Ask Terry Questions Annuities for retirment

Annuities for retirment

By Terry Savage on March 06, 2015 | Financial Planning / Retirement

My husband and I are about 5 years from retirement, and are concerned about making sure our money lasts. We are also concerned that with current low interest rates, if the stock market dives we may end up with much less than we now have. We went to a financial adviser who recommended that we roll both our IRAs into fixed annuities so that we would be guaranteed income for life. Is this a good idea? He’s obviously trying to sell us a fixed annuity so his advice is not impartial. Thanks Terry!

Terry Says:  Yes, that’s absolutely correct.  Even worse, if inflation were to return, that fixed monthly check would not buy what it does today — leaving you with no flexibility.  Here’s the alternative and it involves something called “Monte Carlo Modeling” — the use of historic ranges of returns to set up an investment and withdrawal scenario that gives you the greatest chance of making your money last your lifetime.  My favorite place to go through this process is at T Rowe Price — the mutual fund company.  Or Fidelity and/or Vanguard will do the same kind of modeling.  It is free if you have an account there.  Don’t confuse this with some of the stuff you can do for yourself online at their websites (although that will familiarize you with the process).  The real modeling is done with an advisor at these companies — and with the specifics of your life, goals, risk tolerance, and investments.

It’s definitely worth checking out.  And, by the way, it might include at least a portion of your money in an annuity — but it certainly won’t be ALL of your money, and it certainly won’t divert a big percentage to paying commissions.  They don’t charge commissions, and have very low annual fees.  Plus, it will help you make the smart decisions about delaying Social Security — maximizing your benefits, based on your own other income and budgeted spending.

Try it and then write back to tell me about your experience.  (The process will likely take several meetings with them by phone, and over the course of several weeks.)  I’ll be interested to hear from you.

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