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Annuities For Retirement

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billt
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Annuities For Retirement  Reply with quote  

I'm 60 and will be retiring at 62, in approx. 16 months. My wife and I are very conservative investors, and have decided that Annuities offer us the most comforting retirement income.

The question is which annuities are best, and from which companies? I've heard that the safer the company, the less return. That makes sense. The other question is how to set it up? Many pay over a certain period of time. Others pay until death.

How does one go about getting "ball park" figures? Let's say my wife and I were to purchase a $100,000.00 annuity each. What type of return for life could we expect to safely get? We currently have 2 annuities with New York Life and Protected Life. But they are just earning interest until they mature because we don't need the money now. They don't give us "payments".

Also, I have several IRA's that I would like to roll into 1 large annuity when I retire. Can I do this and only pay tax on the money when I receive it? I'm looking for the best way to go about setting this up.
Post Wed Jul 03, 2013 10:39 pm
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blixet
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Here are a couple of sites to check out. The first has some fairly comprehensive info on SPIA type annuities and the second can get you current quotes so that you have some idea about payouts.

http://www.bogleheads.org/wiki/Immediate_Fixed_Annuity_-_SPIA

http://www.immediateannuities.com/immediate-annuities/

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Post Wed Jul 03, 2013 11:15 pm
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billt
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Thanks. I'll check them out.
Post Thu Jul 04, 2013 1:20 am
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coaster
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Why would you want to roll the IRAs into an annuity?

~Tim~
Post Thu Jul 04, 2013 5:35 am
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billt
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quote:
Originally posted by coaster
Why would you want to roll the IRAs into an annuity?


My thought was to achieve a steady stream of monthly because I don't have the luxury of any type of pension. But I'm starting to have second thoughts. Also, I thought, (but I'm not sure), it might help tax wise.

Right now handing over $200K in cash in trade for what amounts to a lifetime monthly payment of around $1K+ a month, doesn't sound that attractive. Plus, if interest rates suddenly soar, and inflation rears it's ugly head once again, I'll take it where the Sun never shines.

I'm trying to evaluate the best way for me to go. I should add that my wife and I have no children or family to worry about. So I really could care less what happens after we are both dead.
Post Thu Jul 04, 2013 2:29 pm
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oldguy
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quote:
Also, I have several IRA's that I would like to roll into 1 large annuity when I retire. Can I do this and only pay tax on the money when I receive it? I'm looking for the best way to go about setting this up.


As Coaster is saying - IRAs and annuities have the same tax advantage - so you would essentiallyt be putting an annuity into an annuity. And paying for that advantage twice.

Why not roll all of your IRAs into a single IRA at one place - maybe a no-load company such as Fidelity or Vanguard - and invest the IRA 50% in a CD and 50% in the SP500 Index fund. (You're only 60, this gives you some inflation protection, you may live another 30 or more years)

Then, once or twice a year sell what you need and move it into your checking account. You'll pay tax only on what you sell (remember, you bought the IRAs with pretax dollars, not yet taxed).

quote:
and have decided that Annuities offer us the most comforting retirement income.


As with all things, 'comfort' and 'conventience come at a cost. With investing, when you pay someone else to take the risk for you it can be expensive (that's why annuities have low returns, you are paying to have someone take the risk).
Post Thu Jul 04, 2013 3:39 pm
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billt
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quote:
Originally posted by oldguy
Why not roll all of your IRAs into a single IRA at one place - maybe a no-load company such as Fidelity or Vanguard - and invest the IRA 50% in a CD and 50% in the SP500 Index fund. (You're only 60, this gives you some inflation protection, you may live another 30 or more years)

Then, once or twice a year sell what you need and move it into your checking account. You'll pay tax only on what you sell (remember, you bought the IRAs with pretax dollars, not yet taxed).

As with all things, 'comfort' and 'conventience come at a cost. With investing, when you pay someone else to take the risk for you it can be expensive (that's why annuities have low returns, you are paying to have someone take the risk).


Good points all, and thanks for the reply. I've been considering rolling everything into one single IRA. I currently have one with Allstate Insurance that is paying at 5%. It has paid at or around this rate since I opened it back in 1986. It has more than "matured", but I just left it all in there because the rate was better than anything else I could get on a comparable investment. I'll have to check and see if I can deposit everything else into it, and still get the same rate.
Post Thu Jul 04, 2013 3:45 pm
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oldguy
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quote:
I'll have to check and see if I can deposit everything else into it, and still get the same rate.


That depends on what you invested the money in inside your Allstate Account. CD? Stocks? a mutual fund?
Post Thu Jul 04, 2013 6:12 pm
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billt
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It's just a simple fixed rate, (5%), IRA Annuity. I opened it back in 1987. The only time I added to it was around 2004 when I left a company I had a small tax deferred profit sharing account with. I had it directly deposited into it. But other than that, I never touched it.
Post Thu Jul 04, 2013 8:05 pm
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coaster
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With your IRA, you can make your own "annuity" by annualizing the distributions over your expected remaining life span. Keep enough growth in the IRA to maintain the principle; remove the income and any excess growth as your annuity payments. You have income for life and the IRA goes to your beneficiary upon your death. Your financial advisor should be able to explain how you can do this; it's beyond what I can do here right now.

Immediate annuites are very unattractive right now because they're calculating your income based on the current interest rate environment.

~Tim~
Post Fri Jul 05, 2013 5:43 am
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billt
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I'm thinking more along those lines now. Transfer as much as I can into the highest interest annuity I currently have, then have that annuity give me payments upon retirement.
Post Fri Jul 05, 2013 2:41 pm
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blixet
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Another possible strategy would be to annuitize a portion of your assets with only the amount necessary to meet your income needs for a short period, say 5 yrs. Then, assuming interest rates are higher in the future, you could annuitize the rest at that time.

Information is more valuable sold than used – Fischer Black
Post Fri Jul 05, 2013 3:07 pm
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billt
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Good point. One of the biggest things that back me away from a lifetime payment annuity is you are locked in for life. Now the interest rates couldn't be much lower. If they drastically rise, I could get hurt big time. Even Social Security gets cost of living increases.
Post Fri Jul 05, 2013 3:45 pm
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phine958
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Below is the IRS Minimum Required Distribution formula & charts! You are supposed to follow this after youre annuities, IRAs & 401Ks are added together as you want to do. This is of course for one person so both you and your wife will do this as you retire! From everything Ive found out you can do this and make your wife beneficiary of your funds. As far as what you can live on in retirement it depends on what you have and what your use to? I became a paraplegic at age 54 and was forced into retirement two years later, my wife still works and the house is paid for. Even though we have medical bills running 15 to 20% of our incomes weve discovered we can live pretty well on two-thirds to three-quarters of our previous working income so assuming your both in good health youll probably do OK figuring on that? Also from what Ive discovered if both retirements are set up correctly whoever dies first leaves theyre income to the other person and the principle difference is the surviving spouse pays more income tax than a married couple does.


To calculate Minimum Required Distributions, use the following formula:
Account Balance as of December 31 of the prior year
(adjusted, if necessary, for any rollovers or transfer in process on 12/31 of the prior year) / Factor from New Uniform Lifetime Table*
(use the divisor that corresponds to the age the account owner attained in the MRD year)


Example:
Account balance as of December 31 of the prior year: $100,000
IRA owner's attained age in MRD year: 72
MRD Divisor = $100,000 / 25.6 = $3,906.25



Uniform Lifetime Table
Age of
Account Owner Divisor
70 27.4
71 26.5
72 25.6
73 24.7
74 23.8
75 22.9
76 22.0
77 21.2
78 20.3
79 19.5
80 18.7
81 17.9
82 17.1
83 16.3
84 15.5
85 14.8
86 14.1
87 13.4
88 12.7
89 12.0
90 11.4
91 10.8
92 10.2
Age of
Account Owner Divisor
93 9.6
94 9.1
95 8.6
96 8.1
97 7.6
98 7.1
99 6.7
100 6.3
101 5.9
102 5.5
103 5.2
104 4.9
105 4.5
106 4.2
107 3.9
108 3.7
109 3.4
110 3.1
111 2.9
112 2.6
113 2.4
114 2.1
115 and older 1.9


*The Uniform Lifetime Table can be used by all IRA owners, unless their sole beneficiary for the entire year is their spouse who is more than 10 years younger. In that case, the regular Joint Life Expectancy Table is used, which could reduce the MRD even further. Note: If you are taking MRDs from an inherited IRA, the formula, example, and table above are not applicable.
Post Thu Aug 15, 2013 5:55 pm
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