Annuity vs Managed Payout


C

Chip

Have about $400K in 401k, diversified, but just sitting there since
retirement 2 yrs ago. A broker/advisor is pushing me toward AVIVA
"IncomePlus" Fixed Deferred annuity- Indexed fund w/Lifetime Pay Rider.
I am leaning toward Vanguard's brand new Managed Payout Fund.

Looking to get ~$25K/yr from it until I'm dead. I'm 67, wife 63, in
pretty good health. Not risk adverse, but conservative.

Any advice? Googling advice seems to be all over the place.

Thanks in advance.

Chip

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J

jIM

Have about $400K in 401k, diversified, but just sitting there since
retirement 2 yrs ago.  A broker/advisor is pushing me toward AVIVA
"IncomePlus" Fixed Deferred annuity- Indexed fund w/Lifetime Pay Rider.
  I am leaning toward Vanguard's brand new Managed Payout Fund.

Looking to get ~$25K/yr from it until I'm dead.  I'm 67, wife 63, in
pretty good health.  Not risk adverse, but conservative.
Is this 400k your only source of savings?
How high is SS income?
What are yearly expenses?

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D

Dave Dodson

Have about $400K in 401k, diversified, but just sitting there since
retirement 2 yrs ago.  A broker/advisor is pushing me toward AVIVA
"IncomePlus" Fixed Deferred annuity- Indexed fund w/Lifetime Pay Rider.
  I am leaning toward Vanguard's brand new Managed Payout Fund.

Looking to get ~$25K/yr from it until I'm dead.  I'm 67, wife 63, in
pretty good health.  Not risk adverse, but conservative.

Any advice?  Googling advice seems to be all over the place.
At Fidelity.com, a fixed annuity estimator says that $400,000 buys a
joint-life, 20 year minimum, income stream of about $28,000 per year.
You might also check out Fidelity Growth and Guaranteed Income
Annuity, which is a variable annuity that initially pays out 5% per
year. On policy anniversaries, if 5% of the principal balance exceeds
your current payment, the payment ratchets up to that amount, so your
payment can increase, but it can never decrease. These are at least
worth comparing to your advisor's proposal. Disclaimer: I have no
connection to Fidelity Investments except being a satisfied customer.

Dave

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B

BreadWithSpam

Chip said:
Have about $400K in 401k, diversified, but just sitting there since
retirement 2 yrs ago. A broker/advisor is pushing me toward AVIVA
"IncomePlus" Fixed Deferred annuity- Indexed fund w/Lifetime Pay
Rider. I am leaning toward Vanguard's brand new Managed Payout Fund.

Looking to get ~$25K/yr from it until I'm dead. I'm 67, wife 63, in
pretty good health. Not risk adverse, but conservative.
Do you *need* that $25k or is there some flexibility (ie. can
you take less in years where markets are underperformin)?
Do you have other assets and investments?
*When* do you plan on starting the payouts?

If you want the payouts to start right now, you can
find an immediate joint fixed annuity which will pay
out $2100/mo ($25,200/yr) for as long as one or both
of you is still alive - starting today - costing around
$360,000 right now. If you cannot chance having less
in any future years, this may be worth considering, though
as young as you are, you'd be taking a huge inflation
risk. You might compromise and put, say, half of the
money into such an annuity, guaranteeing you a minimum
floor of income (say, buying you about $1200/mo) and putting
the rest into a moderate, diversified portfolio which
allows for more growth, say a 60/40 stock/bond portfolio
or some similar broad multi-asset portfolio.

You can certainly go into annuity-based products or
index-linked products, but the guarantees they provide
have very substantial costs. I'd be quite wary of most
of them. The Aviva products have withdrawal charges
which start as high as 16% in the first year and last
as long as 10 years to lock you in. And all those
"index links" they sell you on - which make it sound
like your investment will grow at the rate of the stock
indices - are not that at all - they are "linked" to
the index, often by complex formulas with caps and
exluding the dividends of the indices. Make sure you
fully understand exactly what these things do before
you buy one. Note, too, that in the sales materials,
they often cherry-pick time periods for "illustrations"
which make these things look like they'll make you rich.
Again, be wary - some of those sales materials are
amazingly, absolutely amazingly slick.

Which is not to say that these products are bad or
inappropriate all the time. But they are a lot of
the time.

In the meantime, (ie. during the accumulation/deferral
phase), your money is already in a 401k - a tax-deferred
account - and the tax-deferral that a deferred annuity
product offers you adds no value. The only part of the
annuity product which is offering value until you annuitize
are the guarantees and they may or may not be worth what
you pay for them.

--
Plain Bread alone for e-mail, thanks. The rest gets trashed.
No HTML in E-Mail! -- http://www.expita.com/nomime.html
Are you posting responses that are easy for others to follow?
http://www.greenend.org.uk/rjk/2000/06/14/quoting

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Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
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which we respond. For all of the other tips and suggestions, see "FROM THE
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H

HW \Skip\ Weldon

Looking to get ~$25K/yr from it until I'm dead. I'm 67, wife 63, in
pretty good health. Not risk adverse, but conservative.
I wouldn't make this a big deal. Drawing $2083/mo ($25,000/yr) while
$400,000 is earning 6% would pay for 53 years. Lowering the assumed
return to 4% pays for 25 years. No inflation protection.

I'd put it in a fund like Vanguard Wellesley and tell them to direct
deposit $2100/mo to my checking and forget it.

If you want absolute guarantees, an immediate life annuity on you
would pay around $27,000/year without inflation protection or survivor
benefits for spouse. Less if you want to leave a survivor benefit to
spouse. But you give up principal with an annuity.

You pays your money and you takes your chances.


-HW "Skip" Weldon
Columbia, SC

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Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
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R

Ron Peterson

Have about $400K in 401k, diversified, but just sitting there since
retirement 2 yrs ago.  A broker/advisor is pushing me toward AVIVA
"IncomePlus" Fixed Deferred annuity- Indexed fund w/Lifetime Pay Rider.
  I am leaning toward Vanguard's brand new Managed Payout Fund.
Looking to get ~$25K/yr from it until I'm dead.  I'm 67, wife 63, in
pretty good health.  Not risk adverse, but conservative.
Any advice?  Googling advice seems to be all over the place.
Convert the 401k to an regular IRA to give yourself more options.
Then, consider converting the regular IRA to a Roth IRA.

Do you want that income to continue to your wife, should you die
first?

It would be better to rely on your non-taxed deferred savings first to
reduce your tax burden. If you wish to purchase an immediate annuity
with your non-taxed deferred savings wait until you are 70 to get the
shorter 160 month depreciation.

--
Ron

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Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
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R

rick++

How about 1/3 in each (1/3 remain where is) if there
is no clear winner or loser?

To me "Managed income" sounds like the original
concept of hedge funds (when they really tried to hedge).

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Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
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C

Chip

HW said:
I wouldn't make this a big deal. Drawing $2083/mo ($25,000/yr) while
$400,000 is earning 6% would pay for 53 years. Lowering the assumed
return to 4% pays for 25 years. No inflation protection.

I'd put it in a fund like Vanguard Wellesley and tell them to direct
deposit $2100/mo to my checking and forget it.

If you want absolute guarantees, an immediate life annuity on you
would pay around $27,000/year without inflation protection or survivor
benefits for spouse. Less if you want to leave a survivor benefit to
spouse. But you give up principal with an annuity.

You pays your money and you takes your chances.
Hey all you guys, thanks for the straight advice. Better than the
brochures, but not as pretty. :>)

This $25K/yr is to supplement my (& wife's) SSs and pensions at $75K/yr
for a total budget of $100K. This is what we are and will, I assume,
continue spending in retirement. I have a few small investments, some
ready cash, and good health insurance, but the 401k is the big
enchilada. My wife is set when I croak with my life insurance, my SS,
her pension, and selling the house. She plans to move into one of those
"Be happy, do everything for the retirees" villas. Hoping to bounce my
last check. Kids don't need it. Does that make it clearer?

Chip

--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.
 

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