Just Bought an Annuity

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Topic Author
TravelforFun
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Just Bought an Annuity

Post by TravelforFun »

After months of consideration, we pulled the trigger last month and bought an annuity policy from New York Life. We chose:

- The premium of $250K because this is the limit the Texas Life & Health Insurance Guaranty Association would cover.

- Single Premium Immediate Annuity (SPIA), Joint Life with Cash Refund and 2% COLA. That means if I die first, my wife would continue to receive the monthly payments until she dies (Joint Life). If we both die before the sum of our annuity payments reaches $250K, our beneficiaries would receive the difference (Cash Refund).

This is the most conservative type of annuity you can get and hence, the payout is smaller than other policies I looked into but this is what my wife insisted. I am 67, my wife is 63 and we would receive $908 a month the first year which represents 4.4% of the $250K. The 2% COLA will make this rate grow.

The first annuity payment was deposited into our checking account today. So far so good!

We will pay taxes on the annuity payments since I used IRA money to pay the premium, but that also means the $250K have been removed from the RMD equation which I like very much.

We intend to purchase a similar SPIA next year. A ladder of four SPIAs and two social security income will take care of our expenses including a large travel budget and two long term care insurance policies. The rest of our asset will glide up to 80/20 and will be enjoyed by our heirs.

TravelforFun
Last edited by TravelforFun on Tue Apr 02, 2019 9:46 pm, edited 3 times in total.
Admiral
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Re: Just Bought an Annuity

Post by Admiral »

Good luck to you. Would you mind sharing:

Your portfolio balance and where the funds are located?

Your expected or presumed SS payment(s)?

You annual or monthly expenses?

Round numbers are fine.

If not, no worries.
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Nate79
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Re: Just Bought an Annuity

Post by Nate79 »

TravelforFun wrote: Tue Apr 02, 2019 1:07 pm After months of consideration, we pulled the trigger last month and bought an annuity policy from New York Life. We chose:

- The premium of $250K because this is the limit the Texas Life & Health Insurance Guaranty Association would cover.

- Single Premium Immediate Annuity (SPIA), Joint Life with Cash Refund and 2% COLA. That means if I die first, my wife would continue to receive the monthly payments until she dies. If we both die before the sum of our annuity payments reaches $250K, our beneficiaries would receive the difference.

This is the most conservative type of annuity you can get and hence, the payout is smaller than other policies I looked into but this is what my wife insisted. I am 67, my wife is 63 and we would receive $908 the first year which represents 4.4% of the $250K. The 2% COLA will make this rate grow.

The first annuity payment was deposited into our checking account today. So far so good!

We will pay taxes on the annuity payments since I used IRA money to pay the premium, but that also means the $250K has been removed from the RMD equation which I like very much.

We intend to purchase a similar SPIA next year. A ladder of four SPIAs and two social security income will take care of our expenses including a large travel budget and two long term care insurance policies. The rest of our asset will glide up to 80/20 and will be enjoyed by our heirs.

TravelforFun
What was the extra cost for the cash refund part of the policy?
Greenman72
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Re: Just Bought an Annuity

Post by Greenman72 »

Out of curiosity....it seems that you intentionally did NOT choose to go with a variable annuity. May I ask why not?

(Note--I am an advisor, and I do periodically sell VA's when I deem them appropriate, and you seem like a good candidate. I am NOT soliciting or advertising or promoting my services. Just genuinely curious.)
Topic Author
TravelforFun
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Re: Just Bought an Annuity

Post by TravelforFun »

Admiral wrote: Tue Apr 02, 2019 1:37 pm Good luck to you. Would you mind sharing:

Your portfolio balance and where the funds are located?
I rather not disclose this.

Your expected or presumed SS payment(s)?
Receiving spousal benefits now ($525 a month) and will receive my own age-70 benefits in three years ($3,600 a month).

You annual or monthly expenses? $
5,000 to $6,000 a month.


Round numbers are fine.

If not, no worries.
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TravelforFun
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Re: Just Bought an Annuity

Post by TravelforFun »

Greenman72 wrote: Tue Apr 02, 2019 1:42 pm Out of curiosity....it seems that you intentionally did NOT choose to go with a variable annuity. May I ask why not?

(Note--I am an advisor, and I do periodically sell VA's when I deem them appropriate, and you seem like a good candidate. I am NOT soliciting or advertising or promoting my services. Just genuinely curious.)
I like the simplicity and certainty of an SPIA. I think most folks on this forum agree with this.

TravelforFun
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TravelforFun
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Re: Just Bought an Annuity

Post by TravelforFun »

Nate79 wrote: Tue Apr 02, 2019 1:38 pm What was the extra cost for the cash refund part of the policy?
The cash refund only reduced my monthly benefit by about $20, but the 2% COLA reduced it by $200.

TravelforFun
WillRetire
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Re: Just Bought an Annuity

Post by WillRetire »

Thank you for posting this. I am very interested in annuities as guaranteed income that I don't have to manage in my old age, at a rate of return that is fair and commensurate with safe/riskless investments. NYLife is top-rated too for solvency.

By my calculations, yours will net out to an annual RoR of 3.57% if the payouts continue for 28 years (your wife's age of 90); 4.52% if the payouts continue 33 years. That is akin to locking in that investment RoR for a safe investment.

The risk is if inflation & interest rates are much much higher than now. But that can be mitigated if you have an equities portfolio as well.

Is the COLA rate fixed at 2%?
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Re: Just Bought an Annuity

Post by Gill »

TravelforFun wrote: Tue Apr 02, 2019 1:07 pm This is the most conservative type of annuity you can get...
For sure. It's amazing the haircut you take for the COLA and the refund features. I'm a big fan of SPIA's and have purchased a number of them, all pure annuities with neither of these added features. My portfolio provides the inflation protection and possible inheritance for my family. You might review this again at your next purchase.
Gill
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TravelforFun
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Re: Just Bought an Annuity

Post by TravelforFun »

WillRetire wrote: Tue Apr 02, 2019 4:30 pm Is the COLA rate fixed at 2%?
My COLA rate is fixed at 2%. You can get a fixed 3% or 4% if you want to.

TravelforFun
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TravelforFun
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Re: Just Bought an Annuity

Post by TravelforFun »

Gill wrote: Tue Apr 02, 2019 4:31 pm
TravelforFun wrote: Tue Apr 02, 2019 1:07 pm This is the most conservative type of annuity you can get...
For sure. It's amazing the haircut you take for the COLA and the refund features. I'm a big fan of SPIA's and have purchased a number of them, all pure annuities with neither of these added features. My portfolio provides the inflation protection and possible inheritance for my family. You might review this again at your next purchase.
Gill
I sure will. Thanks Gill.

TravelforFun
GibsonL6s
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Re: Just Bought an Annuity

Post by GibsonL6s »

I can see skipping the COLA but not the cash refund or period certain. These seem like a reasonable way to assure the insurance company does not get an outsized return while still providing lifetime income.
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Re: Just Bought an Annuity

Post by Taylor Larimore »

Greenman72 wrote: Tue Apr 02, 2019 1:42 pm Out of curiosity....it seems that you intentionally did NOT choose to go with a variable annuity. May I ask why not?
Greenman72:

This is why I would never buy a Variable Annuity:

ONE FAULTY INVESTMENT

Best wishes.
Taylor
"Simplicity is the master key to financial success." -- Jack Bogle
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HomerJ
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Re: Just Bought an Annuity

Post by HomerJ »

Greenman72 wrote: Tue Apr 02, 2019 1:42 pm Out of curiosity....it seems that you intentionally did NOT choose to go with a variable annuity. May I ask why not?

(Note--I am an advisor, and I do periodically sell VA's when I deem them appropriate, and you seem like a good candidate. I am NOT soliciting or advertising or promoting my services. Just genuinely curious.)
Because, in general, VAs are bad investments. Fees are too high.

The only "good" annuity is a SPIA, which can be used like the OP did. To set up a lifetime income stream, like a do-it-yourself pension.
A Goldman Sachs associate provided a variety of detailed explanations, but then offered a caveat, “If I’m being dead-### honest, though, nobody knows what’s really going on.”
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Re: Just Bought an Annuity

Post by Dottie57 »

TravelforFun wrote: Tue Apr 02, 2019 3:29 pm
Greenman72 wrote: Tue Apr 02, 2019 1:42 pm Out of curiosity....it seems that you intentionally did NOT choose to go with a variable annuity. May I ask why not?

(Note--I am an advisor, and I do periodically sell VA's when I deem them appropriate, and you seem like a good candidate. I am NOT soliciting or advertising or promoting my services. Just genuinely curious.)
I like the simplicity and certainty of an SPIA. I think most folks on this forum agree with this.

TravelforFun
+1
smitcat
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Re: Just Bought an Annuity

Post by smitcat »

TravelforFun wrote: Tue Apr 02, 2019 3:28 pm
Admiral wrote: Tue Apr 02, 2019 1:37 pm Good luck to you. Would you mind sharing:

Your portfolio balance and where the funds are located?
I rather not disclose this.

Your expected or presumed SS payment(s)?
Receiving spousal benefits now ($525 a month) and will receive my own age-70 benefits in three years ($3,600 a month).

You annual or monthly expenses? $
5,000 to $6,000 a month.


Round numbers are fine.

If not, no worries.
"Receiving spousal benefits now ($525 a month) and will receive my own age-70 benefits in three years ($3,600 a month"
Does this mean that your spouse is currently receiving $525/mo now and your combined SS at your age 70 in three years is $3,600/mo?
Or does it mean that your SS at age 70 in 3 years will be $3,600/mo and your spousal SS will also go up?
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TravelforFun
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Re: Just Bought an Annuity

Post by TravelforFun »

smitcat wrote: Tue Apr 02, 2019 5:19 pm
"Receiving spousal benefits now ($525 a month) and will receive my own age-70 benefits in three years ($3,600 a month"
Does this mean that your spouse is currently receiving $525/mo now and your combined SS at your age 70 in three years is $3,600/mo?
Or does it mean that your SS at age 70 in 3 years will be $3,600/mo and your spousal SS will also go up?
Nope.

My wife filed at 62 last year and she gets $750 a month. I filed for spousal benefits a few months later at my age 66 and get $525 a month. In three years, I will file for my own benefits at age 70 and get $3,600 a month; then my wife would file for her spousal benefits and get $1,000 a month.

TravelforFun
Last edited by TravelforFun on Tue Apr 02, 2019 8:38 pm, edited 1 time in total.
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TravelforFun
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Re: Just Bought an Annuity

Post by TravelforFun »

Taylor Larimore wrote: Tue Apr 02, 2019 5:06 pm
Greenman72 wrote: Tue Apr 02, 2019 1:42 pm Out of curiosity....it seems that you intentionally did NOT choose to go with a variable annuity. May I ask why not?
Greenman72:

This is why I would never buy a Variable Annuity:

ONE FAULTY INVESTMENT

Best wishes.
Taylor
Wow!
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Re: Just Bought an Annuity

Post by smitcat »

TravelforFun wrote: Tue Apr 02, 2019 5:44 pm
smitcat wrote: Tue Apr 02, 2019 5:19 pm
"Receiving spousal benefits now ($525 a month) and will receive my own age-70 benefits in three years ($3,600 a month"
Does this mean that your spouse is currently receiving $525/mo now and your combined SS at your age 70 in three years is $3,600/mo?
Or does it mean that your SS at age 70 in 3 years will be $3,600/mo and your spousal SS will also go up?
Nope.

My wife filed at 62 last year, she gets $750 a month. I filed for spousal benefits a few months later at my age 66 and get $525 a month. In three years, I will file for my own benefits at age 70 and get $3,600 a month; then my wife would file for her spousal benefits and get $1,000 a month.

TravelforFun
That is great - then you do not need additional annuities to reach your goal of 5-$6K per month.
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Re: Just Bought an Annuity

Post by TravelforFun »

smitcat wrote: Tue Apr 02, 2019 6:36 pm That is great - then you do not need additional annuities to reach your goal of 5-$6K per month.
A lot of people forget about taxes. I need about $8,000 a month in income in order to have about $6,000 a month in spending money.

TravelforFun
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Re: Just Bought an Annuity

Post by dknightd »

Congratulations!
If you value a bird in the hand, pay off the loan. If you are willing to risk getting two birds (or none) from the market, invest the funds.
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Re: Just Bought an Annuity

Post by bberris »

GibsonL6s wrote: Tue Apr 02, 2019 4:57 pm I can see skipping the COLA but not the cash refund or period certain. These seem like a reasonable way to assure the insurance company does not get an outsized return while still providing lifetime income.
Why do you care if the insurance company gets lucky? Would it bother you if your neighbor won the lottery and you lost? You are paying for the period certain, and if you are both dead, you really won't care. You bought the annuity to get lifetime payments. You are reducing that payment by getting period certain.
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Mlm
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Re: Just Bought an Annuity

Post by Mlm »

TravelforFun wrote: Tue Apr 02, 2019 7:04 pm
A lot of people forget about taxes. I need about $8,000 a month in income in order to have about $6,000 a month in spending money.

TravelforFun
This got me wondering if an annuity can withhold taxes for you. I know that can be done with a RMD.
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Re: Just Bought an Annuity

Post by Stinky »

I think you made a good purchase, based on a well-thought-out plan.
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Re: Just Bought an Annuity

Post by Gill »

Mlm wrote: Tue Apr 02, 2019 7:48 pm
TravelforFun wrote: Tue Apr 02, 2019 7:04 pm
A lot of people forget about taxes. I need about $8,000 a month in income in order to have about $6,000 a month in spending money.

TravelforFun
This got me wondering if an annuity can withhold taxes for you. I know that can be done with a RMD.
Sure it can but I find it cleaner and more flexible to just make quarterly payments.
Gill
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Re: Just Bought an Annuity

Post by bhsince87 »

Sounds like a solid plan to me.

But you brought up something I've never considered.

If you buy another $250k one next year from the same company, is it fully insured as well? Or do you have to go to another company for full insurance?
"If ye love wealth better than liberty, the tranquility of servitude better than the animating contest of freedom, go home from us in peace." Samuel Adams
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Re: Just Bought an Annuity

Post by Gill »

bhsince87 wrote: Tue Apr 02, 2019 8:00 pm Sounds like a solid plan to me.

But you brought up something I've never considered.

If you buy another $250k one next year from the same company, is it fully insured as well? Or do you have to go to another company for full insurance?
Have to go to another carrier.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal
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TravelforFun
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Re: Just Bought an Annuity

Post by TravelforFun »

bhsince87 wrote: Tue Apr 02, 2019 8:00 pm Sounds like a solid plan to me.

But you brought up something I've never considered.

If you buy another $250k one next year from the same company, is it fully insured as well? Or do you have to go to another company for full insurance?
Next year, we'll buy $250K SPIA from the same company (New York Life) for my wife. Then we'll have to look for another company on subsequent annuities.

TravelforFun
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Re: Just Bought an Annuity

Post by bhsince87 »

TravelforFun wrote: Tue Apr 02, 2019 8:24 pm
bhsince87 wrote: Tue Apr 02, 2019 8:00 pm Sounds like a solid plan to me.

But you brought up something I've never considered.

If you buy another $250k one next year from the same company, is it fully insured as well? Or do you have to go to another company for full insurance?
Next year, we'll buy $250K SPIA from the same company (New York Life) for my wife. Then we'll have to look for another company on subsequent annuities.

TravelforFun

Ahhh, make sense. Thanks!
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dcare
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Re: Just Bought an Annuity

Post by dcare »

TravelforFun wrote: Tue Apr 02, 2019 7:04 pm
A lot of people forget about taxes. I need about $8,000 a month in income in order to have about $6,000 a month in spending money.

TravelforFun
I apologize for the slight tangent but have a question on your taxes. I ask because my planned income will be almost the same at $100K, but my tax calculation (FED + MN State taxes) is as follows 100K - 25.3K (perhaps your standard deductions are less?) = 74.7K. Fed and state taxes are roughly 15K, not 24K as per your statement.
Am I missing something?
Dcare.
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Re: Just Bought an Annuity

Post by 2pedals »

Thanks for sharing I like it, a well thought out plan. I think you will be sleeping well at night and will be enjoying your travels. :beer
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TravelforFun
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Re: Just Bought an Annuity

Post by TravelforFun »

dcare wrote: Tue Apr 02, 2019 8:49 pm
TravelforFun wrote: Tue Apr 02, 2019 7:04 pm
A lot of people forget about taxes. I need about $8,000 a month in income in order to have about $6,000 a month in spending money.

TravelforFun
I apologize for the slight tangent but have a question on your taxes. I ask because my planned income will be almost the same at $100K, but my tax calculation (FED + MN State taxes) is as follows 100K - 25.3K (perhaps your standard deductions are less?) = 74.7K. Fed and state taxes are roughly 15K, not 24K as per your statement.
Am I missing something?
Dcare.
I was counting property taxes as well.

TravelforFun
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Re: Just Bought an Annuity

Post by DrGoogle2017 »

Thanks for sharing.
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Re: Just Bought an Annuity

Post by wootwoot »

bberris wrote: Tue Apr 02, 2019 7:41 pm
GibsonL6s wrote: Tue Apr 02, 2019 4:57 pm I can see skipping the COLA but not the cash refund or period certain. These seem like a reasonable way to assure the insurance company does not get an outsized return while still providing lifetime income.
Why do you care if the insurance company gets lucky? Would it bother you if your neighbor won the lottery and you lost? You are paying for the period certain, and if you are both dead, you really won't care. You bought the annuity to get lifetime payments. You are reducing that payment by getting period certain.
Does it bother you that the OP wants the best for their own family?
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Re: Just Bought an Annuity

Post by FrugalInvestor »

Greenman72 wrote: Tue Apr 02, 2019 1:42 pm Out of curiosity....it seems that you intentionally did NOT choose to go with a variable annuity. May I ask why not?

(Note--I am an advisor, and I do periodically sell VA's when I deem them appropriate, and you seem like a good candidate. I am NOT soliciting or advertising or promoting my services. Just genuinely curious.)
Under what circumstances would you consider a variable annuity to be appropriate? Not appropriate?
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Re: Just Bought an Annuity

Post by bberris »

wootwoot wrote: Tue Apr 02, 2019 9:51 pm
bberris wrote: Tue Apr 02, 2019 7:41 pm
GibsonL6s wrote: Tue Apr 02, 2019 4:57 pm I can see skipping the COLA but not the cash refund or period certain. These seem like a reasonable way to assure the insurance company does not get an outsized return while still providing lifetime income.
Why do you care if the insurance company gets lucky? Would it bother you if your neighbor won the lottery and you lost? You are paying for the period certain, and if you are both dead, you really won't care. You bought the annuity to get lifetime payments. You are reducing that payment by getting period certain.
Does it bother you that the OP wants the best for their own family?
No, just offering in a rhetorical way advice that he asked for (i guess).
There are conflicting goals. If he wants to leave an inheritance, better to reduce the annuity purchase by the amount he wants to leave behind. That would be even more certain.
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Re: Just Bought an Annuity

Post by TheTimeLord »

bberris wrote: Tue Apr 02, 2019 7:41 pm
GibsonL6s wrote: Tue Apr 02, 2019 4:57 pm I can see skipping the COLA but not the cash refund or period certain. These seem like a reasonable way to assure the insurance company does not get an outsized return while still providing lifetime income.
Why do you care if the insurance company gets lucky? Would it bother you if your neighbor won the lottery and you lost? You are paying for the period certain, and if you are both dead, you really won't care. You bought the annuity to get lifetime payments. You are reducing that payment by getting period certain.
+1. I would care about what was the best for my situation. Can't think of why I would care whether of not it could benefit the Insurance company.
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Re: Just Bought an Annuity

Post by smitcat »

TravelforFun wrote: Tue Apr 02, 2019 7:04 pm
smitcat wrote: Tue Apr 02, 2019 6:36 pm That is great - then you do not need additional annuities to reach your goal of 5-$6K per month.
A lot of people forget about taxes. I need about $8,000 a month in income in order to have about $6,000 a month in spending money.

TravelforFun
How can that possibly be? MFJ with about $70K per year and actual tax payments of 25%?
It should not be anywhere near that number.
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Re: Just Bought an Annuity

Post by Greenman72 »

HomerJ wrote: Tue Apr 02, 2019 5:13 pm
Greenman72 wrote: Tue Apr 02, 2019 1:42 pm Out of curiosity....it seems that you intentionally did NOT choose to go with a variable annuity. May I ask why not?

(Note--I am an advisor, and I do periodically sell VA's when I deem them appropriate, and you seem like a good candidate. I am NOT soliciting or advertising or promoting my services. Just genuinely curious.)
Because, in general, VAs are bad investments. Fees are too high.

The only "good" annuity is a SPIA, which can be used like the OP did. To set up a lifetime income stream, like a do-it-yourself pension.
I fundamentally disagree with this, and with Taylor, and with the OP.

He bought a $250k SPIA, which guarantees two things: 1.) you will get a $11,000 per year with a 2% raise for ever and ever, and 2.) you lose your entire investment when you die, whether that's tomorrow or 50 years from now.

Had he bought a $250k VA, he could have gotten $14,000 per year, still be 100% invested in the market, still maintain reasonable control over his money, have the ability to take additional withdrawals, and still have a death benefit at his death.

Yes, each of these comes with a tradeoff. The $14k comes with no COLA raise, but can be overcome by participation in the market. Yes, the VA has significantly higher costs than a "straight" mutual fund portfolio, but it has better benefits. Yes, accelerated withdrawals reduce your income stream, but at least the option is there.

Had the SPIA paid out significantly higher than the VA, I would understand. But since the VA's payout is 20% higher AND you get all these other benefits, I don't see the reason for buying a SPIA.
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Re: Just Bought an Annuity

Post by smitcat »

Greenman72 wrote: Wed Apr 03, 2019 8:21 am
HomerJ wrote: Tue Apr 02, 2019 5:13 pm
Greenman72 wrote: Tue Apr 02, 2019 1:42 pm Out of curiosity....it seems that you intentionally did NOT choose to go with a variable annuity. May I ask why not?

(Note--I am an advisor, and I do periodically sell VA's when I deem them appropriate, and you seem like a good candidate. I am NOT soliciting or advertising or promoting my services. Just genuinely curious.)
Because, in general, VAs are bad investments. Fees are too high.

The only "good" annuity is a SPIA, which can be used like the OP did. To set up a lifetime income stream, like a do-it-yourself pension.
I fundamentally disagree with this, and with Taylor, and with the OP.

He bought a $250k SPIA, which guarantees two things: 1.) you will get a $11,000 per year with a 2% raise for ever and ever, and 2.) you lose your entire investment when you die, whether that's tomorrow or 50 years from now.

Had he bought a $250k VA, he could have gotten $14,000 per year, still be 100% invested in the market, still maintain reasonable control over his money, have the ability to take additional withdrawals, and still have a death benefit at his death.

Yes, each of these comes with a tradeoff. The $14k comes with no COLA raise, but can be overcome by participation in the market. Yes, the VA has significantly higher costs than a "straight" mutual fund portfolio, but it has better benefits. Yes, accelerated withdrawals reduce your income stream, but at least the option is there.

Had the SPIA paid out significantly higher than the VA, I would understand. But since the VA's payout is 20% higher AND you get all these other benefits, I don't see the reason for buying a SPIA.
"He bought a $250k SPIA, which guarantees two things: 1.) you will get a $11,000 per year with a 2% raise for ever and ever, and 2.) you lose your entire investment when you die, whether that's tomorrow or 50 years from now. "
This is not accurate - please read the OP's initial post again.
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Re: Just Bought an Annuity

Post by Greenman72 »

FrugalInvestor wrote: Tue Apr 02, 2019 9:55 pm
Greenman72 wrote: Tue Apr 02, 2019 1:42 pm Out of curiosity....it seems that you intentionally did NOT choose to go with a variable annuity. May I ask why not?

(Note--I am an advisor, and I do periodically sell VA's when I deem them appropriate, and you seem like a good candidate. I am NOT soliciting or advertising or promoting my services. Just genuinely curious.)
Under what circumstances would you consider a variable annuity to be appropriate? Not appropriate?
First--Anytime a person is considering the purchase of an annuity, I would look at a VA first, because (as we have seen) you can get better income and other better benefits out of the VA.

Second--True story--I sold my grandmother a VA. She had a huge concentrated position in one stock that she had been purchasing since the 70's. When her husband died, she got a basis step-up. So we sold the stock and purchased a VA. (She doesn't need the money. She gets plenty through other sources.)

But she didn't want to put the money in "the stock market", because she didn't want to lose money in her 80's. (I guess "the stock market" is riskier than one stock.) So I explained the death benefit to her--that this is a way to guarantee that she wouldn't lose money--she just had to die to take advantage of that guarantee. Since she doesn't need the money, she's fine with that. She just doesn't want to lose it.

Fact is--VA's have some GUARANTEES, which regular ol' mutual funds don't have. A death benefit (or "return of principal") is one of those guarantees. Whether or not we can expect some certain performance over the next year or five years or thirty years is irrelevant. Clients like to hear the G-word.
Greenman72
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Re: Just Bought an Annuity

Post by Greenman72 »

smitcat wrote: Wed Apr 03, 2019 8:31 am
Greenman72 wrote: Wed Apr 03, 2019 8:21 am
HomerJ wrote: Tue Apr 02, 2019 5:13 pm
Greenman72 wrote: Tue Apr 02, 2019 1:42 pm Out of curiosity....it seems that you intentionally did NOT choose to go with a variable annuity. May I ask why not?

(Note--I am an advisor, and I do periodically sell VA's when I deem them appropriate, and you seem like a good candidate. I am NOT soliciting or advertising or promoting my services. Just genuinely curious.)
Because, in general, VAs are bad investments. Fees are too high.

The only "good" annuity is a SPIA, which can be used like the OP did. To set up a lifetime income stream, like a do-it-yourself pension.
I fundamentally disagree with this, and with Taylor, and with the OP.

He bought a $250k SPIA, which guarantees two things: 1.) you will get a $11,000 per year with a 2% raise for ever and ever, and 2.) you lose your entire investment when you die, whether that's tomorrow or 50 years from now.

Had he bought a $250k VA, he could have gotten $14,000 per year, still be 100% invested in the market, still maintain reasonable control over his money, have the ability to take additional withdrawals, and still have a death benefit at his death.

Yes, each of these comes with a tradeoff. The $14k comes with no COLA raise, but can be overcome by participation in the market. Yes, the VA has significantly higher costs than a "straight" mutual fund portfolio, but it has better benefits. Yes, accelerated withdrawals reduce your income stream, but at least the option is there.

Had the SPIA paid out significantly higher than the VA, I would understand. But since the VA's payout is 20% higher AND you get all these other benefits, I don't see the reason for buying a SPIA.
"He bought a $250k SPIA, which guarantees two things: 1.) you will get a $11,000 per year with a 2% raise for ever and ever, and 2.) you lose your entire investment when you die, whether that's tomorrow or 50 years from now. "
This is not accurate - please read the OP's initial post again.
Which part is inaccurate?
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Re: Just Bought an Annuity

Post by David Jay »

Greenman72 wrote: Wed Apr 03, 2019 8:21 am...you lose your entire investment when you die, whether that's tomorrow or 50 years from now.
Nope, you missed the cash refund rider. That is a big reason for the lower payout, but there is a cost to get the features you want.
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Greenman72
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Re: Just Bought an Annuity

Post by Greenman72 »

smitcat wrote: Wed Apr 03, 2019 8:31 am
Greenman72 wrote: Wed Apr 03, 2019 8:21 am
HomerJ wrote: Tue Apr 02, 2019 5:13 pm
Greenman72 wrote: Tue Apr 02, 2019 1:42 pm Out of curiosity....it seems that you intentionally did NOT choose to go with a variable annuity. May I ask why not?

(Note--I am an advisor, and I do periodically sell VA's when I deem them appropriate, and you seem like a good candidate. I am NOT soliciting or advertising or promoting my services. Just genuinely curious.)
Because, in general, VAs are bad investments. Fees are too high.

The only "good" annuity is a SPIA, which can be used like the OP did. To set up a lifetime income stream, like a do-it-yourself pension.
I fundamentally disagree with this, and with Taylor, and with the OP.

He bought a $250k SPIA, which guarantees two things: 1.) you will get a $11,000 per year with a 2% raise for ever and ever, and 2.) you lose your entire investment when you die, whether that's tomorrow or 50 years from now.

Had he bought a $250k VA, he could have gotten $14,000 per year, still be 100% invested in the market, still maintain reasonable control over his money, have the ability to take additional withdrawals, and still have a death benefit at his death.

Yes, each of these comes with a tradeoff. The $14k comes with no COLA raise, but can be overcome by participation in the market. Yes, the VA has significantly higher costs than a "straight" mutual fund portfolio, but it has better benefits. Yes, accelerated withdrawals reduce your income stream, but at least the option is there.

Had the SPIA paid out significantly higher than the VA, I would understand. But since the VA's payout is 20% higher AND you get all these other benefits, I don't see the reason for buying a SPIA.
"He bought a $250k SPIA, which guarantees two things: 1.) you will get a $11,000 per year with a 2% raise for ever and ever, and 2.) you lose your entire investment when you die, whether that's tomorrow or 50 years from now. "
This is not accurate - please read the OP's initial post again.
Which part is inaccurate?

edit - nevermind. Just saw the "cash refund" part. That changes a few details about my post, but doesn't change the overall message.
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Re: Just Bought an Annuity

Post by donaldfair71 »

Greenman72 wrote: Wed Apr 03, 2019 8:37 am
FrugalInvestor wrote: Tue Apr 02, 2019 9:55 pm
Greenman72 wrote: Tue Apr 02, 2019 1:42 pm Out of curiosity....it seems that you intentionally did NOT choose to go with a variable annuity. May I ask why not?

(Note--I am an advisor, and I do periodically sell VA's when I deem them appropriate, and you seem like a good candidate. I am NOT soliciting or advertising or promoting my services. Just genuinely curious.)
Under what circumstances would you consider a variable annuity to be appropriate? Not appropriate?
First--Anytime a person is considering the purchase of an annuity, I would look at a VA first, because (as we have seen) you can get better income and other better benefits out of the VA.

Second--True story--I sold my grandmother a VA. She had a huge concentrated position in one stock that she had been purchasing since the 70's. When her husband died, she got a basis step-up. So we sold the stock and purchased a VA. (She doesn't need the money. She gets plenty through other sources.)

But she didn't want to put the money in "the stock market", because she didn't want to lose money in her 80's. (I guess "the stock market" is riskier than one stock.) So I explained the death benefit to her--that this is a way to guarantee that she wouldn't lose money--she just had to die to take advantage of that guarantee. Since she doesn't need the money, she's fine with that. She just doesn't want to lose it.

Fact is--VA's have some GUARANTEES, which regular ol' mutual funds don't have. A death benefit (or "return of principal") is one of those guarantees. Whether or not we can expect some certain performance over the next year or five years or thirty years is irrelevant. Clients like to hear the G-word.
The OP has a guarantee as well. You are comparing VA to Mutual funds here. The OP bought a SPIA.
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Re: Just Bought an Annuity

Post by dodecahedron »

Greenman72 wrote: Wed Apr 03, 2019 8:21 am Had he bought a $250k VA, he could have gotten $14,000 per year, still be 100% invested in the market, still maintain reasonable control over his money, have the ability to take additional withdrawals, and still have a death benefit at his death.

Yes, each of these comes with a tradeoff. The $14k comes with no COLA raise, but can be overcome by participation in the market. Yes, the VA has significantly higher costs than a "straight" mutual fund portfolio, but it has better benefits. Yes, accelerated withdrawals reduce your income stream, but at least the option is there.

Had the SPIA paid out significantly higher than the VA, I would understand. But since the VA's payout is 20% higher AND you get all these other benefits, I don't see the reason for buying a SPIA.
The issue I have with the VA you describe is that it seems like a very tax inefficient way to participate in the market. Withdrawals beyond basis during your life and death benefit beyond basis will be taxed as ordinary income even though they may largely stem from LTCG and qualified dividends.

Annuities seem to be at their best as substitutes for part of the fixed income component of one´s portfolio, and participation in the market is better done in a regular taxable account rather than a VA.
Last edited by dodecahedron on Wed Apr 03, 2019 8:47 am, edited 2 times in total.
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Re: Just Bought an Annuity

Post by The Wizard »

TravelforFun wrote: Tue Apr 02, 2019 5:54 pm
Taylor Larimore wrote: Tue Apr 02, 2019 5:06 pm
Greenman72 wrote: Tue Apr 02, 2019 1:42 pm Out of curiosity....it seems that you intentionally did NOT choose to go with a variable annuity. May I ask why not?
Greenman72:

This is why I would never buy a Variable Annuity:

ONE FAULTY INVESTMENT

Best wishes.
Taylor
Wow!
TIAA Immediate Variable Annuities are fine: low cost, uncomplicated, no guarantees or caps.
Portions of my monthly annuity income are based on the broad stock market (CREF Stock) and commercial real estate (TREA).
These payments tend to keep up with inflation and, in fact, have probably outpaced it since I started in 2013.

I have no particular knowledge or recommendation for Variable Annuities from companies other than TIAA...
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Re: Just Bought an Annuity

Post by Sandtrap »

TravelforFun wrote: Tue Apr 02, 2019 3:29 pm
Greenman72 wrote: Tue Apr 02, 2019 1:42 pm Out of curiosity....it seems that you intentionally did NOT choose to go with a variable annuity. May I ask why not?

(Note--I am an advisor, and I do periodically sell VA's when I deem them appropriate, and you seem like a good candidate. I am NOT soliciting or advertising or promoting my services. Just genuinely curious.)
I like the simplicity and certainty of an SPIA. I think most folks on this forum agree with this.

TravelforFun
Thanks for sharing the details and setup.
You're correct.
This is the SPIA setup that is talked about, if not encouraged when needed, the most here.

I wish more folks would post these types of things more often. Not theory. But what is actually being done by forum members.
Perhaps another specific thread. There are archived threads but a new one wouldn't hurt.
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Re: Just Bought an Annuity

Post by Sandtrap »

The Wizard wrote: Wed Apr 03, 2019 8:45 am
TravelforFun wrote: Tue Apr 02, 2019 5:54 pm
Taylor Larimore wrote: Tue Apr 02, 2019 5:06 pm
Greenman72 wrote: Tue Apr 02, 2019 1:42 pm Out of curiosity....it seems that you intentionally did NOT choose to go with a variable annuity. May I ask why not?
Greenman72:

This is why I would never buy a Variable Annuity:

ONE FAULTY INVESTMENT

Best wishes.
Taylor
Wow!
TIAA Immediate Variable Annuities are fine: low cost, uncomplicated, no guarantees or caps.
Portions of my monthly annuity income are based on the broad stock market (CREF Stock) and commercial real estate (TREA).
These payments tend to keep up with inflation and, in fact, have probably outpaced it since I started in 2013.

I have no particular knowledge or recommendation for Variable Annuities from companies other than TIAA...
FWIW, a close old super senior friend (retired university prof) has this and it has paid all his living expenses far beyond what he had into it. Not for everyone but in his case, it has worked out very well.
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Re: Just Bought an Annuity

Post by HomerJ »

Greenman72 wrote: Wed Apr 03, 2019 8:37 am
FrugalInvestor wrote: Tue Apr 02, 2019 9:55 pm
Greenman72 wrote: Tue Apr 02, 2019 1:42 pm Out of curiosity....it seems that you intentionally did NOT choose to go with a variable annuity. May I ask why not?

(Note--I am an advisor, and I do periodically sell VA's when I deem them appropriate, and you seem like a good candidate. I am NOT soliciting or advertising or promoting my services. Just genuinely curious.)
Under what circumstances would you consider a variable annuity to be appropriate? Not appropriate?
First--Anytime a person is considering the purchase of an annuity, I would look at a VA first, because (as we have seen) you can get better income and other better benefits out of the VA.
This is almost never true.

But I wouldn't have bought a SPIA with a cash refund rider nor a 2% COLA.

SPIAs usually pay more than a VA when you are looking for income every year immediately.
Last edited by HomerJ on Wed Apr 03, 2019 8:54 am, edited 2 times in total.
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