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i still like spia's but only after you max social security . why spend money on a commercial product and get much less in value .
a single premium annuity works like this :
you give me 100k and i will give you 5600.00 bucks a year . so it will take you almost 18 years , ooops not 13 , the 8 looked like a 3 to my eyes , to get all your money back before i put you on my dime .
so 19 years later you first see 5600 of return on your 100k , that is an roi of .003% over 19 years ..
by 20 years you got 5600 x2 in return in 20 years
so it isn't about return . it is about cash flow .
if you took 5600 or 5.60% from your cash and bond bucket it would have run out of money way earlier and you would be selling equity's to refill .
the higher cash flow of the spia lets you delay selling equity's longer
If you own your own house and don't have any heirs, why not use the equity in your house? If it's locked up in your house it isn't helping you.
You can use a reverse mortgage to have your house pay you every month (tenure) for as long as you live in the house. This money is tax free. You can both delay SS and let your investments grow. If you want to move to a cheaper area, then you can buy a house with this program too. You can buy the house for about half the appraised value and then put additional money into a line of credit against the house (if you want). You still won't ever need to make any mortgage payments for as long as you live in the house. The line of credit will grow at about 6% (Currently. This rate increases with the interest rates.). This amount can be withdrawn at any time tax free, and the withdrawn amount will be added to the mortgage balance (which you won't ever need to pay back). Or you can just purchase the house at about half cost and never make another mortgage payment on it for as long as you live there. You can use the difference for whatever you want.
Source: I work for a reverse mortgage brokerage in Florida.
If you own your own house and don't have any heirs, why not use the equity in your house? If it's locked up in your house it isn't helping you.
You can use a reverse mortgage to have your house pay you every month (tenure) for as long as you live in the house. This money is tax free. You can both delay SS and let your investments grow. If you want to move to a cheaper area, then you can buy a house with this program too. You can buy the house for about half the appraised value and then put additional money into a line of credit against the house (if you want). You still won't ever need to make any mortgage payments for as long as you live in the house. The line of credit will grow at about 6% (Currently. This rate increases with the interest rates.). This amount can be withdrawn at any time tax free, and the withdrawn amount will be added to the mortgage balance (which you won't ever need to pay back). Or you can just purchase the house at about half cost and never make another mortgage payment on it for as long as you live there. You can use the difference for whatever you want.
Source: I work for a reverse mortgage brokerage in Florida.
I was a big fan of the reverse mortgage idea at one time. But that was before I really looked at the fees. I'd like to hear more about the idea of buying the new house with 1/2 down.
As for the annuity idea I think everyone had made a pretty good argument that this may not be the way to go. That's why I came here, the advice is excellent. When I get off work I'm going to spend a bit of time reviewing the material provided here. Thank you very much for the help everyone.
I know there are a lot of threads over the years about annuities and after seeing many it's clear that like every other investment question the answer is always "it depends on your situation". Well here is our situation:
No kids, no reason to preserve our estate. Part of our retirement planning is to downsize and move to a less expensive area. I had always planned on using the proceeds of this downsize to fund our big out of pocket costs such as taxes, home insurance, medical out of pockets, car repairs etc. Money for 2 new cars has already been set aside in 2 Roths. The plan was to invest in equities/bonds etc with an anticipated withdraw rate of 4%.
Now I'm thinking about taking say $100,000 of this money and purchasing a fixed rate annuity that will transfer to the surviving spouse when one of us dies. This will produce a much higher return, today it's looking at 5.65% or so, which again could be funneled into an account specifically to help pay for the big ticket items described above without the worry of a market downturn effecting this money. I would take the balance of the money realized, maybe $50,000-$100,000 depending on a lot of things, and put that with our existing brokerage account and invest this semi-conservatively.
Does this plan make sense? Thanks for your input.
I did not read the other replies but in general the answer is yes. I am saying yes because I assume are worried about running out of money if you or your wife has a long life.
Consider a deferred annuity as opposed to one that starts paying now. The payments will be higher since you will be older when they start. Also remember inflation. Prices could double. Maybe you want several deferred annuities to help with inflation.
I think your best annuity is for the highest earner to delay SS to age 70. Consider the ss payments you did not get as the cost of the increased benefits. Also SS is inflation adjusted so this helps a little.
In short spend your investments now(keep an emergency fund etc) and supplement your income with the increased SS and annuities inf the future.
I was a big fan of the reverse mortgage idea at one time. But that was before I really looked at the fees. I'd like to hear more about the idea of buying the new house with 1/2 down.
I believe the fees are mostly the same as a traditional mortgage with the exception of the mortgage insurance premium. Afaik with a traditional FHA-financed mortgage the initial mortgage insurance premium is based on the amount borrowed. With a reverse mortgage the initial mortgage insurance premium is based on the home's appraised value. It's 2.5%, which is rather high, but it's necessary for the program to work. You can think of it as a fee for being able to withdraw the equity from your house and never have to pay it back. The alternative, not getting a reverse mortgage, leaves your equity locked up in your house not doing you any good. An analogy might be paying taxes on withdrawals from investments. You can avoid paying taxes by not withdrawing any money, but then your money just sits there not being of any use to you.
Another major difference is not really a fee, but in how mortgages work. Most (maybe all) mortgages have compounding interest. The interest however never really compounds because the payment schedule is amortized and the borrower makes every payment. With a reverse mortgage, because the borrower does not make any payments, the interest compounds. They can of course prevent the compounding by paying the interest every month if they wish (it's tax deductible).
Buying a house with this program works exactly the same way, just you're buying a house instead of refinancing one. We call it a HECM (Home Equity Conversion Mortgage) instead of a reverse mortgage, but they are basically the same. One key difference here though that you might like is that there is a way to reduce the initial mortgage insurance premium from 2.5% down to 0.5%. To do this you only borrow 60% of what you are allowed to borrow (called the 60% rule). The other 40% that you pay out of your pocket goes into a line of credit. You cannot withdraw any money from this line of credit until one year and one day after the loan closes. Then you can either withdraw the money from your line of credit or let it sit there and grow at a rate of about 6% (I think) annually. This rate is an adjustable one and goes up or down with LIBOR interest rates. Interest rates going up could actually help you because it increases your line of credit growth rate.
Example:
You find a $300,000 house you are interested in purchasing with a HECM.
You need a down payment of about $150,000 (includes closing costs).
IMIP fee on this would be about $7,500 (2.5% of $300,000, included in the $150,000 above).
You opt for the 60% rule instead and put down ~$210,000.
Now your IMIP is only $1,500 (0.5% of $300,000)
One year later, if you wish, you can withdraw the money in your line of credit (around $70,000). This is the 40% that you didn't borrow as well as the savings from the IMIP that you did not have to pay.
I recently created a calculator that helps you figure out how much of a down payment you will need to purchase a house with a HECM. This is for the standard HECM, not the 60% rule. Check it out here and let me know what you think: Real Estate - HECM Senior Home Financing
I just gave $100000 to my NY Life financial advisor for an annuity that will give me $900 a month for 10 years. I am happy with this because it will replace the annuity I inherited from my Mom which is ending in June. Takes alot of guts to take all that cash out and give it to someone else !!! Have another plan in place when the 10 years are up, if I am still here.
So basically you are giving them $100,000 now and over the next 10 years will get back $108,000 at the rate of $10,800 per year. Is this correct?
As one poster said earlier, I suggest you consider meeting with a fee based only financial advisor and lay it all out versus search the Internet for answers.
I believe the fees are mostly the same as a traditional mortgage with the exception of the mortgage insurance premium. Afaik with a traditional FHA-financed mortgage the initial mortgage insurance premium is based on the amount borrowed. With a reverse mortgage the initial mortgage insurance premium is based on the home's appraised value. It's 2.5%, which is rather high, but it's necessary for the program to work. You can think of it as a fee for being able to withdraw the equity from your house and never have to pay it back. The alternative, not getting a reverse mortgage, leaves your equity locked up in your house not doing you any good. An analogy might be paying taxes on withdrawals from investments. You can avoid paying taxes by not withdrawing any money, but then your money just sits there not being of any use to you.
Another major difference is not really a fee, but in how mortgages work. Most (maybe all) mortgages have compounding interest. The interest however never really compounds because the payment schedule is amortized and the borrower makes every payment. With a reverse mortgage, because the borrower does not make any payments, the interest compounds. They can of course prevent the compounding by paying the interest every month if they wish (it's tax deductible).
Buying a house with this program works exactly the same way, just you're buying a house instead of refinancing one. We call it a HECM (Home Equity Conversion Mortgage) instead of a reverse mortgage, but they are basically the same. One key difference here though that you might like is that there is a way to reduce the initial mortgage insurance premium from 2.5% down to 0.5%. To do this you only borrow 60% of what you are allowed to borrow (called the 60% rule). The other 40% that you pay out of your pocket goes into a line of credit. You cannot withdraw any money from this line of credit until one year and one day after the loan closes. Then you can either withdraw the money from your line of credit or let it sit there and grow at a rate of about 6% (I think) annually. This rate is an adjustable one and goes up or down with LIBOR interest rates. Interest rates going up could actually help you because it increases your line of credit growth rate.
Example:
You find a $300,000 house you are interested in purchasing with a HECM.
You need a down payment of about $150,000 (includes closing costs).
IMIP fee on this would be about $7,500 (2.5% of $300,000, included in the $150,000 above).
You opt for the 60% rule instead and put down ~$210,000.
Now your IMIP is only $1,500 (0.5% of $300,000)
One year later, if you wish, you can withdraw the money in your line of credit (around $70,000). This is the 40% that you didn't borrow as well as the savings from the IMIP that you did not have to pay.
I recently created a calculator that helps you figure out how much of a down payment you will need to purchase a house with a HECM. This is for the standard HECM, not the 60% rule. Check it out here and let me know what you think: Real Estate - HECM Senior Home Financing
I get it, thanks.
Back to the annuities let's review my initial plan in round figure and compare it with the suggestion.
Initial Plan A
Retire at 65, file for SS then and sell the home. Purchase a $100,000 annuity. This will realize approximately $2,500/month ($2,000 SS, $500 annuity) starting at 65.
Plan B as many of you have suggested:
Retire at 65, sell the home, spend the additional $100,000 as a replacement for SS. If I withdrew the same $2,500/month that is $30,000 a year so my money will run out in only 3.3 years. Then I have to draw down from other savings until I finally reach 70. Then I get an $800 bump but I have a lot of catching up to do to replace that draw down of other investments as this is only a $300 increase over the lifetime annuity payout of roughly $500. In addition we do not have a ton of cash reserved, most is tied into the home and my 401.
Maybe I'm missing something. Are we talking about the same $100,000? If so, then with the annuity the hundred thousand dollars is gone. You just get $500/mo for life. Right? If you delay Social Security then you still retain the bulk of the principal while you are delaying which can be invested. At 57 today, there is no way to predict rates at 65. You may find CDs are back up to 4%! But regardless, you can safely put your $100k somewhere for SOME return, while spending it down at the same rate you would have gotten had you been collecting SS and a $500/mo annuity. Then at 70 (or whenever) you automatically get an income boost to $2800/mo, which is COLA increased, where the annuity is not. Even if you stop after 3.3 years, what would be you SS at that time. Probably more than $2500, so you are still ahead because of COLA.
Retire at 65, sell the home, spend the additional $100,000 as a replacement for SS. If I withdrew the same $2,500/month that is $30,000 a year so my money will run out in only 3.3 years. Then I have to draw down from other savings until I finally reach 70.
How about plan C, where you use up the $100K over 3.3 years and then take SS? Your thinking is to use the $100K to buy an annuity. By using that money to allow deferring SS, that is effectively what you are doing.
By my math, by waiting the 3.3 years you will see an increased benefit of about $500/mo, plus any cost of living increase over that time. So the initial income is about the same as with the private annuity. But remember that SS is COLAed and the private annuity is not. SS has a survivor benefit too, which may or may not be of any use in your case. Depends on the size of your spouse's SS benefit.
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