Follow
Share

I went to a retirement information session yesterday; I'm a pubic employee and there is an opportunity at retirement to annuitize the funds in my 403B (sort of like a 401K) account. This isn't one of those annuities that costs money up front to do, sold by insurance companies. I'm trying to figure out the pros and cons. Any thoughts?

This question has been closed for answers. Ask a New Question.
This is such an amazing place! What great advice!
Helpful Answer (1)
Report

Barb, another thought - planning ahead for tax issues as well, don't forget to factor in any IRAs which you might have to begin drawing when you reach 70.5 years. If you do have some, it wouldn't hurt to check out Tables I, II or III (whichever apply to you) of IRS Pub 590 to see calculate how much you'd have to take out and whether or not that would sustain you financially.
Helpful Answer (1)
Report

Windy, I think some of the swamp critters are moving inside for the next 4 years.

And unfortunately, retirement plans won't be the only financial assets that are vulnerable. Efforts have already been made to cut SS. My whopping $4 raise this year went entirely to an increased Medicare premium.

Looks like I'll be getting out my dress shoes and clothes whether I want to or not. Or maybe I can sell produce at an organic market.
Helpful Answer (1)
Report

Barb, this is an area in which my knowledge is limited, so I'll just comment on what little I do know. AKDaughter has had a lot of experience with annuities; she would be a good one to offer advice.

My experience is that the delayed period of withdrawal w/o penalty can be problematic. An aggressive banker sold my parents an annuity (w/o my knowledge) when they were in their late 70's. Payout w/o penalty wouldn't have been possible for some years (I don't recall how long).

I don't recall specifically but I believe that the payout period was beyond my mother's lifetime, and on her death, we cashed it out and got rid of it. I don't recall if there were penalties. And all those tax records are in my tax storage files now.

I would be very concerned about that issue - when could the funds be withdrawn w/o penalties?

My sister was a state employee and had a retirement fund as well; I just don't remember all the details 13 years later. When she retired in her mid-50's, she chose an option to take the funds on a regular basis, with no reservation for heirs. That wasn't a problem, but the fact that she had contributed for almost 30 years, and on her death less than a year later, she had only received pension funds for about 3/4 of a year was sad.

So all those funds and matching funds weren't available for maintenance of her house until disposition. What was available was another pension plan she had, perhaps a 457 (I just don't remember), which was configured for the heirs. I used my share to pay expenses of her home; my brother declined to contribute, so I bore the burden from my own inheritance.

That possibility is something to consider, especially since I know you plan ahead for your own longevity.

As to who to consult, I think I'd consult a variety of different retirement planners, including but not limited to an estate planner and a financial pro. There are a lot of so-called experts in retirement planning in our area who sponsor free meals and so-called retirement advice. The free dinners interest me; their sales pitches don't because I know they're going to try to sell retirement products that benefit them, not me.
Helpful Answer (1)
Report

Barb, I'm guessing the annuity is a safe way to go. Geewhiz and Carla make very good points. It may simply come down to what is best for your specific needs, a traditional retirement with survivor beneficiarys or other options. My annuity is just one part of my retirement. I also have a standard defined benefit plan.

I feel very fortunate. We may be the last generation to see much in the way of pensions given the way politicians and the global economy have abandoned the working and middle class. And IMO the swamp is getting filled with critters who will make it decidedly worse.
Helpful Answer (3)
Report

I wish I could find the "edit" function - my post above was answering a different question than the one you were asking. So with respect to your actual question, please be aware that there are almost an infinite number of ways to configure an annuity. Examine the terms to determine what happens if you die prematurely, what happens if you live beyond your expected life span, whether you have the option to take additional cash out if necessary, and any other terms that may be important to you. Compare carefully the various forms of annuity the plan may offer. That's the important point.
Helpful Answer (1)
Report

You can keep the money in a separate account and take it out in payments over your life expectancy without paying for the annuity. In either case you will be paying fees for someone to invest the money for you.

The lifetime payment option (without buying an annuity) has a couple of advantages. One is that if you die early, you can pass on the remaining balance. That doesn't happen with an annuity, except if you buy an annuity with a survivor option, but that costs you a reduction in your monthly lifetime payment. The second is that you can accelerate payments if you have an unexpected need or expense, or take out a chunk and then go back to a (usually smaller) monthly payment.

The big advantage to a purchased annuity is that if you outlive your life expectancy, it keeps paying and the amount is not reduced. By contrast, with monthly payments from an account, either the account will run out or the payments will need to decrease as you get older (such as by refiguring your life expectancy every year) to avoid running the account to zero. That's essentially what you're paying for when you buy an annuity (apart from the investment fees, which you would pay anyway).

I hope this makes sense.
Helpful Answer (0)
Report

Hi Barb, Some things to consider while making your choice on annuitizing. Make a list of your sources of income in retirement along with the amount. Social security, pensions etc. Then make a list of your need for income. Rent, utilities, mortgage, taxes, food, clothing, ETc etc. Many newly retired individuals with rich benefit packages don't need additional income! The pension and social security etc are greater than expenses. But making the lists (which any financial advisor will do first) will give you a broader picture.
Questions onyour 403b --- how long can you defer taking any withdrawals? What are the payout choices? Are you married? Are there payout choices based upon a joint option (for you and your partner?).
No one can tell you what to do until you know what you will need. How do you plan to spend your retirement? Sitting close to home or traveling the world? Cooking an unhurried meal at home or dining at Peter Luger's?
What are ALL of the options with the 403b?? Can you take it all at one time (BIG tax consequences)? Can you wait until you are 70 to make a decision and allow it to grow between now and then?
The good news is 'you have retirement plans'. You have choices. Don't drive yourself nuts, don't listen to other teachers. Everyone is in a different place. Living in a rental apt vs. living in a house/condo that is fully paid off. A traveler vs someone who prefers to stay nearer to home. Would you prefer to sit on the boardwalk at Coney Island or have tickets to a broadway show? What is your family situation? Hope this helps rather than making things worse! LOL
Helpful Answer (1)
Report

Windy; this is also through my Union. There are choices what to do with the funds at retirement (still about 3 years off for me) and one of the choices is to annuitize.
Helpful Answer (0)
Report

I'm no expert by far. Hopefully others will chime in here. Just be aware that most financial planners have an interest in selling their products whether it's annuities or other investments. There have been threads on here before about annuities where a sales guy got involved. He may show up again and pitch his wares.

I would start researching on line by looking at sites and info that is not sponsored by the various institutions pitching these things.

I have a pension/annuity through my Union retirement plan. It was developed and is administered by a joint trustee board of union and employer members. It is a simple contribution, investment, payout plan and I have no problems with this set up. I do not have to worry about investments or any of the mechanics of the plan.

Some sales guy got hold of my dad when his dementia was starting and sold him 8 complex annuities, different terms, beneficiarys, maturity dates and tax regs. It was a nightmare to nail this company down for the paperwork.
Helpful Answer (4)
Report

Thanks, Windy. So, do I find myself a "fee for service" financial advisor? Is there a certification I should be looking for?
Helpful Answer (0)
Report

Tread very carefully. I spent a couple years trying to track down and get a handle on some annuities my dad got himself into. There are so many different varieties. Get an independent opinion from someone who knows this stuff. It is very complex.
Helpful Answer (1)
Report

This question has been closed for answers. Ask a New Question.
Subscribe to
Our Newsletter