benefits total (including spousal benefits) at retirement? At age 70?

$3751/mo if I start when I retire at 67, $4751/mo if I wait until 70 to start collecting.

Just had another meeting with my Fidelity rep last week. I'm getting ready to retire in about 6 months, so his focus in our meeting is to ensure that my portfolio will generate an income stream to support essential expenses, while discretionary expenses would come from selling investments.

Did he explain his reasoning for this? Because it's a pretty artificial distinction.

He indicated this was to ensure you have the funds to meet essential expenses, with the assumption that potentially you could lose everything in the market.

The TIPS ladder sounds like a potentially appealing path - I'll look into that.

For now, I will leave my investments as they are and stay away from fixed income annuities. Appreciate all of the timely replies - Thanks!

Good decision.

[BirdFood]

He indicated this was to ensure you have the funds to meet essential expenses, with the assumption that potentially you could lose everything in the market.

You absolutely could, which is why a large percentage of my assets are in various types of Treasuries. (Mostly but not entirely TIPS.) And presumably why you already have bonds and other fixed income investments. If you want to increased your fixed income allocation, that's just fine, but your advisor's distinction between income and assets strikes me as a way to blur and confuse. (Admittedly, the usual practice of referring to all non-equities assets as "fixed income" does confuse the issue. Stable assets? Less-volatile assets? There must be a better term.)

I would have a long look at how much commission or other profit your advisor would make from the investments they're recommending, and use that knowledge to help you gauge how much to trust them in the future.

[Grt2bOutdoors]

You have 15x expenses in fixed income, given you will essentially cover nearly all expenses at age 70 with social security, no need to buy the annuity. There is a need for the advisor to sell you the annuity though.

Then FA’s wonder why they have developed bad reputations. The advisor is a salesman, they are not true planners.

[dbr]

You have 15x expenses in fixed income, given you will essentially cover nearly all expenses at age 70 with social security, no need to buy the annuity. There is a need for the advisor to sell you the annuity though.

Then FA’s wonder why they have developed bad reputations. The advisor is a salesman, they are not true planners.

Is it really to the advantage of a "rep" specifically at Fidelity to suggest an SPIA to provide income? That money is then not invested in funds at Fidelity. I guess it would help to know exactly what is being suggested and who it is actually purchased from.

[Jack FFR1846]

Here I go again.

Looking at both of your investments, it looks like today, you have about $1.5M in pre-tax. I would recommend typing "RMD calculator" into google. It will bring you to a simple Schwab calculator. Put in the info and then at the bottom, hit the lifetime button. From the graph, hoover over each age and see what your asset will grow to (they use 6%) and what your RMD will be. I put this all into a spread sheet. You'll have to do separate ones for each spouse.

Now look at your social security. That's income too.

Now look at your annuities and remember that any gain will be documented with each payment and is considered taxable income.

If you want, add all those up in the spread sheet (like I did).

You may find yourself in the 28% Federal income tax bracket (post 2026). In addition, you may find yourself paying IRMAA on Medicare. You may not know but Medicare is expensive and IRMAA makes it more expensive and it is added to both spouse's Medicare payment.

You're at a time where you should be doing Roth conversions. You could subtract your spending needs from your total so that the amount you take out of your pre-tax account is just under the IRMAA number. This will drop your pre-tax account a bit every year. Things that can increase that pre-tax RMD eligible amount would include inherited IRAs.

Another annuity? Why? No. Does the Fidelity guy need a new BMW convertible or something?

[bmcgin]

I am not exactly a BH, so take this for what it's worth... (I do like to read the forum from time)

A $3MM account can easily generate $10k monthly with ample growth. Annuities sometimes offer the seller tons of incentives, and the advice is equally cloudy. Every time I look at one, I walk away.

I like BH's teachings on growth. For income, I like dividend distributions and fixed-income solutions. It's a no-brainer. When the market is up, they pay; when the market is down, they pay the same.

Consider allocating a portion of the portfolio to growth, a portion to income and a portion to protection/income (MMFs, CDs, Treasuries, Bonds).

For income, the golden geese are securities with long-term NAV growth and dividend growth with a decent yield. At the moment, I like a handful of CEFs and ETFs. These have done well (in my book) and generate around an 8% monthly yield: EOS, SCD, CSQ, ETY, EVT, CEFS, MAIN, DSU, VVR. And there are a handful of things that are appealing with less of a track record or lower yields: SVOL, JEPQ, JEPI, SCHD, PEY...there are tons...

Anyway, I hope the idea is clear. There are lots of solutions, this is one way to tackle it.

[suemarkp]

Is your spouse working too? When do they plan to take Social Security and will they collect more on their own record or as a spousal benefit on yours?

Spouse, if they have the smaller SS, should take SS now if they aren't working or make less then the income limit. There's one income stream. If they get more money taking a spousal benefit, you both may want to take SS sooner than 70.

[Cah]

Just had another meeting with my Fidelity rep last week. I'm getting ready to retire in about 6 months, so his focus in our meeting is to ensure that my portfolio will generate an income stream to support essential expenses, while discretionary expenses would come from selling investments. Currently, I have no income streams in my portfolio, so he is suggesting purchasing a fixed income annuity to cover my estimated $5K/month of essential expenses. I understand the logic of this thinking, but am uncomfortable moving a relatively large chunk of my portfolio to an insurance company to get a steady flow of checks every month.

What do others think of this advice?
Are there better ways to cover expenses during retirement?

My specifics -
Emergency Funds: Yes - CD's and savings - ~100K
Debt: None
Tax Filing: Married Filing Jointly
Tax Rate: 22% Federal, no state income tax
State: WA
Age: 66, wife is 64
Desired Asset Allocation: 60 stock/ 40 bond/fixed
Desired International Allocation: 20%
Portfolio size: ~3M

Taxable:
3.8% Fidelity Money Mkt (FZDXX)
9.8% Vang Total Stock Mkt Index (VTSAX) (.04)
3.5% 3 yr Annuity started 8/2023, 4.85%, MassMutual
0.2% Cash

His Rollover IRA:
10.0% Fidelity Infl-Prot Bond Index (FIPDX) (.05)
8.9% Fidelity Zero Large Cap Index (FNILX) (0)
3.3% Fidelity US Bond Index(FXNAX) (.03)
4.9% Vanguard Total Int Bond Index (VTABX) (.11)
13.7% 5 yr Annuity started 1/2024, 4.4%, USAA

His Roth IRA:
2.0% Fidelity Zero Large Cap Index (FNILX) (0)
0.9% Fidelity MidCap Index (FSMDX) (.03)
5.5% Fidelity Real Estate Index (FSRNX) (.07)
9.6% Fidelity Zero Int Index (FZILX) (0)

Her Roth IRA:
1.3% Fidelity Zero Large Cap Index (FNILX) (0)
5.2% Fidelity Zero Int Index (FZILX) (0)

His Roth 401K:
13.4% SSgA S&P 500 Index (SSSYX) (.01)
4.0% SSgA Russell Sm/Mid Cap Index (SSMKX) (.04)

Contributions:
$8000 His Roth IRA
$8000 Her Roth IRA
$30,500 His Roth 401K
$4,700 - His 401K Company Match

Just create your own annuity. Your list of investments and the value of your portfolio would allow you to invest a percentage of your port in 3 bond funds of your choice. Diversify them in investment terms and duration. Set up an automatic monthly withdrawal for the amount you need for your expenses. Instant annuity, without commission or surrender cost.

[catchinup]

I looked into doing something similar, and decided to take withdrawals instead . I didn't want to lock up my money, and when I ran my figures through the Fidelity retirement planning tool, it showed I'd be fine without the annuity. However I plan to reevaluate buying an SPIA annuity later on, perhaps around age 70.

[catchinup]

Just had another meeting with my Fidelity rep last week. I'm getting ready to retire in about 6 months, so his focus in our meeting is to ensure that my portfolio will generate an income stream to support essential expenses, while discretionary expenses would come from selling investments. Currently, I have no income streams in my portfolio, so he is suggesting purchasing a fixed income annuity to cover my estimated $5K/month of essential expenses. I understand the logic of this thinking, but am uncomfortable moving a relatively large chunk of my portfolio to an insurance company to get a steady flow of checks every month.

What do others think of this advice?
Are there better ways to cover expenses during retirement?

My specifics -
Emergency Funds: Yes - CD's and savings - ~100K
Debt: None
Tax Filing: Married Filing Jointly
Tax Rate: 22% Federal, no state income tax
State: WA
Age: 66, wife is 64
Desired Asset Allocation: 60 stock/ 40 bond/fixed
Desired International Allocation: 20%
Portfolio size: ~3M

Taxable:
3.8% Fidelity Money Mkt (FZDXX)
9.8% Vang Total Stock Mkt Index (VTSAX) (.04)
3.5% 3 yr Annuity started 8/2023, 4.85%, MassMutual
0.2% Cash

His Rollover IRA:
10.0% Fidelity Infl-Prot Bond Index (FIPDX) (.05)
8.9% Fidelity Zero Large Cap Index (FNILX) (0)
3.3% Fidelity US Bond Index(FXNAX) (.03)
4.9% Vanguard Total Int Bond Index (VTABX) (.11)
13.7% 5 yr Annuity started 1/2024, 4.4%, USAA

His Roth IRA:
2.0% Fidelity Zero Large Cap Index (FNILX) (0)
0.9% Fidelity MidCap Index (FSMDX) (.03)
5.5% Fidelity Real Estate Index (FSRNX) (.07)
9.6% Fidelity Zero Int Index (FZILX) (0)

Her Roth IRA:
1.3% Fidelity Zero Large Cap Index (FNILX) (0)
5.2% Fidelity Zero Int Index (FZILX) (0)

His Roth 401K:
13.4% SSgA S&P 500 Index (SSSYX) (.01)
4.0% SSgA Russell Sm/Mid Cap Index (SSMKX) (.04)

Contributions:
$8000 His Roth IRA
$8000 Her Roth IRA
$30,500 His Roth 401K
$4,700 - His 401K Company Match

Just create your own annuity. Your list of investments and the value of your portfolio would allow you to invest a percentage of your port in 3 bond funds of your choice. Diversify them in investment terms and duration. Set up an automatic monthly withdrawal for the amount you need for your expenses. Instant annuity, without commission or surrender cost.

What are examples of bond funds you'd recommend to create the diversified bond fund portfolio? Would the OP take equal withdrawals from all three?

[legalwriter1]

This is why Fidelity will have a loss leader with Zero funds. Annuities are big money makers. With a $3 million portfolio, you only need a 2% withdraw rate for $60k per year. At your ages, I would do a 4% withdraw rate of the $3 million. That gives you $120k per year. Social Security will be a bonus. Go spend and enjoy retirement.

That is great you have so much in Roth (42% of the portfolio). That gives you a lot of flexibility.

[dbr]

Just create your own annuity. Your list of investments and the value of your portfolio would allow you to invest a percentage of your port in 3 bond funds of your choice. Diversify them in investment terms and duration. Set up an automatic monthly withdrawal for the amount you need for your expenses. Instant annuity, without commission or surrender cost.

Likely this investor has enough money to do exactly that.* But this is not an annuity because there are no guarantees absorbed by a counter party and in particular there is no pooling of longevity risk. On the other hand the investor does not have to do one distinguishing feature of an SPIA, which is the immediate and permanent surrender of the principal at the get go. (This also does mean the real annuity holder does not have to be nervous about maintaining the principal because it is permanently zero.)

*Retirees should not be confused between the instruments used and the possible devices that allow automatic disbursement of cash. The latter is mechanics but the former is investing. The same confusion arises when people take dividends on the theory of "spend the income but save the principal."

[Cah]

Just had another meeting with my Fidelity rep last week. I'm getting ready to retire in about 6 months, so his focus in our meeting is to ensure that my portfolio will generate an income stream to support essential expenses, while discretionary expenses would come from selling investments. Currently, I have no income streams in my portfolio, so he is suggesting purchasing a fixed income annuity to cover my estimated $5K/month of essential expenses. I understand the logic of this thinking, but am uncomfortable moving a relatively large chunk of my portfolio to an insurance company to get a steady flow of checks every month.

What do others think of this advice?
Are there better ways to cover expenses during retirement?

My specifics -
Emergency Funds: Yes - CD's and savings - ~100K
Debt: None
Tax Filing: Married Filing Jointly
Tax Rate: 22% Federal, no state income tax
State: WA
Age: 66, wife is 64
Desired Asset Allocation: 60 stock/ 40 bond/fixed
Desired International Allocation: 20%
Portfolio size: ~3M

Taxable:
3.8% Fidelity Money Mkt (FZDXX)
9.8% Vang Total Stock Mkt Index (VTSAX) (.04)
3.5% 3 yr Annuity started 8/2023, 4.85%, MassMutual
0.2% Cash

His Rollover IRA:
10.0% Fidelity Infl-Prot Bond Index (FIPDX) (.05)
8.9% Fidelity Zero Large Cap Index (FNILX) (0)
3.3% Fidelity US Bond Index(FXNAX) (.03)
4.9% Vanguard Total Int Bond Index (VTABX) (.11)
13.7% 5 yr Annuity started 1/2024, 4.4%, USAA

His Roth IRA:
2.0% Fidelity Zero Large Cap Index (FNILX) (0)
0.9% Fidelity MidCap Index (FSMDX) (.03)
5.5% Fidelity Real Estate Index (FSRNX) (.07)
9.6% Fidelity Zero Int Index (FZILX) (0)

Her Roth IRA:
1.3% Fidelity Zero Large Cap Index (FNILX) (0)
5.2% Fidelity Zero Int Index (FZILX) (0)

His Roth 401K:
13.4% SSgA S&P 500 Index (SSSYX) (.01)
4.0% SSgA Russell Sm/Mid Cap Index (SSMKX) (.04)

Contributions:
$8000 His Roth IRA
$8000 Her Roth IRA
$30,500 His Roth 401K
$4,700 - His 401K Company Match

Just create your own annuity. Your list of investments and the value of your portfolio would allow you to invest a percentage of your port in 3 bond funds of your choice. Diversify them in investment terms and duration. Set up an automatic monthly withdrawal for the amount you need for your expenses. Instant annuity, without commission or surrender cost.

What are examples of bond funds you'd recommend to create the diversified bond fund portfolio? Would the OP take equal withdrawals from all three?

I personally don't follow any Fidelity funds. My three funds are Vanguard High Yield, Vanguard Short Term Corp, and Doubleline Total Return. I guess you could also include the Vangaurd MM fund which is where the monthly dividends are deposited. You can set up the monthly withdrawals equally to spread out the withdrawals and help keep balances equal.

[tibbitts]

Looking at both of your investments, it looks like today, you have about $1.5M in pre-tax. I would recommend typing "RMD calculator" into google. It will bring you to a simple Schwab calculator. Put in the info and then at the bottom, hit the lifetime button. From the graph, hoover over each age and see what your asset will grow to (they use 6%) and what your RMD will be. I put this all into a spread sheet. You'll have to do separate ones for each spouse.

I like the Schwab calculator although it seems like somebody recently pointed out something that hadn't been updated in it? Maybe I'm remembering wrong.

Regardless, the 6% can be dangerously misleading. It's good for "shock and awe", but the OP needs to think about that number carefully and not just assume it applies.

[WoodSpinner]

Thank you all for the advice! Just what I was looking for. It appears to be unanimous that the fixed income annuities are deemed expensive and unnecessary. I had the same gut feeling, but wanted some re-assurance that I wasn't missing something.

The initial annuity purchase suggestion came from the same advisor. I was not as concerned about these at the time (maybe I should have been?). The advisor was making the distinction between my existing MYGAs annuities and his recommended fixed income annuity - one being an interest payment and the other an income stream. I don't really see the difference.

I like the idea of just selling investments as needed for expenses. Thanks for the advice and the link livesoft!

Unclear when to start taking SS as well. This would cover a good chunk of my essential expenses, but it seems like it would be wise to push that out until I'm 70 in order to maximize the benefit.

How much will your annual retirement spending needs total, including taxes and health care expenses?

Estimating about $10K/month

How much will your annual Social Security benefits total (including spousal benefits) at retirement? At age 70?

$3751/mo if I start when I retire at 67, $4751/mo if I wait until 70 to start collecting.

Just had another meeting with my Fidelity rep last week. I'm getting ready to retire in about 6 months, so his focus in our meeting is to ensure that my portfolio will generate an income stream to support essential expenses, while discretionary expenses would come from selling investments.

Did he explain his reasoning for this? Because it's a pretty artificial distinction.

He indicated this was to ensure you have the funds to meet essential expenses, with the assumption that potentially you could lose everything in the market.

The TIPS ladder sounds like a potentially appealing path - I'll look into that.

For now, I will leave my investments as they are and stay away from fixed income annuities. Appreciate all of the timely replies - Thanks!

So let me vehemently disagree with the unanimous advice.

The advice provided by the Fidelity planner aligns well with a Safety First style of Retirement Planning (Google Wade Pfau RiSA) for details.

There are many roads that work and the key is matching your strategy to your personal behavioral outlook and financial situation.

Having Secure Income that covers your Minimum Lifestyle Expenses certainly matches our Retirement Income Style Awareness (RISA). The portfolio is then used as the source for Fun, Discretionary, and Other spending.

Wondering if folks are mistaking a Fixed Income Annuity (SPIA) with a Fixed Index Annuity (FIA). SPIAs have very low commissions and are usually pretty straightforward.

That said there are a number of strategies for implementing them in Retirement.

You might consider a combination of approaches:
- TIPs ladder to cover Delay period to SS
- Purchasing a SPIA a bit later as you get a better handle on the Post Delay gap based on your Cashflow needs.

Are they perfect — probably not but they are damned good.

Here are a few resources:
https://www.theretirementandirashow.com ... hy-part-2/

https://www.amazon.com/Retirement-Plann ... 128&sr=1-1

WoodSpinner

[Watty]

What do others think of this advice?
Are there better ways to cover expenses during retirement?

Portfolio size: ~3M

Currently, I have no income streams in my portfolio, so he is suggesting purchasing a fixed income annuity to cover my estimated $5K/month of essential expenses

Run from this guy.

If you just set your investments to not automatically reinvest dividends and interest then you will have $90K a year at 3%. That is 1.5x the $5K a month in essential expenses that you mentioned.

You did not mention Social Security but delaying the start of SS to get the maximum lifetime amount is almost always better choice than buying an annuity. Once you are getting two Social Security checks and the $90K in dividends might be enough to cover all your expenses including lots of extras. There are lots of ways to cover any gap until you are getting 2 SS checks. See this web site to see when it suggests that you should each start SS.

https://opensocialsecurity.com/

It would be good to edit your post to add what you expect your Social Security to be.

An additional complication is that eventually you will need to start taking RMDs from your retirement accounts. Once that happens then your taxes could go way up and having the income from an annuity could make that worse.

[4nursebee]

Just had another meeting with my Fidelity rep last week. I'm getting ready to retire in about 6 months, so his focus in our meeting is to ensure that my portfolio will generate an income stream to support essential expenses, while discretionary expenses would come from selling investments. Currently, I have no income streams in my portfolio, so he is suggesting purchasing a fixed income annuity to cover my estimated $5K/month of essential expenses. I understand the logic of this thinking, but am uncomfortable moving a relatively large chunk of my portfolio to an insurance company to get a steady flow of checks every month.

What do others think of this advice?
Are there better ways to cover expenses during retirement?

My specifics -
Emergency Funds: Yes - CD's and savings - ~100K
Debt: None
Tax Filing: Married Filing Jointly
Tax Rate: 22% Federal, no state income tax
State: WA
Age: 66, wife is 64
Desired Asset Allocation: 60 stock/ 40 bond/fixed
Desired International Allocation: 20%
Portfolio size: ~3M

Taxable:
3.8% Fidelity Money Mkt (FZDXX)
9.8% Vang Total Stock Mkt Index (VTSAX) (.04)
3.5% 3 yr Annuity started 8/2023, 4.85%, MassMutual
0.2% Cash

His Rollover IRA:
10.0% Fidelity Infl-Prot Bond Index (FIPDX) (.05)
8.9% Fidelity Zero Large Cap Index (FNILX) (0)
3.3% Fidelity US Bond Index(FXNAX) (.03)
4.9% Vanguard Total Int Bond Index (VTABX) (.11)
13.7% 5 yr Annuity started 1/2024, 4.4%, USAA

His Roth IRA:
2.0% Fidelity Zero Large Cap Index (FNILX) (0)
0.9% Fidelity MidCap Index (FSMDX) (.03)
5.5% Fidelity Real Estate Index (FSRNX) (.07)
9.6% Fidelity Zero Int Index (FZILX) (0)

Her Roth IRA:
1.3% Fidelity Zero Large Cap Index (FNILX) (0)
5.2% Fidelity Zero Int Index (FZILX) (0)

His Roth 401K:
13.4% SSgA S&P 500 Index (SSSYX) (.01)
4.0% SSgA Russell Sm/Mid Cap Index (SSMKX) (.04)

Contributions:
$8000 His Roth IRA
$8000 Her Roth IRA
$30,500 His Roth 401K
$4,700 - His 401K Company Match

I think some form of an annuity to cover baseline expenses can be a great thing. There is a study that shows that people that do this have greater peace of mind and find it not as difficult to spend.

You don’t really mention what portion of your fixed expenses are already covered by things like a pension or Social Security payments or what your plan is for Social Security

Another key question to answer is what method of portfolio withdrawal are you comfortable with? https://www.bogleheads.org/wiki/Withdrawal_methods

We have purchased two different annuities. These give us well in excess of our baseline needs in retirement and have provided great peace of mind.

I’ve had a long time boglehead basically say we were stupid to get an annuity.

[FinancialDave]

Just had another meeting with my Fidelity rep last week. I'm getting ready to retire in about 6 months, so his focus in our meeting is to ensure that my portfolio will generate an income stream to support essential expenses, while discretionary expenses would come from selling investments. Currently, I have no income streams in my portfolio, so he is suggesting purchasing a fixed income annuity to cover my estimated $5K/month of essential expenses. I understand the logic of this thinking, but am uncomfortable moving a relatively large chunk of my portfolio to an insurance company to get a steady flow of checks every month.

What do others think of this advice?
Are there better ways to cover expenses during retirement?

My specifics -
Emergency Funds: Yes - CD's and savings - ~100K
Debt: None
Tax Filing: Married Filing Jointly
Tax Rate: 22% Federal, no state income tax
State: WA
Age: 66, wife is 64
Desired Asset Allocation: 60 stock/ 40 bond/fixed
Desired International Allocation: 20%
Portfolio size: ~3M

Taxable:
3.8% Fidelity Money Mkt (FZDXX)
9.8% Vang Total Stock Mkt Index (VTSAX) (.04)
3.5% 3 yr Annuity started 8/2023, 4.85%, MassMutual
0.2% Cash

His Rollover IRA:
10.0% Fidelity Infl-Prot Bond Index (FIPDX) (.05)
8.9% Fidelity Zero Large Cap Index (FNILX) (0)
3.3% Fidelity US Bond Index(FXNAX) (.03)
4.9% Vanguard Total Int Bond Index (VTABX) (.11)
13.7% 5 yr Annuity started 1/2024, 4.4%, USAA

His Roth IRA:
2.0% Fidelity Zero Large Cap Index (FNILX) (0)
0.9% Fidelity MidCap Index (FSMDX) (.03)
5.5% Fidelity Real Estate Index (FSRNX) (.07)
9.6% Fidelity Zero Int Index (FZILX) (0)

Her Roth IRA:
1.3% Fidelity Zero Large Cap Index (FNILX) (0)
5.2% Fidelity Zero Int Index (FZILX) (0)

His Roth 401K:
13.4% SSgA S&P 500 Index (SSSYX) (.01)
4.0% SSgA Russell Sm/Mid Cap Index (SSMKX) (.04)

Contributions:
$8000 His Roth IRA
$8000 Her Roth IRA
$30,500 His Roth 401K
$4,700 - His 401K Company Match

Here are some unknowns that you don't list and thinks to consider:

1. Most important, what is your retirement budget - you say $5k mo for essential, but what is the rest?
2. It looks like the existing $500k in what I am thinking are deferred annuities are meant to cover delaying SS to age 70, at least for one of you. There really is no reason for both of you to delay to 70, lower earner could take at FRA, as nothing much is gained by going later.
3. It looks to me your tax rate in retirement would be in the 12% bracket, if we still have one, but your taxable and Rollover IRA should be spent while waiting for SS, so as to keep their growth in check.

Overall, I would say you have a good set-up with $3m, but it's unclear to me if the $500k AA for existing annuities will roll off in 3-5 years leaving you with $2.5m? No matter if it does, just changes the picture slightly.

[breezly]

If you have been paying for and receiving advice from this ‘rep’ for quite some time, it might be good to lose them. Pointing out to a mid-60 year-old six months away from retirement that “Gee, we need to generate an income stream to support essential expenses” is not doing one’s job. I put my own plan together five years out from early retirement at age 56 on where the income comes from.

I'm feeling the same, and this is a step towards putting that plan together. Thanks for the input!

Thanks for the link to the spending study, heyyou - I'll review this.

Thanks Jack FFR1846 for the pointer to the Schwab RMD calculator. I played with it a bit, and even reducing the return down to 4% left me in a comfortable position. You suggest doing Roth conversions - is there an optimum level to get to? Is it just reducing the traditional IRA amount so the RMD is not more than I need/want to live on?

Is your spouse working too? When do they plan to take Social Security and will they collect more on their own record or as a spousal benefit on yours?

Spouse, if they have the smaller SS, should take SS now if they aren't working or make less then the income limit. There's one income stream. If they get more money taking a spousal benefit, you both may want to take SS sooner than 70.

Spouse is not working and has not worked enough to qualify for her own SS, so she'll get the spousal benefit. Since that is based on my benefit, I would assume waiting until I reach 70 (and she is 68) would be the optimum time to start taking SS (even though the SS calculator referenced by Watty says I should start when we are 69/67).

Thanks WoodSpinner for breaking the unanimous vote! And yet another suggestion for starting a TIPS ladder. This sounds like something I need to investigate further...

You did not mention Social Security but delaying the start of SS to get the maximum lifetime amount is almost always better choice than buying an annuity. Once you are getting two Social Security checks and the $90K in dividends might be enough to cover all your expenses including lots of extras. There are lots of ways to cover any gap until you are getting 2 SS checks. See this web site to see when it suggests that you should each start SS.

https://opensocialsecurity.com/

It would be good to edit your post to add what you expect your Social Security to be.

SS link above says I should start SS when I'm 69 and my wife should start when she's 67.

You don’t really mention what portion of your fixed expenses are already covered by things like a pension or Social Security payments or what your plan is for Social Security

Another key question to answer is what method of portfolio withdrawal are you comfortable with? https://www.bogleheads.org/wiki/Withdrawal_methods

No pension. SS will be mine ($3751-$4751 depending on start date) plus spousal benefit.
Deciding on a withdraw strategy seems pertinent here. Thanks for the link - lots of interesting info there!

Here are some unknowns that you don't list and thinks to consider:

1. Most important, what is your retirement budget - you say $5k mo for essential, but what is the rest?
2. It looks like the existing $500k in what I am thinking are deferred annuities are meant to cover delaying SS to age 70, at least for one of you. There really is no reason for both of you to delay to 70, lower earner could take at FRA, as nothing much is gained by going later.
3. It looks to me your tax rate in retirement would be in the 12% bracket, if we still have one, but your taxable and Rollover IRA should be spent while waiting for SS, so as to keep their growth in check.

Overall, I would say you have a good set-up with $3m, but it's unclear to me if the $500k AA for existing annuities will roll off in 3-5 years leaving you with $2.5m? No matter if it does, just changes the picture slightly.

1 - $5K/mo essential + $5K/mo extra. The extra is really just a swag, since I'm not retired yet. It's possible that with more free time, I'll find more things I want to spend $$ on.
2 - Tentatively planning to take SS at 70/68.
3 - What are the assumptions for figuring the 12% rate. Does that imply I should not do Roth conversions now?

[ruralavalon]

The better time to do Roth conversions is after retirement but before starting Social Security benefits and before RMDs.

[Carol88888]

Did you ask him what commission he would get from selling you the annuity?

Do you know the expenses of the annuity?

[4nursebee]

Did you ask him what commission he would get from selling you the annuity?

Do you know the expenses of the annuity?

For us, we did not give a darn about this. Both of our annuities were purchased thru Fidelity, they put in the amount of money to be used to purchase, get many quotes near instantly, we took the one that paid the most per month. It was the monthly return that was important. MY SO and I discussed this yesterday, we are well aware that the principal from the initial purchase would likely have doubled by now, and the principal from the 2nd would likely be higher by maybe 20% by now. But the peace of mind, the guarantee, the ability to ignore pseudo market panics, all of that is priceless, AND it allowed us the ability to retire early. A corollary to this is that because so much was guaranteed we were comfortable keeping a high stock allocation, thus likely outperforming traditional BHers.

[SmileyFace]

Abigail Johnson didn’t become the richest person in Massachusetts by pushing low cost indexed funds.

No she didn't. And actually the Johnson family had a vast amount a wealth even before Fidelity existed - some of which she inherited.
Certainly Fidelity turned out to be a nice investment for the Johnson family. It is hard to say how much additional wealth it generated (maybe you have the numbers?) but I certainly don't fault them for their success nor avoid Fidelity because of it (same way I don't avoid Apple products because those founders and execs were vastly successful and became wealthy. Or would avoid Vanguard because of the generous profit sharing plan they have that is paid out to all their salaries employees).
Sorry - I don't really understand why this irrelevant statement constantly comes up. Every brokerage out there is working to make money.

[James.534]

From your numbers, you need 240k for 4 years (5k/m x 4 years) until SS. Why not just, allocate $240k to cash and have a paycheck come from there.

[FinancialDave]

Here are some unknowns that you don't list and thinks to consider:

1. Most important, what is your retirement budget - you say $5k mo for essential, but what is the rest?
2. It looks like the existing $500k in what I am thinking are deferred annuities are meant to cover delaying SS to age 70, at least for one of you. There really is no reason for both of you to delay to 70, lower earner could take at FRA, as nothing much is gained by going later.
3. It looks to me your tax rate in retirement would be in the 12% bracket, if we still have one, but your taxable and Rollover IRA should be spent while waiting for SS, so as to keep their growth in check.

Overall, I would say you have a good set-up with $3m, but it's unclear to me if the $500k AA for existing annuities will roll off in 3-5 years leaving you with $2.5m? No matter if it does, just changes the picture slightly.

1 - $5K/mo essential + $5K/mo extra. The extra is really just a swag, since I'm not retired yet. It's possible that with more free time, I'll find more things I want to spend $$ on.
2 - Tentatively planning to take SS at 70/68.
3 - What are the assumptions for figuring the 12% rate. Does that imply I should not do Roth conversions now?

The assumption is you are both over age 65, not pulling more money out of your retirement accounts than your budget of $120,000, and you are not doing Roth conversions, which leaves you a little over $6000 for other ordinary interest, such as tax drag from your taxable accounts or savings interest from other savings.

Any income which is not taxed such as part of the annuity in the taxable account is also headroom in the 12% bracket as it stands in 2024.

PS. Since you say you aren't retiring until 2025, then you will have more headroom, but probably some salary income to deal with the first year of retirement.

One other item to increase your headroom in the 12% bracket is to turn off dividend reinvestment in your funds and spend the dividends from the MMF and Total Stock Market Fund, since they are taxable income anyway.

[breezly]

The assumption is you are both over age 65, not pulling more money out of your retirement accounts than your budget of $120,000, and you are not doing Roth conversions, which leaves you a little over $6000 for other ordinary interest, such as tax drag from your taxable accounts or savings interest from other savings.

Any income which is not taxed such as part of the annuity in the taxable account is also headroom in the 12% bracket as it stands in 2024.

PS. Since you say you aren't retiring until 2025, then you will have more headroom, but probably some salary income to deal with the first year of retirement.

One other item to increase your headroom in the 12% bracket is to turn off dividend reinvestment in your funds and spend the dividends from the MMF and Total Stock Market Fund, since they are taxable income anyway.

Plan is to retire mid-next year. At that time, I'll be 67 and spouse will be 65 (and eligible for Medicaire). So I'll have about $60K of income for 6 months of work, leaving about $66K headroom in the 12% bracket. I could start doing Roth conversions, but unclear if that makes sense. Using the Schwab RMD calculator, my RMD starting at age 73 will be $62K. Since this is less than my projected budget, does it make sense to do Roth conversions?

[retireIn2020]

I don't need any fixed income annuity. He is selling Fear, Uncertainty, and Doubt.

I just sell investments as needed to pay expenses. It is trivial to do. I simply do not care if stocks are up, down, or sideways. I sell them. If selling shares of an equity fund cause my asset allocation to change, then I rebalance in my tax-deferred account. Example: Sell VTI after it drops 20% in my taxable account and immediately exchange from BND to VTI in my tax-deferred account. I still have the same amount of VTI and it is as if I never sold any VTi.

See also: https://www.bogleheads.org/wiki/Placing ... ed_account

Obviously, the OP clearly does not need a SPIA. However, the Fidelity rep could also be taking away "Fear, Uncertainty, and Doubt".

OP said the conversation was about producing income from the portfolio. A SPIA should be part of that conversation. First order of business is making sure essential expenses are covered, and a SPIA basically "de-risks" the portfolio and provides mailbox money.

We are not privy to the full conversation that the OP had with the Fidelity rep, but I can tell you I've had these conversations with them, and they pushed nothing, only provided options. So, stating that the Rep is selling Fear, Uncertainty, and Doubt, is nothing more than creating a false narrative.