More on whether I should annuitize


L

louise

I'm 64.5, in moderately good health, but with no assets
other than savings/retirement money. I rent an apartment.
Although I'm working, and plan to continue to do so, I am in
my own private practice in the health care field. As a
result of health care politics, my income has dropped about
25% in real dollars over the last 10 years and I do not
foresee a return to the previous situation. My health also
has some limiting effect on the number of hours I am able to
put in at this point.

I received a few hundred thousand in life insurance from my
ex-husband when he passed away. However, at the same time,
I lost monthly payments I was receiving from his business,
which is folding without him and I will receive no further
income from it.

I also have several hundred thousand in retirement money
(keoghs etc) which I invest moderately aggressively in
mutual funds.

So essentially I gained a few hundred thousand and lost
about $2500/month in income. *I want to keep the life
insurance money "safe" and I need to be able to replace the
lost monthly income. For the past year I've been buying CDs
and Treasuries and I can see clearly that I'm dipping into
principle and not accounting for inflation. This was a
mistaken plan which I now need to remedy.

The MetLife Annuity which guarantees 5% per year and grows
the principle (hopefully), or stops where the principle
starts to fall, was offered to me but I am aware of the high
expenses and cannot even get an accurate picture from them
as to the expenses.

Do I use index funds, something like the Fidelity Freedom
funds (my brokerage is with fidelity although I own few of
their funds), or do I take an annuity such as the one
offered by MetLife and pay the high expenses?

I am under an impression, although vague, that there are
some index-like funds that would be a good idea but I don't
know how to evaluate them for safety. I guess I want the
guarantee, but not the fees of an annuity :)

All thoughts and suggestions greatly appreciated.

Louise
 
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D

Dave Dodson

(my brokerage is with fidelity although I own few of
their funds)
Louise, since you are with Fidelity, I suggest that you try out their
Retirement Income Planner on Fidelity.com. In an hour or two, you can
enter your assets and living expenses and it will estimate the
probability that your portfolio will last as long as you do. It also
will make suggestions and let you try what-ifs. One of the what-ifs is
purchasing an annuity, so you can see what impact that will have on
your situation. Other what-ifs include reallocating your investments.
I've found it quite helpful to get an idea if I'm on the right track.
Give it a shot and see what you learn.

Dave
 
R

Ron Peterson

I'm 64.5, in moderately good health, but with no assets
other than savings/retirement money. I rent an apartment.
Although I'm working, and plan to continue to do so, I am in
my own private practice in the health care field. As a
result of health care politics, my income has dropped about
25% in real dollars over the last 10 years and I do not
foresee a return to the previous situation. My health also
has some limiting effect on the number of hours I am able to
put in at this point.
Do you have a medical condition that will reduce your lifespan? Or,
force you into an assisted living situation?

So essentially I gained a few hundred thousand and lost
about $2500/month in income. *I want to keep the life
insurance money "safe" and I need to be able to replace the
lost monthly income. For the past year I've been buying CDs
and Treasuries and I can see clearly that I'm dipping into
principle and not accounting for inflation. This was a
mistaken plan which I now need to remedy.
That's a good idea.
The MetLife Annuity which guarantees 5% per year and grows
the principle (hopefully), or stops where the principle
starts to fall, was offered to me but I am aware of the high
expenses and cannot even get an accurate picture from them
as to the expenses.
Do you wish to leave an inheritance?

If you have a shortened life expectancy, you may be better off
avoiding an annuity unless the annuity reflects your shortened life
expectancy.

You are better off postponing the annuity because the effective pay-
out rises quickly with age. I would suggest waiting at least until age
75.

And, as I suggested in the other thread, postpone your taking Social
Security.
Do I use index funds, something like the Fidelity Freedom
funds (my brokerage is with fidelity although I own few of
their funds), or do I take an annuity such as the one
offered by MetLife and pay the high expenses?
Yes, stay in the funds.
I am under an impression, although vague, that there are
some index-like funds that would be a good idea but I don't
know how to evaluate them for safety. I guess I want the
guarantee, but not the fees of an annuity :)
ETF funds work quite well, but may not be available in a 401k.

You want to cover the entire stock market in terms of large caps and
small caps.

I you can get an energy fund for about 20% of your investable assets,
inflation should be covered.
 
J

joetaxpayer

louise said:
I'm 64.5, in moderately good health, but with no assets other than
savings/retirement money.
snip

I received a few hundred thousand in life insurance from my ex-husband
when he passed away.
I also have several hundred thousand in retirement money (keoghs etc)
which I invest moderately aggressively in mutual funds.
If you would give the numbers some better precision, it would help.
Also, how its divided between post tax and pre-tax accounts.
And how much do you need to withdraw each year?
As I suggested to Hector, there should be an asset allocation that will
let you sleep but provide some hedge against inflation.
I also suggest reading the articles at
http://assetbuilder.com/tags/Retirement/default.aspx
This site belongs to the author Scott Burns and has quite a few articles
regarding asset allocation and safe withdrawal rates, as well as the
anti-VA belief I subscribe to.

There is also the concept of risk/reward and standard deviation that's
worth understanding. Right now, the risk-free rate is about 5%, for any
greater return, you run the risk of losing money. The stock market
return (US market S&P data), is just over 10% but with a 16% or so
standard deviation. This means up years and down years. A good portfolio
will reduce your risk but reduce return by just a bit over time.
JOE
 
E

Elizabeth Richardson

louise said:
Do I use index funds, something like the Fidelity Freedom
funds (my brokerage is with fidelity although I own few of
their funds), or do I take an annuity such as the one
offered by MetLife and pay the high expenses?

I am under an impression, although vague, that there are
some index-like funds that would be a good idea but I don't
know how to evaluate them for safety. I guess I want the
guarantee, but not the fees of an annuity :)
Since you are already a Fidelity customer, you might want to spend some time
looking at their array of income products. Yes, they have annuities,
probably cheaper than the one you've been looking at, but they also have a
variety of mutual funds designed for income. I see they also have something
new, called an Income Replacement Fund. I don't know anything about this
product, but it sounds like it's worth investigating in your situation.
Additionally, do you qualify to take your ex-husband's social security? It
sounds like it would be well-taxed for you, yet it would offer some of that
income replacement you're seeking.

Elizabeth Richardson
 
L

louise

Elizabeth said:
Since you are already a Fidelity customer, you might want to spend some time
looking at their array of income products. Yes, they have annuities,
probably cheaper than the one you've been looking at, but they also have a
variety of mutual funds designed for income. I see they also have something
new, called an Income Replacement Fund. I don't know anything about this
product, but it sounds like it's worth investigating in your situation.
Additionally, do you qualify to take your ex-husband's social security? It
sounds like it would be well-taxed for you, yet it would offer some of that
income replacement you're seeking.

Elizabeth Richardson
Thanks for the info and I will look at the fidelity site.

What would make me eligible to take my ex husband's SS - he
never re-married but we've been legally divorced for about
12 years before he died. How do I find out about this?

Thanks

Louise


======================================= MODERATOR'S COMMENT:
Please trim the post to which you are responding. "Trim" means that except for a FEW lines to add context, the previous post is deleted.
 
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D

Douglas Johnson

louise said:
What would make me eligible to take my ex husband's SS - he
never re-married but we've been legally divorced for about
12 years before he died. How do I find out about this?
http://www.socialsecurity.gov is the authoritative place. I believe you are
eligible for the larger of your benefits or your husband's as long as you were
married for at least 10 years.
-- Doug
 
L

louise

Douglas said:
http://www.socialsecurity.gov is the authoritative place. I believe you are
eligible for the larger of your benefits or your husband's as long as you were
married for at least 10 years.
-- Doug
Thanks - he had another child who is permanently disabled
(cerebral palsy) and it seems that child trumps me as to who
gets the social security.

Louise
 
J

joetaxpayer

Thanks - he had another child who is permanently disabled (cerebral
palsy) and it seems that child trumps me as to who gets the social
security.

Louise
You sure you read that right?
Please see http://tinyurl.com/ytu4bq (the SSA site URL for the page is
huge, this will drop you right in to it).

But one line from the page I was on shows: "The benefits paid to a
divorced spouse or a surviving divorced spouse will not affect the
benefit amount paid to other family members who receive benefits on the
same record." A child cannot 'trump' you. Only your own (better) record,
or you remarrying. The SS benefit will help you determine your need,
which will help us all offer a more precise mix.
JOE
 
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E

Elizabeth Richardson

louise said:
Thanks - he had another child who is permanently disabled
(cerebral palsy) and it seems that child trumps me as to who
gets the social security.
While you're looking at social security issues, keep in mind your full
retirement age. Since you're still employed, whether you decide to take your
ex's SS or your own, you want to have reached full retirement age, else your
earned income will reduce your SS benefit. Not knowing for certain your
birth year nor your exact age, I think you have about a year before SS is
truly an option. You will need to continue to draw on the insurance money in
the meantime.

Elizabeth Richardson
 

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