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We had a 2nd meeting today with our probable financial advisor(s). Nothing in writing, the first meeting was to provide general information and desires, with todays meeting to lay out goals and a review of some options to consider. They are going to run some scenarios for our review in a couple of weeks.
We were referred to this company/individual by our lawyer, whom we both respect and trust. So we have no concerns about trusting this advisor and company.
They are suggesting the use of an annuity(s) and also insurance not term as major leg of our retirement stool. Seems that I have read here or other CD threads, that this is often a good concept.
We are lucky as we have a Civil Service pension of 42K already coming in. I am going to go to PT in the spring of 2016. SS will be +13K if I collect at 62 or +16k if I wait until 66.
First question I have is regarding my SS.
Jim cannot collect as a survivor on my SS as he is Civil Service annuitant. So that suggests that I collect early as I don't have a dependent to consider. However, I come from a rather long lived family on both my parents side. All grandparents died between the ages of 85 and 101, with numerous great aunts/uncles dying in the same age range. Two aunts still alive at 91 and an uncle at 87. My dad died at 86, while my mother died of renal cancer at 73.
Their recommendation is to postponed SS until age 66 because of that longevity. WWYD?
The second question is regarding an annuity that they talked a bit about but said they want to present the whole package before they get into specifics.
Apparently, it would be a single premium immediate type of around 250K. They explained a couple of times but still confused. Apparently the annuity pays back 5% yearly of the premium over the annuitants lifetime, can be higher each year based on returns, but the monthly payback would never fall below 4% yearly of the initial investment. When the annuitant dies, the value of the annuity resets back to the initial investment for the survivor or is this just a joint annuity said in a different way. There is a bit of an issue with our marital status as present, which will become clearer in a few weeks, and this will/may change what product is available to us as residents of Michigan.
What did I miss or does this make sense?
Anyway, how to properly spend our finances is a lot harder than I thought it was would be. Too bad we hadn't thought about using a financial person many years ago.
Why did they suggest insurance? I'm assuming this is whole life? I've never really understood whole life unless you are extremely wealthy and need an additional tax shelter. You pay in and if you die you collect the insurance premium and they take your money. If you don't die you just get your money back. Why not just get term and invest the difference?
i will go against the opinions here and tell you this:
there is new research showing that the combination of permanent life insurance with a single premium immediate annuity coupled with your own investing has been shown not only produced more income but a greater amount of money for heirs than term insurance and your own investing.
only 35% of all the many scenarios run by DR PFAU did term and investing on your own beat the insurance combo and investing. 65% of the time the insurance products/investing on your own took first prize over buy term and invest on your own..
of course this does not apply to using any other annuity type other than single premium immediate annuities as they are like buying a cd. if you like the rate that is your deal. just like a cd , everything is already in the rate , if you are happy then that is all there is to it.
up to retirement age term and investing had the higher balance, but once withdrawals and sequence risk started the tide quickly turned.
the higher income stream of the annuity provided a forever base that allowed less equities to have to be sold. because of sequence risk it allowed you to keep less powder dry in bonds and cash for spending allowing higher equity levels.
think about if you had a mix of cash for bill paying /bonds /equities.
at todays rates you will spend the cash and bond portion down to zero eventually then have to liquidate equities and refill cash and bonds.
but the higher payout of the annuity usually surpasses your bond and cash portion since as you spend it down you get less and less even if rates go up.
also the annuity payment forms a base that is forever requiring less selling of equities when you do need to refill as well as less selling in down markets.
life insurance money has no rmd's and no taxes as well .
the surviving spouse can actually take the life insurance money which is tax free and buy more income if they want by adding more spia to the mix.
the combo of permanent life , SPIA and your own investing can be very powerful as well as give you guarantees your own investing can not.
many times believing our own bull-sh%t to be true hurts us more financially than anything else because we take other mis-informed views of things and parrot it .
few folks are smart enough to go learn about the things they don't know about in great enough detail so they can make a real valid evaluation. they just run with other mis-informed information.
Why did they suggest insurance? I'm assuming this is whole life? I've never really understood whole life unless you are extremely wealthy and need an additional tax shelter. You pay in and if you die you collect the insurance premium and they take your money. If you don't die you just get your money back. Why not just get term and invest the difference?
well now you can understand why . or at least have enough insight to evaluate for yourself . other types of annuity products can be complex and expensive and while all other types are not all bad the promises of all these returns in variable annuities rarely if ever happen. i don't recommend anything but an spia or deferred longevity insurance.
my opinion is if an adviser talks about immediate annuity products which typically are bought and not sold i would be more inclined to listen further as opposed to the advisor pitching me some high priced variable annuity.
there are little commissions in an spia and most advisers do not bring them up.
as well as most advisers are not educated enough in current research , or how to play the 2nd half of the game to even know how to utilize them effectively in a comprehensive plan..
Last edited by mathjak107; 06-03-2015 at 03:57 AM..
There is a 17 year break even period between age 62 and 66 for your SS. You will collect $52,000 in those 4 years and then takes 17.7 years to make up the difference between the 13K and the 16K payout, so when you are 80 you hit the break even point without taking into consideration any investments/gains you might make on those funds.
As for the annuity, 4% guaranteed without loss of principal is a pretty good deal if it's with a good company. Where are those funds right now? If they are not currently in a retirement account, maybe just in mutual funds you saved or other post-tax account, there are some tax advantages to having an annuity for long term care. That might be part of the consideration there.
The whole life suggestion, my guess is that is a proposal to offset the loss of your pension if you die before Jim.
Hopefully they also talked about long term care insurance with you--or they will. Which company will you be using for the annuity and whole life? It's also kind of hard to answer your questions not knowing all the details, which I don't expect you to put here, but without knowing how much you have and where and what your goals are...saying this is good or bad is really impossible.
Why did they suggest insurance? I'm assuming this is whole life? I've never really understood whole life unless you are extremely wealthy and need an additional tax shelter. You pay in and if you die you collect the insurance premium and they take your money. If you don't die you just get your money back. Why not just get term and invest the difference?
You don't get your money back on a term policy if you don't die before it pays out, which is why you use whole life. Also, I'm gathering that the OP is retired already and probably 60 or so years old. It's been discussed in many threads here the value of owning some whole life. Term insurance is just tossing money out the window for 95% of the people, but necessary still.
Jim and I are both 61. He retired from the Post Office in 2011 at 57, so he could take better care of his Mom(lived next door).
It was 3-4 years earlier than our original plan and reduced his pension by about 400 per month and reduced his total contributions to the TSP. Retiring early hurt a bit, but it was the right thing to do .
I work at the local hardware store. I get to walk to work, so we only have one car. I was 48 when laid off from a longterm employer so a job that paid adequately, with healthcare and a couple of other benefits was lucky to get in the 2002 recession.
As we are now married my healthcare comes from his federal plan and we will be applying for a survivor annuity for me. The amount is yet to be determined. This amount will in part be determined by if I take SS at 62 or 66.
Jim has LTC of 100/day for 5 years------he got it many years ago and costs $45 per quarter.
I've applied for the same and will be $55 per month, assuming I am approved.
Mathjak-- thanks for the link. They are talking SPIA, some kind of life insurance. We have about 550K in IRAs/Roths etc. One reason, I like the SPIA, is that in someway since it is sort of retaining the gains we have made in the market. .
You don't get your money back on a term policy if you don't die before it pays out, which is why you use whole life. Also, I'm gathering that the OP is retired already and probably 60 or so years old. It's been discussed in many threads here the value of owning some whole life. Term insurance is just tossing money out the window for 95% of the people, but necessary still.
Isn't that the point of insurance? Do you get your money back for homeowner's insurance if nothing happens to your home? Do you get your money back for car insurance if nothing happens to your car?
Also, MJ, why doesn't Dr. Pfau show what would happen if you bought 30 year term at 35 saved for 25 years, got sick at around 60 and died at around 63?
Which comes out ahead if you actually use the term insurance? Savings + term insurance or savings + whole life?
The study seems to only assume you will live into your 80s. If that's the case and you know it, why bother even buying insurance at all? I'll just invest it all.
P.S. Sorry for hi-jacking your thread OP
I think that MJ is probably the most informed on this stuff as he is currently around your age.
Jim and I are both 61. He retired from the Post Office in 2011 at 57, so he could take better care of his Mom(lived next door).
It was 3-4 years earlier than our original plan and reduced his pension by about 400 per month and reduced his total contributions to the TSP. Retiring early hurt a bit, but it was the right thing to do .
I work at the local hardware store. I get to walk to work, so we only have one car. I was 48 when laid off from a longterm employer so a job that paid adequately, with healthcare and a couple of other benefits was lucky to get in the 2002 recession.
As we are now married my healthcare comes from his federal plan and we will be applying for a survivor annuity for me. The amount is yet to be determined. This amount will in part be determined by if I take SS at 62 or 66.
Jim has LTC of 100/day for 5 years------he got it many years ago and costs $45 per quarter.
I've applied for the same and will be $55 per month, assuming I am approved.
Mathjak-- thanks for the link. They are talking SPIA, some kind of life insurance. We have about 550K in IRAs/Roths etc. One reason, I like the SPIA, is that in someway since it is sort of retaining the gains we have made in the market. .
Thanks all.
Given your ages, I can see where the annuity suggestion comes in, especially if the talk is right and we are looking at another big down turn in the market. Personally, I'd jump at the chance of 5% return with a 4% guarantee with return of principal. Your annuity can also pay for your LTC premiums, tax free, if the funds come from the right accounts. I think your ROTH qualifies but without seeing the details, not positive. Also, give your low per day LTC amounts, that might be a reason for the annuity as well. If this is through a good company like Northwestern Mutual or NYL, go for it. If it's through your State Farm guy, find someone else.
Even if you get survivor benefits with his pension, you still take a cut in the pension pay out to be able to take advantage of that benefit--75%/50%, etc. The whole life allows you to take the 100% without survivor benefit and replaces that income for you if Jim should die before you. It's really something everyone should have if they have a pension. He might already be at 75% for the retiree insurance, but that means you get 25% of what he is getting now.
$100/day isn't going to be enough LTC insurance, average costs is more like $300/day, more in some parts of the country, less in others--and that is for in-home care.
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