Help – Husband retires soon – Company Pension vs Variable Annuity
Hello Terry, appreciate all the good advice you give on your website! Husband retires very soon. He can either receive a company pension w/spousal benefit, or take a lump sum payout. Financial Advisor recommends taking a lump sum and putting 60% into a variable annuity (guaranteed $ amount each month)and the rest into an IRA that also includes husband’s 401k rollover. I like the security of the company pension but FA has made a good case if we go with reputable insurance company with an Annuity that guarantee a $ amount each month, it will also accumulate cash over the years, minus fees. I read your latest book, esp Ch 9 on annuities, but cannot decide which way to go. Any suggestions or things I’m missing appreciated! Thank you.
Terry Says
Aha! Two KEY words in your question: “Minus FEES”! That’s the rub.
Now, you actually have THREE choices – -though your financial advisor didn’t present it this way.
You could “roll over” the ENTIRE amount into an IRA at Vanguard or Fidelity where there are actually no fees.
(And none of those hidden fees that he hasn’t disclosed in this annuity deal where he makes a minimum of 6% off the top, and gets a trip to Hawaii if we every fly anywhere again!)
So, the problem is if you do the rollover — what do you do with the money? You could put it all in a MM fund — or a portion in a MM fund and a portion in stocks, with some risk of loss. AND you could buy an IMMEDIATE annuity (no fees) with a portion –and get a check a month for life. (But that monthly check would likely be ravaged by inflation — so you wouldn’t want to put too much in there).
Note – -none of the above requires the services of a “financial advisor” to invest on your own.
I’ll give you two suggestions:
1. Your employer’s deal might be a great one! After all it is a guaranteed check for his life, and some for you too! BUT is it a good deal Ask what the lump sum would be for a rollover. Then go to www.immediateannuities.com and “price” what you could get monthly for that amount over TWO lives (yours and his) after inputting your ages, location. That’s how you decide whether the company’s offer is a fair one.
2. You need a FIDUCIARY financial advisor who only charges a fee for service– no hidden commissions, and for sure fully disccloses all costs and puts your interests firs. Go to www.WEALTHRAMP.com to find one. Set up a meeting. The first one should be free and you can discuss the alternatives.
I’m posting a long answer because my PERSONAL PET PEEVE is the insurance salespeople who grab retirees with these wonderful “illustrations” and never disclose the limitations — illiquidity for years, the cost in hidden commissions (which is why they sell them), the “strange indexes” that the insurer creates to make sure you don’t get the market return on the upside (but they get to use your money for years) — and on and on!
Yes, there may be a place for an annuity as part of your retirement portfolio — but not as you describe.
