Immediate Annuity, opinions wanted

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Topic Author
David_w
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Location: South Florida

Immediate Annuity, opinions wanted

Post by David_w »

I am not ready for this just yet. I am 59 yrs old, own my own business and trying to figure out how much money I will need to retire. I was speaking with my advisor at Fidelity and as part of a retirement plan he suggested an immediate annuity. I figure our expenses will be about $150K to $170K in retirement. He said: He would suggest an immediate income annuity, investing 2.4 mil to give us about $100,000 per yr income. Joint Survivor 100%, cash refund for anything not used, no COLA, not indexed & not deferred. Everything invested we get back in payments or if we die balance goes to heirs so no money is lost. Then the balance needed we can easily get from our investments

Does this make sense to anyone? Do you need any more info in order to give your opinion? I am very concerned about having enough money to leave for my special needs son when we are gone so principle preservation is important.

Below added my financial info below as was requested. Also, we have done estate planning as far as wills, trusts set up within will for our other "typical" son, Special needs trust for our younger son.

I have in a few different policies 3 Mil of life insurance. Between my wife and I we spend about $50,000 a year for life insurance. When I retire we may cut back on this and spend about $20,000 a year on Life Insurance.

Our health insurance we pay ourselves and it currently costs about $32,000 / year

Emergency funds: No dedicated emergency fund
Debt: No debt., Home is paid off
Tax Filing Status: Married Filing Jointly
Tax Rate: 37% Federal, NA % State
State of Residence: Florida
Age: 59.5, Wife’s age: 55.5yrs

In addition to below, depending on when I retire we will be accumulating from income an additional 1 million to 3 million more.

Current assets

Taxable Total = $4,669,000
$2,300,000 Cash
$472,000 Chase Managed Account (81% Equity, 19% Fixed Income)
$118,000 PIMCO Income Fund Class A ( PONAX)
$268,800 Lord Abbett Ultra Short Bond Fund Class A (LUBAX)
$1,029,000 Fidelity managed account (partial is SMA account)
$100,000 Brokerage account (play account for stocks)
$382,000 Brokerage account of inherited stocks. Majority is $229,000 of Nextera Energy (NEE)

His Roth IRA = $74.700
$54,700 Fidelity Balanced Fund (FBALX) (0.52% exp ratio)
$8,400 Cash

His Traditional IRA = $93,500
$73,500 Fidelity Balanced Fund (FBALX) (0.52% exp ratio)
$20,000 Cash

Her Roth IRA = $50,700
$44,700 Fidelity Balanced Fund (FBALX) (0.52% exp ratio)
$6,000 Cash

Her Traditional IRA = $96,500
$75,500 Fidelity Balanced Fund (FBALX) (0.52% exp ratio)
$21,000 Cash
Last edited by David_w on Mon Jun 14, 2021 12:32 pm, edited 3 times in total.
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Sandtrap
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Re: Immediate Annuity, opinions wanted

Post by Sandtrap »

David_w wrote: Sun Jun 13, 2021 6:29 am I am not ready for this just yet. I am 59 yrs old, own my own business and trying to figure out how much money I will need to retire.
I was speaking with my advisor at Fidelity and as part of a retirement plan he suggested an immediate annuity.
I figure our expenses will be about $150K to $170K in retirement.
He said: He would suggest an immediate income annuity, investing 2.4 mil to give us about $100,000 per yr income.
Joint Survivor 100%, cash refund for anything not used, no COLA, not indexed & not deferred.
Everything invested we get back in payments or if we die balance goes to heirs so no money is lost.
Then the balance needed we can easily get from our investment.

1
Does this make sense to anyone?
2
Do you need any more info in order to give your opinion? 3
3
I am very concerned about having enough money to leave for my special needs son when we are gone so principle preservation is important.
Things to consider:
A.
Annitization is best taken in the largest context and long term financial strategy.
A quick edit of your original post (this format) would help. (use the pencil icon).
Asking Portfolio Questions Format
https://www.bogleheads.org/forum/viewt ... =1&t=6212

B
There is a website called "Immediate Annuities.com" where you can try some test projections and rate comparisons of your own from simple to more complex variables.

(Here's the Link).
https://www.immediateannuities.com/

(Realize that SPIA's are insurance products, so compare, shop, check costs and commisions (etc), then reconsider.)
(Realize that SPIA's do not have to happen at once they can be "laddered" over time to fit "your needs".)

C
Highly suggest reading the forum "wiki" on SPIA's and annuitization. Also, search the forum archives (upper right corner) for excellent discussions on "SPIA'S".

Per your questions:
1. SPIA's and annuitization happens for various reasons per each person, in your case, "special needs" and legacy concerns as well as retirement income stream.
2. As above: do a quick format with added or existing data per forum "portfolio review format" would help others see you SPIA feasibility in "your" context.
3. Regarding legacy concerns:
a) Estate Planning (seek legal counsel), integrate your SPIA/annuitization concerns, legacy, etc, with this.
b) Etc.
4. As for how much you will need to retire:
a) Again, reformating you post (pencil icon) and listing your retirement goals, how much is needed in retirement annually, how much your business contributes and if you are selling it on retirement or using as a diversification of income stream, and other added data will help.
List your goals in retirement. What you will need annually. etc. etc.

Finally: SPIA's and annuitization is just one thing to consider. There's more.

Welcome to the forum. :D
Aloha
j :D
My POV: *As a retired businessman, I had also looked at SPIA and annuitization as part of estate planning (similar concerns as you) etc, at about your age awhile back. PM me as you wish.
Last edited by Sandtrap on Sun Jun 13, 2021 8:08 am, edited 3 times in total.
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ResearchMed
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Re: Immediate Annuity, opinions wanted

Post by ResearchMed »

David_w wrote: Sun Jun 13, 2021 6:29 am I am not ready for this just yet. I am 59 yrs old, own my own business and trying to figure out how much money I will need to retire. I was speaking with my advisor at Fidelity and as part of a retirement plan he suggested an immediate annuity. I figure our expenses will be about $150K to $170K in retirement. He said: He would suggest an immediate income annuity, investing 2.4 mil to give us about $100,000 per yr income. Joint Survivor 100%, cash refund for anything not used, no COLA, not indexed & not deferred. Everything invested we get back in payments or if we die balance goes to heirs so no money is lost. Then the balance needed we can easily get from our investment.

Does this make sense to anyone? Do you need any more info in order to give your opinion? I am very concerned about having enough money to leave for my special needs son when we are gone so principle preservation is important.
Have you looked at the calculator at

www.immediateannuities.com ?

You might need to use $100k as the amount to model, and then multiply by whatever you would need to get to your total annuitized, as it won't accept very high values.

You can see approximately what that same amount would get on the "annuity open market". That summary calculator may not have everything you are considering , but it will give you an idea. You can also play around with age to start, and perhaps a bit about what if there are survivor benefits vs none, and also age of a second annuitant, etc.

RM
This signature is a placebo. You are in the control group.
michaeljc70
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Re: Immediate Annuity, opinions wanted

Post by michaeljc70 »

David_w wrote: Sun Jun 13, 2021 6:29 am I am not ready for this just yet. I am 59 yrs old, own my own business and trying to figure out how much money I will need to retire. I was speaking with my advisor at Fidelity and as part of a retirement plan he suggested an immediate annuity. I figure our expenses will be about $150K to $170K in retirement. He said: He would suggest an immediate income annuity, investing 2.4 mil to give us about $100,000 per yr income. Joint Survivor 100%, cash refund for anything not used, no COLA, not indexed & not deferred. Everything invested we get back in payments or if we die balance goes to heirs so no money is lost. Then the balance needed we can easily get from our investment.

Does this make sense to anyone? Do you need any more info in order to give your opinion? I am very concerned about having enough money to leave for my special needs son when we are gone so principle preservation is important.
Well, not counting the money lost to inflation and it not being invested in something else.....

You are basically getting 4% on your money before inflation. If inflation spikes, you may be getting no return. $100k in 20 years, using the average of 3% inflation, will become $54k or almost half of what you started with in real terms.

I'm not telling you to not do it, but I would carefully consider the inflation aspect of it.
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galawdawg
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Re: Immediate Annuity, opinions wanted

Post by galawdawg »

There is absolutely no way I would do it with those numbers.

Putting $2.4 million in the annuity to receive a lifetime joint survivor payout is equal to an average annual return of just 4.2% and your principle is consumed entirely leaving nothing for legacy giving to heirs, charity, etc. So if you want to preserve principle, forget it. The principle is GONE.

If you instead invest those funds conservatively and realize an average annual return of just 4.2% during your retirement, you can withdraw the same $100k per year but the principle of $2.4 million remains yours (and your spouses, if you are married) to distribute as you see fit upon your passing.

And if we assume that average annual returns are lower, here is how long that $2.4 million would last at various interest rates with a fixed withdrawal rate of $100k annually before the $2.4 million is consumed:

1.0% Twenty-seven (27) years
1.5% Thirty (30) years
2.0% Thirty-two (32) years
2.5% Thirty-five (35) years
3.0% Forty-one (41) years
3.5% Fifty (50) years
4.0% Seventy (70) years
4.5% Indefinitely

Of course, those calculations do not account for inflation, taxes and such. But as you can see, if you assume a thirty-five (35) year retirement period, the annuity ONLY comes out ahead if the average annual return on your $2.4 million would be less than 2.5%.
Angst
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Re: Immediate Annuity, opinions wanted

Post by Angst »

I don't spend a lot of time thinking about SPIA's - not an expert here - although I do plan to seriously consider buying a small one sometime in my late 70's, or early 80's. One thing I won't have to worry about though is the insurance limitation placed by the state guarantee fund. But your purchase will presumably be largely uncovered by your state guarantee fund. That adds enough risk that it takes the option off the table from my perspective. And so my knee-jerk, suspicious nature can't help wonder if some of the shortcomings of this specific SPIA idea from you advisor don't make it an easy way of nudging you into buying a more complex kind of annuity instead... :shock:
grok87
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Re: Immediate Annuity, opinions wanted

Post by grok87 »

Schwab also has a calculator
https://www.schwab.com/annuities/fixed- ... calculator

for a joint life annuity with premium refund rider for someone 59 years old with a spouse 3 years younger (as an example based on averages) the payout is 4.428%. Which is higher than the 4.167% that fidelity is quoting you. that's an extra $6.27k a year (i.e. payout of $106.27k) on your $2.4 M.

But i think the big elephant in the room here is insurance company credit risk. This amount is well above the state guarantee fund limits. you should research what they are for your state but likely they are $500k or less compared to your $2.4 M. Some strategies for coping with this:

1) Buy mutiple annuities from different insurance companies
2) wait- if you are in your 70s the cost of the annuity would be less and easier to get under the state guarantee fund limits.
3) consider maximizing social security by delaying till age 67 or 70 (but cuts may be coming in 2035). Social security has no credit risk.

hope this helps
grok
RIP Mr. Bogle.
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galawdawg
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Re: Immediate Annuity, opinions wanted

Post by galawdawg »

David_w wrote: Sun Jun 13, 2021 6:29 am I am not ready for this just yet. I am 59 yrs old, own my own business and trying to figure out how much money I will need to retire. I was speaking with my advisor at Fidelity and as part of a retirement plan he suggested an immediate annuity. I figure our expenses will be about $150K to $170K in retirement. He said: He would suggest an immediate income annuity, investing 2.4 mil to give us about $100,000 per yr income. Joint Survivor 100%, cash refund for anything not used, no COLA, not indexed & not deferred. Everything invested we get back in payments or if we die balance goes to heirs so no money is lost. Then the balance needed we can easily get from our investment.

Does this make sense to anyone? Do you need any more info in order to give your opinion? I am very concerned about having enough money to leave for my special needs son when we are gone so principle preservation is important.
By the way, one thing I suggest you consider is creating a post in the format of "Asking Portfolio Questions", https://www.bogleheads.org/wiki/Asking_ ... _questions, which will enable Bogleheads to provide more informed advice and recommendations based upon your overall financial picture. If your expenses will be $150k-$170k in retirement and if you already have (or expect to have) $2.4 million plus enough additional in your portfolio to purchase the annuity AND withdraw another $50k-$70k per year, you may be in excellent shape.

Bogleheads may also have suggestions on strategies to meet your retirement spending needs and provide a means for the support for your special needs son after your passing (such as a special needs trust).
basspond
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Re: Immediate Annuity, opinions wanted

Post by basspond »

If the annuity investment is less then 50% of your total retirement assets it might be a good deal with your concerns.
Rex66
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Re: Immediate Annuity, opinions wanted

Post by Rex66 »

With those assets you don’t need guaranteed income

You are trading one problem for another primarily inflation.

Not even taking into consideration risk that insurance company goes under, no way I’d do it. That’s too low of a return for me for that product.

There just isn’t a zero risk strategy out there. Instead of worrying about stock market losses now you will need to worry that high inflation will happen. A lot of years for that possibility.
lurker415
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Re: Immediate Annuity, opinions wanted

Post by lurker415 »

You may want to shop around for a better annuity rate -- I have found that Fidelity simply isn't very competitive. Check out Blueprint Income or Stan the Annuity Man -- there's a really good chance you can get a better rate from them.
AlwaysLearningMore
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Re: Immediate Annuity, opinions wanted

Post by AlwaysLearningMore »

Where does an annuity fit into your "income floor?"

Have you considered laddering SPIA purchases in retirement?

Are you aware of State insurance guarantee limitations?
Retirement is best when you have a lot to live on, and a lot to live for.
ivgrivchuck
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Re: Immediate Annuity, opinions wanted

Post by ivgrivchuck »

David_w wrote: Sun Jun 13, 2021 6:29 am
Does this make sense to anyone? Do you need any more info in order to give your opinion? I am very concerned about having enough money to leave for my special needs son when we are gone so principle preservation is important.
"Cash refund for money not used" doesn't sound reasonable to me. The whole point of annuity is to transfer money from those who die early to those who live longer. Choosing this option will significantly lower the payout rate.

A reasonable use of SPIA is to make sure that SS+Pension+SPIA covers your minimum/reasonable living expenses. Then you can invest your remaining portfolio more aggressively.

Shop around, understand the state guaranty association rules, pay attention to credit ratings of insurance companies...
40% VTI | 40% VXUS | 13% I-bonds | 7% EE-bonds
spencer99
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Re: Immediate Annuity, opinions wanted

Post by spencer99 »

I don't have any advice on your personal circumstances, but offer a recent Morningstar podcast as an interesting overview of annuities.

Podcast is "The Long View" hosted by C. Benz and J. Ptak. Guest is Kerry Pechter who evidently writes extensively on annuities.

https://www.morningstar.com/podcasts/the-long-view
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ResearchMed
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Re: Immediate Annuity, opinions wanted

Post by ResearchMed »

spencer99 wrote: Sun Jun 13, 2021 12:10 pm I don't have any advice on your personal circumstances, but offer a recent Morningstar podcast as an interesting overview of annuities.

Podcast is "The Long View" hosted by C. Benz and J. Ptak. Guest is Kerry Pechter who evidently writes extensively on annuities.

https://www.morningstar.com/podcasts/the-long-view
It might appear this is subscription only, but scroll down that linked page.
Also, there is a transcript for those who prefer reading to listening to podcasts.

RM
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Stinky
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Re: Immediate Annuity, opinions wanted

Post by Stinky »

David_w wrote: Sun Jun 13, 2021 6:29 am I am very concerned about having enough money to leave for my special needs son when we are gone so principle preservation is important.
I don’t see how this SPIA fits for someone who is concerned about “principal preservation”.

Have you talked with an estate attorney about the structures that might be available to assure funds for your son after your deaths?
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RubyTuesday
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Re: Immediate Annuity, opinions wanted

Post by RubyTuesday »

Research indicates that the optimal portfolio to minimize risk of spending shortfall and maximize value of legacy includes stocks and annuities (SPIAs or DIAs).

This post in another recent thread links to some great articles and research.
viewtopic.php?p=6061712#p6061712

We have no idea of your asset base and other sources of retirement income, so we really can’t comment on your specifics.

There are many here who are extremely knowledgeable and generous with their time who will gladly review a detailed post and provide insight and feedback, but they need more detail.
“Doing nothing is better than being busy doing nothing.” – Lao Tzu
ivgrivchuck
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Re: Immediate Annuity, opinions wanted

Post by ivgrivchuck »

Stinky wrote: Sun Jun 13, 2021 12:45 pm
David_w wrote: Sun Jun 13, 2021 6:29 am I am very concerned about having enough money to leave for my special needs son when we are gone so principle preservation is important.
I don’t see how this SPIA fits for someone who is concerned about “principal preservation”.
It might. If you divide the money in two buckets. One to support OP (+spouse?) for the rest of their lives, this can be potentially be optimized using a SPIA. Another bucket to leave to heirs. Which can then be optimized for that purpose.

Just throwing out ideas... More information is needed and as somebody already said estate planning should be part of the process...
40% VTI | 40% VXUS | 13% I-bonds | 7% EE-bonds
almostretired1965
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Re: Immediate Annuity, opinions wanted

Post by almostretired1965 »

Here is how I would look at it. If it all went to hell, how much money will I need to live comfortably after cutting out most if not all of the "luxuries"? Take that amount, subtract out your anticipated social security/pension, etc. and what is left is what you need the annuity to pay out. This is just a rough ball park figure, it doesn't account for retiring early, inflation, etc., but gives you a decent idea. It was what I was planning to do years ago (1990s when I began working and thinking about such matters) when interest rates were much higher.

However, I no longer plan to do so because we've accumulate a much bigger nest egg than I had anticipated. The income generated from our investments now more than cover our anticipated expenses even in a bad year so this is no longer a risk I feel I need to protect myself from.
ivgrivchuck
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Re: Immediate Annuity, opinions wanted

Post by ivgrivchuck »

almostretired1965 wrote: Sun Jun 13, 2021 3:54 pm Here is how I would look at it. If it all went to hell, how much money will I need to live comfortably after cutting out most if not all of the "luxuries"? Take that amount, subtract out your anticipated social security/pension, etc. and what is left is what you need the annuity to pay out. This is just a rough ball park figure, it doesn't account for retiring early, inflation, etc., but gives you a decent idea. It was what I was planning to do years ago (1990s when I began working and thinking about such matters) when interest rates were much higher.
+1. This is exactly the right mindset.
40% VTI | 40% VXUS | 13% I-bonds | 7% EE-bonds
Topic Author
David_w
Posts: 34
Joined: Sat Feb 09, 2019 8:20 am
Location: South Florida

Re: Immediate Annuity, opinions wanted

Post by David_w »

Thank you, I have added portfolio info to my post
Sandtrap wrote: Sun Jun 13, 2021 7:02 am
David_w wrote: Sun Jun 13, 2021 6:29 am I am not ready for this just yet. I am 59 yrs old, own my own business and trying to figure out how much money I will need to retire.
I was speaking with my advisor at Fidelity and as part of a retirement plan he suggested an immediate annuity.
I figure our expenses will be about $150K to $170K in retirement.
He said: He would suggest an immediate income annuity, investing 2.4 mil to give us about $100,000 per yr income.
Joint Survivor 100%, cash refund for anything not used, no COLA, not indexed & not deferred.
Everything invested we get back in payments or if we die balance goes to heirs so no money is lost.
Then the balance needed we can easily get from our investment.

1
Does this make sense to anyone?
2
Do you need any more info in order to give your opinion? 3
3
I am very concerned about having enough money to leave for my special needs son when we are gone so principle preservation is important.
Things to consider:
A.
Annitization is best taken in the largest context and long term financial strategy.
A quick edit of your original post (this format) would help. (use the pencil icon).
Asking Portfolio Questions Format
https://www.bogleheads.org/forum/viewt ... =1&t=6212

B
There is a website called "Immediate Annuities.com" where you can try some test projections and rate comparisons of your own from simple to more complex variables.

(Here's the Link).
https://www.immediateannuities.com/

(Realize that SPIA's are insurance products, so compare, shop, check costs and commisions (etc), then reconsider.)
(Realize that SPIA's do not have to happen at once they can be "laddered" over time to fit "your needs".)

C
Highly suggest reading the forum "wiki" on SPIA's and annuitization. Also, search the forum archives (upper right corner) for excellent discussions on "SPIA'S".

Per your questions:
1. SPIA's and annuitization happens for various reasons per each person, in your case, "special needs" and legacy concerns as well as retirement income stream.
2. As above: do a quick format with added or existing data per forum "portfolio review format" would help others see you SPIA feasibility in "your" context.
3. Regarding legacy concerns:
a) Estate Planning (seek legal counsel), integrate your SPIA/annuitization concerns, legacy, etc, with this.
b) Etc.
4. As for how much you will need to retire:
a) Again, reformating you post (pencil icon) and listing your retirement goals, how much is needed in retirement annually, how much your business contributes and if you are selling it on retirement or using as a diversification of income stream, and other added data will help.
List your goals in retirement. What you will need annually. etc. etc.

Finally: SPIA's and annuitization is just one thing to consider. There's more.

Welcome to the forum. :D
Aloha
j :D
My POV: *As a retired businessman, I had also looked at SPIA and annuitization as part of estate planning (similar concerns as you) etc, at about your age awhile back. PM me as you wish.
TravelforFun
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Re: Immediate Annuity, opinions wanted

Post by TravelforFun »

David_w wrote: Sun Jun 13, 2021 6:29 am I am not ready for this just yet. I am 59 yrs old, own my own business and trying to figure out how much money I will need to retire. I was speaking with my advisor at Fidelity and as part of a retirement plan he suggested an immediate annuity. I figure our expenses will be about $150K to $170K in retirement. He said: He would suggest an immediate income annuity, investing 2.4 mil to give us about $100,000 per yr income. Joint Survivor 100%, cash refund for anything not used, no COLA, not indexed & not deferred. Everything invested we get back in payments or if we die balance goes to heirs so no money is lost. Then the balance needed we can easily get from our investments

Does this make sense to anyone?
I bought one of those SPIAs a couple of years ago. $250K premium, $10K first year payment, joint survivor, cash refund, 2% COLA. This amount along with our social security benefits and rental income meet our living needs, and allows us to be more aggressive in investing our remaining asset. We also withdraw approx. 3% from our asset every year for our living wants and it's been great!

TravelforrGun
mr_brightside
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Re: Immediate Annuity, opinions wanted

Post by mr_brightside »

you need to change your mindset. you write 'invest' in an annuity. you then mention the annuity has no COLA. that is not an investment. it is a purchase of future income which will decline in purchasing power year after year.

so its not an 'investment' in any way that i define 'investments' -- ie an instrument with a reasonable likelihood of appreciation in value.

no way i would sink all that into an annuity. SOME -- maybe. $2.4M ? no way Jose.

there are pre-packaged conservative mutual funds like Target Date Funds (pick the correct year) or Life Strategy Funds that can be conservative -- adequately diversified with low fees -- that could give you a moderate chance at growth but also decent preservation of capital. but your advisor won't make a commission on those so I doubt they'll get recommended.

good luck --

---------------------------------------------------
bsteiner
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Re: Immediate Annuity, opinions wanted

Post by bsteiner »

An annuity is insurance. It protects against the risk of living too long and running out of money, or living meagerly for fear of living too long and running out of money.

Like any form of insurance, there's a cost to an annuity, since it costs something to run the insurance company. The present value of the expected payments is less than the premium.
mr_brightside wrote: Mon Jun 14, 2021 1:29 pm ...
there are pre-packaged conservative mutual funds like Target Date Funds (pick the correct year) or Life Strategy Funds that can be conservative -- adequately diversified with low fees -- that could give you a moderate chance at growth but also decent preservation of capital. but your advisor won't make a commission on those so I doubt they'll get recommended.
...
Any reasonable asset allocation will most likely do better than an annuity. However, at the cost of most likely ending up worse off, the annuity guarantees the result.

The annuity also lets someone (at least figuratively) spend every last penny of his/her wealth during lifetime, since there will always be another check coming in each month.

Note that the refund feature partially negates the purpose of the annuity.

In this case, since the original poster has substantial assets, and wants to leave money to heirs, in particular a special needs child, an annuity is less likely to make sense.

Finally, the original poster has a substantial amount of life insurance (paying $50,000 a year in premiums). Life insurance and annuities will offset each other, less the transaction costs, like betting on both teams in the same game.
Topic Author
David_w
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Re: Immediate Annuity, opinions wanted

Post by David_w »

Thanks, I edited my post and included the format you suggested along with some additional info.
galawdawg wrote: Sun Jun 13, 2021 7:59 am
David_w wrote: Sun Jun 13, 2021 6:29 am I am not ready for this just yet. I am 59 yrs old, own my own business and trying to figure out how much money I will need to retire. I was speaking with my advisor at Fidelity and as part of a retirement plan he suggested an immediate annuity. I figure our expenses will be about $150K to $170K in retirement. He said: He would suggest an immediate income annuity, investing 2.4 mil to give us about $100,000 per yr income. Joint Survivor 100%, cash refund for anything not used, no COLA, not indexed & not deferred. Everything invested we get back in payments or if we die balance goes to heirs so no money is lost. Then the balance needed we can easily get from our investment.

Does this make sense to anyone? Do you need any more info in order to give your opinion? I am very concerned about having enough money to leave for my special needs son when we are gone so principle preservation is important.
By the way, one thing I suggest you consider is creating a post in the format of "Asking Portfolio Questions", https://www.bogleheads.org/wiki/Asking_ ... _questions, which will enable Bogleheads to provide more informed advice and recommendations based upon your overall financial picture. If your expenses will be $150k-$170k in retirement and if you already have (or expect to have) $2.4 million plus enough additional in your portfolio to purchase the annuity AND withdraw another $50k-$70k per year, you may be in excellent shape.

Bogleheads may also have suggestions on strategies to meet your retirement spending needs and provide a means for the support for your special needs son after your passing (such as a special needs trust).
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David_w
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Re: Immediate Annuity, opinions wanted

Post by David_w »

At the point I have enough to retire I will be cutting back on life insurance (currently 3 Mil on me & not sure how much on my wife). Maybe $500K or 1 Mil on me and my wife has 1 Mil universal policy for my son.
bsteiner wrote: Mon Jun 14, 2021 1:56 pm An annuity is insurance. It protects against the risk of living too long and running out of money, or living meagerly for fear of living too long and running out of money.

Like any form of insurance, there's a cost to an annuity, since it costs something to run the insurance company. The present value of the expected payments is less than the premium.
mr_brightside wrote: Mon Jun 14, 2021 1:29 pm ...
there are pre-packaged conservative mutual funds like Target Date Funds (pick the correct year) or Life Strategy Funds that can be conservative -- adequately diversified with low fees -- that could give you a moderate chance at growth but also decent preservation of capital. but your advisor won't make a commission on those so I doubt they'll get recommended.
...
Any reasonable asset allocation will most likely do better than an annuity. However, at the cost of most likely ending up worse off, the annuity guarantees the result.

The annuity also lets someone (at least figuratively) spend every last penny of his/her wealth during lifetime, since there will always be another check coming in each month.

Note that the refund feature partially negates the purpose of the annuity.

In this case, since the original poster has substantial assets, and wants to leave money to heirs, in particular a special needs child, an annuity is less likely to make sense.

Finally, the original poster has a substantial amount of life insurance (paying $50,000 a year in premiums). Life insurance and annuities will offset each other, less the transaction costs, like betting on both teams in the same game.
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galawdawg
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Re: Immediate Annuity, opinions wanted

Post by galawdawg »

Congratulations on your success and on having a comprehensive estate plan.

From the numbers I see, even if you have no further accumulations and retire with about $4.7 million, your high estimate of annual spending in retirement of $170,000 is a withdrawal rate of 3.6%. If you manage to accumulate $1 million more between now and then, your withdrawal rate would be just 3%. That only counts your portfolio. Any income you receive in retirement, such as social security, reduces your withdrawal rate even further.

As others suggested, you may want to consider an annuity down the road when payouts are better and when you are further into retirement. Age seventy might be a good time to check again (and get several quotes from various providers, not just Fidelity). As far as leaving funds for your special needs child after you and your wife pass, is the Special Needs Trust listed as the/a beneficiary of your million life insurance policies?

May I ask why you have about 50% of your portfolio in cash? That is a tremendous drag on your returns if you aren't holding it for short-term spending needs. If we assume your Fidelity Managed Account is 60% equities/40% bonds, your allocation (back of envelope estimate) appears to be on the order of:

30% equities (of which about 35% are individual stocks)
20% bonds
50% cash

So your overall allocation is as conservative as it gets (many retirees are more aggressive than that) and yet having a third of your equity holdings in individual stocks is quite risky (at least by Bogleheads standards). Is that an allocation you are comfortable with?
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Re: Immediate Annuity, opinions wanted

Post by David_w »

My Fidelity managed account is about 73% equities/27% bonds

Although the cash is part of my overall assets, in my mind it isn't part of my portfolio. It is a safety net. I never intended to have it that much though. It just always seemed like the market was too high to put more in (I know, can't time it). I am not considering buying some small homes in a retirement community to rent out so I will have that as income for later on. The only thing is everything is so expensive. I would like to keep about 1 million in cash, it just makes me feel safer.

How do you figure 1/3 of my equity holdings is in individual stocks? Or are you speaking specifically of the stocks I inherited?

And yes, our wills split everything between a trust for my oldest son (except we will leave him about $100,000 in cash) and the special needs trust for my younger son. The reason for the trust for my oldest son is I don't want to see him lose everything if he should ever get divorced or run into financial problems.
galawdawg wrote: Mon Jun 14, 2021 3:45 pm Congratulations on your success and on having a comprehensive estate plan.

From the numbers I see, even if you have no further accumulations and retire with about $4.7 million, your high estimate of annual spending in retirement of $170,000 is a withdrawal rate of 3.6%. If you manage to accumulate $1 million more between now and then, your withdrawal rate would be just 3%. That only counts your portfolio. Any income you receive in retirement, such as social security, reduces your withdrawal rate even further.

As others suggested, you may want to consider an annuity down the road when payouts are better and when you are further into retirement. Age seventy might be a good time to check again (and get several quotes from various providers, not just Fidelity). As far as leaving funds for your special needs child after you and your wife pass, is the Special Needs Trust listed as the/a beneficiary of your million life insurance policies?

May I ask why you have about 50% of your portfolio in cash? That is a tremendous drag on your returns if you aren't holding it for short-term spending needs. If we assume your Fidelity Managed Account is 60% equities/40% bonds, your allocation (back of envelope estimate) appears to be on the order of:

30% equities (of which about 35% are individual stocks)
20% bonds
50% cash

So your overall allocation is as conservative as it gets (many retirees are more aggressive than that) and yet having a third of your equity holdings in individual stocks is quite risky (at least by Bogleheads standards). Is that an allocation you are comfortable with?
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Re: Immediate Annuity, opinions wanted

Post by galawdawg »

David_w wrote: Mon Jun 14, 2021 6:40 pm My Fidelity managed account is about 73% equities/27% bonds

Although the cash is part of my overall assets, in my mind it isn't part of my portfolio. It is a safety net. I never intended to have it that much though. It just always seemed like the market was too high to put more in (I know, can't time it). I am not considering buying some small homes in a retirement community to rent out so I will have that as income for later on. The only thing is everything is so expensive. I would like to keep about 1 million in cash, it just makes me feel safer.

How do you figure 1/3 of my equity holdings is in individual stocks? Or are you speaking specifically of the stocks I inherited?

And yes, our wills split everything between a trust for my oldest son (except we will leave him about $100,000 in cash) and the special needs trust for my younger son. The reason for the trust for my oldest son is I don't want to see him lose everything if he should ever get divorced or run into financial problems.
galawdawg wrote: Mon Jun 14, 2021 3:45 pm Congratulations on your success and on having a comprehensive estate plan.

From the numbers I see, even if you have no further accumulations and retire with about $4.7 million, your high estimate of annual spending in retirement of $170,000 is a withdrawal rate of 3.6%. If you manage to accumulate $1 million more between now and then, your withdrawal rate would be just 3%. That only counts your portfolio. Any income you receive in retirement, such as social security, reduces your withdrawal rate even further.

As others suggested, you may want to consider an annuity down the road when payouts are better and when you are further into retirement. Age seventy might be a good time to check again (and get several quotes from various providers, not just Fidelity). As far as leaving funds for your special needs child after you and your wife pass, is the Special Needs Trust listed as the/a beneficiary of your million life insurance policies?

May I ask why you have about 50% of your portfolio in cash? That is a tremendous drag on your returns if you aren't holding it for short-term spending needs. If we assume your Fidelity Managed Account is 60% equities/40% bonds, your allocation (back of envelope estimate) appears to be on the order of:

30% equities (of which about 35% are individual stocks)
20% bonds
50% cash

So your overall allocation is as conservative as it gets (many retirees are more aggressive than that) and yet having a third of your equity holdings in individual stocks is quite risky (at least by Bogleheads standards). Is that an allocation you are comfortable with?
Your revised first post indicated you have about $482k held in individual stocks (inherited and otherwise). As I mentioned, I assumed just for quick calculating purposes that your Fidelity managed account was 60/40. Even with it being 73/27, you have about $1.75 million in equity which puts your individual stock holdings at 28% of your equity holdings and that is assuming that all of the equity holdings in your managed accounts are index funds and not individual stocks.

Again, it appears from the outside looking in that you have contradictory investing strategies. You have an incredibly conservative overall allocation, a huge cash drag equal to FIFTEEN (15) years of retirement expenses and you are not yet retired! On the other hand, a large percentage of your very small allocation to equity is held in individual stocks and you are talking about sinking a bunch of money into rental property to generate income. You know your own willingness, ability and need to take risk and you obviously have done well accumulating a sizeable portfolio. But I might consider setting aside two years worth of expenses in cash, maybe even three, and then getting the rest of that cash invested. You may have a thirty year or longer period of retirement and that much cash will put a serious crimp in your retirement income. I'd also recommend you take a serious look at your asset allocation to be sure that such a conservative allocation is where you want to be.

One additional thing to consider concerning your thoughts about purchasing rental properties for retirement income is whether it is better for your heirs, including your special needs son, to inherit a portfolio of rental property or a portfolio of low-cost index funds.

Again....just food for thought!
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Re: Immediate Annuity, opinions wanted

Post by David_w »

Thanks all, you have given me a lot to think about that I didn't consider and I appreciate you all.
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Re: Immediate Annuity, opinions wanted

Post by skeptical »

Quick observation:

Fidelity always suggests annuities, even with sub 3% withdrawal rates.

You have $5M, need $170K, have 30-35 years to go. At 3.5% this is somewhat safe, but not for your principal, so party annuitizing could make sense, however you take on significant inflation risk.

I could not find social security in your posts, assume conservatively $36,000 per year, probably more (you seem to have high income). You will also save $15K a year in health insurance once you reach 65 and go on medicare.

This brings you down to a long term need of $120,000 per year, which is 2.5% withdrawal rate, which is a safe, almost perpetual, rate while keeping principal intact. You do not need an annuity at this withdrawal rate.

Also, keep in mind, you probably will spend less than you think long term, though probably more short term, when you retire.
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Will I be able to generate enough income?

Post by David_w »

[Thread merged into here --admin LadyGeek]

I am negotiating the sale of my business. We have come to verbal terms we agree on as far as price and payout. Now I am worried if I will be able to generate enough income to live on. Both companies I use to manage investments (Fidelity and Chase/JP Morgan) say it won't be a problem but I am always skeptical. If all goes as planned I will have about 6.5 million total between what I already have in investments and additional from the sale (after tax). Most of current investments is in taxable accounts. I am 59 years old. I want to have about $180,000 to cover all expenses.

With 6.5 million to invest, can I generate enough to cover $180,000/yr in expenses and preserve the principal with some growth. Not looking to put money into an annuity. Opinions welcome and needed. I am very nervous.
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Re: Will I be able to generate enough income?

Post by Wiggums »

Back of the napkin calculation says you have enough. Your spending is high, but i’m going out on a limb here by assuming you will collect social security, spend a little less when you are much older and you will be flexible on your spending an hour down market.
Last edited by Wiggums on Fri Jul 09, 2021 7:42 pm, edited 2 times in total.
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Re: Will I be able to generate enough income?

Post by capjak »

I agree with Fidelity/JP Morgan..... you should be able to generate enough to sustain $180,000 after taxes by withdrawing 3.5% from your investments every year and adjusting for inflation each year. 6.5 million x 3.5% gives you $227,500 (assuming taxes no more than 48,000 per year, you should set up your investments to be tax efficient)for life without any Social Security or pension.


Retirement income can be a combination of a lot of sources (dividends, selling stock, selling bonds, interest or purchasing a SPIA).

Read the WIKI's, search retirement withdrawal strategies (Variable Percent Withdrawal for example).
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Re: Will I be able to generate enough income?

Post by jarjarM »

~2.8% distribution, I think it's fairly doable, especially if you're okay with eating into the principal a bit at time.
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Watty
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Re: Will I be able to generate enough income?

Post by Watty »

David_w wrote: Fri Jul 09, 2021 7:18 pm I am 59 years old. I want to have about $180,000 to cover all expenses.
For clarification be sure to include taxes in your calculations just like any other expense. If you want to be able to spend $180K a year you will more income than that to have $180K left after paying taxes.
David_w wrote: Fri Jul 09, 2021 7:18 pm With 6.5 million to invest, can I generate enough to cover $180,000/yr in expenses and preserve the principal with some growth.
As a prior post mentioned you income need will go down when you start Social Security and it will likely also go down when you start Medicare since your health insurance cost will also decline.

You can check this web site to see what the optimal Social Security claiming strategy is.

https://opensocialsecurity.com/
David_w wrote: Fri Jul 09, 2021 7:18 pm With 6.5 million to invest, can I generate enough to cover $180,000/yr in expenses and preserve the principal with some growth.


Preserving the principal is a really high bar especially if you also want the principal to also keep up with inflation.

You can play with your numbers on this website to see how you would have done in the past.

https://firecalc.com/

One thing to keep in mind when using retirement calculators like this is "failure" does not mean that end up broke and homeless, it just means that you might need to reduce your spending by 10% when you are 80 years old.
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Re: Will I be able to generate enough income?

Post by TheDDC »

David_w wrote: Fri Jul 09, 2021 7:18 pm I am negotiating the sale of my business. We have come to verbal terms we agree on as far as price and payout. Now I am worried if I will be able to generate enough income to live on. Both companies I use to manage investments (Fidelity and Chase/JP Morgan) say it won't be a problem but I am always skeptical. If all goes as planned I will have about 6.5 million total between what I already have in investments and additional from the sale (after tax). Most of current investments is in taxable accounts. I am 59 years old. I want to have about $180,000 to cover all expenses.

With 6.5 million to invest, can I generate enough to cover $180,000/yr in expenses and preserve the principal with some growth. Not looking to put money into an annuity. Opinions welcome and needed. I am very nervous.
What on earth is costing you $180k year of expenses? That's quite a bit high, like on the order of double or triple. I would say focus on cutting those expenses before being so worried about generating income.

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Re: Will I be able to generate enough income?

Post by bloom2708 »

Read the book “ Die With Zero” by Bill Perkins.

How about spend $200k and be ok with your portfolio slowly getting smaller.

Spend, give, live. At 59 you have “work” to do to reduce the pile.
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Re: Will I be able to generate enough income?

Post by jfave33 »

I don't think you are allowed to be worried with $6.5m!

Just a quick calc and you are under 3% withdrawal. Should be more than fine.
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Re: Will I be able to generate enough income?

Post by venkman »

David_w wrote: Fri Jul 09, 2021 7:18 pm With 6.5 million to invest, can I generate enough to cover $180,000/yr in expenses and preserve the principal with some growth. Not looking to put money into an annuity. Opinions welcome and needed. I am very nervous.
Principal preservation and growth are at opposite ends of the spectrum. A 2.8% withdrawal rate is pretty safe, in the sense that you're very unlikely to outlive your money. It's not at all guaranteed that your balance will grow, especially given current high equity valuations and low bond yields.

I'd seriously reconsider an annuity for at least some of the fixed income portion of the portfolio. A 59-year-old male can get a SPIA with a ~5% payout. Annuitizing, say, $2M gets you $100k/year, and the remaining $4.5M only has to produce 1.8% in income each year, and grow enough to cover inflation. And you can afford to be more aggressive with that $4.5M, because the annuity is producing guaranteed income.
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Re: Will I be able to generate enough income?

Post by David_w »

Wiggums wrote: Fri Jul 09, 2021 7:39 pm Back of the napkin calculation says you have enough. Your spending is high, but i’m going out on a limb here by assuming you will collect social security, spend a little less when you are much older and you will be flexible on your spending an hour down market.
That was my spending in 2020 which includes $53,000 for life insurance (about 4 million in different policies for my wife and I both) and about $32,000 a year for health insurance (going up every year). Have an 18 yr old at home on the autism spectrum and want to have principal left to generate income for him
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Re: Will I be able to generate enough income?

Post by BillWalters »

Only on bogleheads.
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Re: Will I be able to generate enough income?

Post by David_w »

TheDDC wrote: Fri Jul 09, 2021 8:57 pm What on earth is costing you $180k year of expenses? That's quite a bit high, like on the order of double or triple. I would say focus on cutting those expenses before being so worried about generating income.

-TheDDC
$53,000/yr for life insurance and about $32,000/yr for health insurance
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Re: Will I be able to generate enough income?

Post by David_w »

bloom2708 wrote: Fri Jul 09, 2021 9:04 pm Read the book “ Die With Zero” by Bill Perkins.

How about spend $200k and be ok with your portfolio slowly getting smaller.

Spend, give, live. At 59 you have “work” to do to reduce the pile.
I have a son with autism and not sure what his earning ability will be. I need to make sure is is taken care of financially so he isn't a financial burden on his brother. It is the unknown that keeps me up at night. If I didn't have to plan for that I wouldn't be worried.
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Re: Will I be able to generate enough income?

Post by travelnut11 »

I'm so confused. What life insurance costs $53K per year? And why does someone with 6.5 million dollars need this? What am I missing?
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Re: Will I be able to generate enough income?

Post by Watty »

David_w wrote: Fri Jul 09, 2021 10:20 pm Have an 18 yr old at home on the autism spectrum and want to have principal left to generate income for him
I know nothing about them but if you search the forums for "special needs trust" you will find a number of threads about these by people that have similar situations that might give you some insights into how they are handling their finances.

There is a search box in the top right corner of most of the web pages.
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Re: Will I be able to generate enough income?

Post by JoeRetire »

David_w wrote: Fri Jul 09, 2021 7:18 pm With 6.5 million to invest, can I generate enough to cover $180,000/yr in expenses and preserve the principal with some growth.
Probably.
Just remember: it's not a lie if you believe it.
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Re: Will I be able to generate enough income?

Post by JoeRetire »

David_w wrote: Fri Jul 09, 2021 10:34 pm I have a son with autism and not sure what his earning ability will be. I need to make sure is is taken care of financially so he isn't a financial burden on his brother. It is the unknown that keeps me up at night. If I didn't have to plan for that I wouldn't be worried.
You should be working with both a competent financial advisor and an estate attorney well versed in special needs trusts. Let them do the worrying for you.

Paying $53,000/year for life insurance likely doesn't make financial sense.
Just remember: it's not a lie if you believe it.
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Re: Will I be able to generate enough income?

Post by David_w »

JoeRetire wrote: Sat Jul 10, 2021 5:15 am
You should be working with both a competent financial advisor and an estate attorney well versed in special needs trusts. Let them do the worrying for you.

Paying $53,000/year for life insurance likely doesn't make financial sense.
I do work with both. We set up a special needs trust. I have 2 investment advisors I work with who say it won't be a problem but I feel like they just want more money to handle. Maybe I should talk with a fee only financial advisor. As far as the life insurance goes we have about 4 or 5 million in coverage between my wife and I (mostly universal). It was needed in my opinion. Afterwards I may cut back a little on that
Last edited by David_w on Sat Jul 10, 2021 8:12 pm, edited 2 times in total.
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JoeRetire
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Re: Will I be able to generate enough income?

Post by JoeRetire »

David_w wrote: Sat Jul 10, 2021 6:17 amI have 2 investment advisors I work with who say it won't be a problem but I feel like they just want more money to handle. Maybe I should talk with a fee only financial advisor.
Having an advisor whose advice you don't trust seems bad to me.
As far as the life insurance goes we have about 4 or 45 million in coverage between my wife and I (mostly universal). It was needed in my opinion. Afterwards I may cut back a little on that
Okay.
Just remember: it's not a lie if you believe it.
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