Expecting People to Save for Their Own Retirements Doesn't Work

[MillCreek]

I ended up buying the annuity directly from immediateannuities.com.  I gave our company retirement advisor and the person I buy annuities from for my malpractice cases, the opportunity to place it in the market.  Both of them called me and said they could meet but not beat the quotes from the website, and since I clearly knew what I was doing, I should just go ahead and buy it from the website, since it would be quicker than going through them.

[MillCreek]

Assuming you retire in 2 years the 403b will hopefully be around $700k. At a 4% withdrawal rate that would give you $28k/year plus the annuity and SSI, so about $64k per year.  Plus whatever your wife gets.  Not luxurious but not pauper-ish either.

When the retirement planner from the teacher's union crunched the numbers, it looks as though from her pension, SSI and the projected value of her 403(b), that she will be getting in the upper $50sK per year, so we should be somewhat over $ 100K combined, before taxes.  And since I paid off the house earlier this year, that saves us $1800/month that we won't be paying in retirement.

[Ben]

It is a single life with cash refund with no riders, pays $1000/month beginning in April 2021, is underwritten by New York Life (A++), the $ 202K premium will be funded by a rollover from my 403(b), and if I die before the full premium amount is paid out, my wife gets the remaining premium refunded as a lump sum.  As of today, this still leaves me with over $ 600K in my 403(b) so I can take advantage of market gains.

That's actually not bad for an annuity. I guess the interest rates on them are finally coming up a bit.

[MillCreek]

As a risk manager, I work with insurance companies, so I wanted to place the coverage with a company with an A++ rating to minimize the chance that I would lose the money due to company failure. Of the quotes I received, Mass Mutual and New York Life were the only two such companies out of the eight quoting. Mass Mutual was several thousands more expensive, giving a cashflow rate of 5.42% and New York has a cashflow rate of 5.72%. The cashflow rate range of my quotes was from 5.42 to 5.88%. Lesser-rated companies have the higher cashflow rates and five of the quotes clustered between 5.68 and 5.75%.

Bearing in mind that my entire 403(b) portfolio (approximately 53% stocks/47% bonds and short term mutual funds) had a return last year of 1.4%, this guaranteed annuity rate does not look too bad. If I could buy a CD or other guaranteed return investment vehicle right now with a rate upwards of 5%, I would have done so instead of the annuity, but Bankrate said the best right now was 3.05%. So I have some guaranteed income stream with the annuity and SSI, and I will have some income stream subject to the market. Hopefully when I retire there will be no significant downturns, but I am not betting on that.

PS: I forgot to mention: my research showed that Blueprint Income and Immediate Annuities were the most popular places to buy annuities directly. I was interested to see that I received slightly better quotes from Immediate Annuities, and I wonder if the difference was due to different commission rates.

[Ben]

As a risk manager, I work with insurance companies, so I wanted to place the coverage with a company with an A++ rating to minimize the chance that I would lose the money due to company failure. Of the quotes I received, Mass Mutual and New York Life were the only two such companies out of the eight quoting. Mass Mutual was several thousands more expensive, giving a cashflow rate of 5.42% and New York has a cashflow rate of 5.72%. The cashflow rate range of my quotes was from 5.42 to 5.88%. Lesser-rated companies have the higher cashflow rates and five of the quotes clustered between 5.68 and 5.75%.

Yeah, that's a good rate. For kicks, I punched your parameters into the TSP, which is known for great annuities, and it gave me $1012/mo, so only twelve bucks more.

Personally, I think after you reach a certain age, annuities make sense if you look at them as part of a diversified plan, and if they're 5% or greater. Given that you don't have some other pension (though in some of those cases they can make sense too). If I didn't have my gov pension, I would look at turning at least half of my TSP into an annuity at current interest rates. If annuity rates get any higher, I might still consider a partial annuity. It can be kind of a safety blanket for the post 50 crowd.

[Firethorn]

Yeah, that's a good rate. For kicks, I punched your parameters into the TSP, which is known for great annuities, and it gave me $1012/mo, so only twelve bucks more.

Personally, I think after you reach a certain age, annuities make sense if you look at them as part of a diversified plan, and if they're 5% or greater. Given that you don't have some other pension (though in some of those cases they can make sense too). If I didn't have my gov pension, I would look at turning at least half of my TSP into an annuity at current interest rates. If annuity rates get any higher, I might still consider a partial annuity. It can be kind of a safety blanket for the post 50 crowd.

The only reason I'm not really looking is my military retirement pay fulfills the same function.

[zxcvbob]

I have about a pension worth about $60000 that I may take as an annuity instead of a lump sum when I retire just so I'll have a little bit of guaranteed lifetime income besides SS.  My 401(k) is worth $720000, and I have another $450000 in cash (CDs) and other investments, some of which is a Roth IRA, so not taxed.  My house is paid for, but needs some kinda expensive repairs.

I *think* I'm ready to retire at the end of the year (age 60) but not totally sure.

[Fly320s]

You have about $1.2 million in assets.  That seems low to retire at age 60, but I don't know the whole story or where you plan to live.

[zxcvbob]

You have about $1.2 million in assets.  That seems low to retire at age 60, but I don't know the whole story or where you plan to live.

Almost $1.4 million if I include my home equity, and some other small accounts that I didn't mention (mainly because I forgot about them)  I'm still not sure if it's enough.  Longevity runs in my family.

[Fly320s]

Almost $1.4 million if I include my home equity, and some other small accounts that I didn't mention (mainly because I forgot about them)  I'm still not sure if it's enough.  Longevity runs in my family.

If you can earn 5% or more in interest and live off that without touching the principle. then you might be OK depending on your life style.  Add in Social Security and you'll be better off.  That is all simple math and doesn't factor in inflation, stock market fluctuations, and medical expenses as you age.

[MillCreek]

I am not so convinced that the decision to pull the pin on retirement is as much an issue of your net worth as much as what kind of monthly cash flow can you generate vs. your monthly expenses.  My house, at $ 600K, is my second largest asset after the 403(b) value, but will generate no cash flow.  Now that it is paid off, it will not generate a whole lot of monthly expenses, either. 

[Scout26]

2 nice things about annuities.

1.  If you die during the payoff perioid, the balance left in the annuity is paid out.

2.  It pays out as long as you are alive.  Dad got almost 20 years of "free money".

[Angel Eyes]

More good news:

https://www.cbsnews.com/amp/news/when-will-social-security-and-medicare-run-out-of-money-to-pay-all-obligations/

    The latest report from the government's overseers of Medicare and Social Security shows the financial condition of the retirement programs in shaky condition.

    Social Security is on a path to become insolvent in 2035, with only enough money cover about 80 percent of its obligations.

    Medicare would become insolvent even sooner, by 2026, if no changes are made to payroll taxes or how health providers are paid.

[makattak]

More to my expectations that it's my generation that's going to be screwed, come retirement.

But at least every one before me will get "what they paid!" back. It's just me and my children that will be screwed over.

[Ben]

More to my expectations that it's my generation that's going to be screwed, come retirement.

But at least every one before me will get "what they paid!" back. It's just me and my children that will be screwed over.

Well, those of us who are older and are trying to get some of our money back are not getting back what we paid, even if we get SS till the day we die. I have almost 40 years of lost opportunity cost because the gov decided they knew better than me and took my money instead of letting me stick it in Vanguard.

[Fly320s]

More to my expectations that it's my generation that's going to be screwed, come retirement.

But at least every one before me will get "what they paid!" back. It's just me and my children that will be screwed over.

I will happily give you my SS benefits when I retire, so long as the IRS stops taking it from my paycheck today.

[sumpnz]

I will happily give you my SS benefits when I retire, so long as the IRS stops taking it from my paycheck today.

+Eleventy-gajillion