It’s more like 1.6% per year if you die within the 20 year window. $1100x12=$13200x20=$264,000. $64,000/$200,000=32%/20 years = 1.6% per year unless I’m misunderstanding something?
When I retired 18 years ago, I took a cash buyout instead of a pension. I got a income producing annuity and bought an additional rider policy that guaranteed my initial investment. When I leave this miserable world, my son has the option of cashing out the annuity or keeping the monthly income. Win win.
That annuity will have a payout rate of 7.1% for the first... year? Maybe months. It is not inflation indexed. In 12 years (with historical modest inflation) it will be worth 30% less than it is today. In 24 years, ~ 50%.
1) You would need $295,000 in a 4.8% Tbond to yield the equal yearly annuity payout of $14,160 2) That $14,160 payment ends after 20 years. 3) Yes you would then have your $295,000 returned to you to do something else with it. Key is the contractually guaranteed income for life from the insurance company. Its a transfer of risk. The annuity is giving you back both your money and interest in combination, until your premium is gone, at which point the insurance company is still contractually obligated to continue paying you the same payment. In this example case, the bond requires 33% more in principal to get the same payments.
I spent 5 weeks researching have proposals in hand. My life expectancy is another 26 years. For 24 years im only getting my own principal returned. It’s a pretty crappy proposition. The best to be said is protection against getting dotty. T bills are better, maybe.
Thank you for the video. I was recently talking with my financial advisor about doing something just like this. Take half of my IRA and lock it in an annuity, let the other half do what it still can in the market. I've already changed my investments to a more conservative plan between stocks and equities to protect what is staying in the market. Happy New Year!
Absolutely right!! It worked great for me. Since my work did not offer a pension. I put some of my personal investments into a fixed income annuity 7 years before retirement. It grew without the risk of market downturns. My SSA covers my basic expenses. The annuity covers anything I want to do and the leftover IRA money is still moving with the market.
This sounds very similar to my situation. I am fortunate enough to have a pension as well, as I was one of the last groups of employees at my company that got one.
You have to leave the money in the annuity, and often for years, or you pay a penalty. Sometimes this penalty can wipe out any gains! Plus the annuity company is investing your money, and they face risks just as you would.
Your statement is false, period. The penalty to which you refer, is for those under 59 1/2. As far as leaving your money in the annuity for an extended period, that is the entire purpose of a deferred annuity, tax deferred growth and the benefit of the exclusion ratio, when appropriate. Read up a little more on annuities, my friend. Josh has a number of books laying this out for you.
May work for people who are questionable on running out of money or not. But if you're pretty wealthy, I don't get the benefit of giving an insurance company money and hope they pay you back. Would rather live off of dividends
States have guaranty funds for failed insurance companies. Insurance companies that want to do business in that state must pay into those funds. Reimbursement limits are generally $250K to $300K per company per individual. For example, an individual can have several annuities with one particular insurance company that total, let's say, $235K. Every bit of that money would be reimbursed by the state in which the individual lived when the contract was initially signed. If you want to put more than the limit into annuities, you spread the money out over multiple companies. Each company would be protected by the state of domicile of the annuitant up to the $250K-$300K limit.
Absolutely right Josh create an income floor with the fixed index annuity in Social Security and let the rest grow in the market. What good are the returns if you’re only taking 4% you can never touch them because you’ll always be worried. You’ll run out of money if the market tanks.
T bill, annuity, etc I like how Josh is thinking Take some gains and keep some in the market It doesn’t have to be all or nothing, you can have the best of both worlds-
If you fund the annuities with IRA dollars, the treatment is the same. No taxes due until RMD time. If you use Roth Dollars, like I did, there is no tax issue and the income is income tax free, for life. You can also use brokerage dollars, if you have LTCGs, depending on your income, there may or may not be a tax issue.
@@91210paige Idk if you'd call it a "rating" but when we bought our annuity thru Fidelity they told us they only used 4 insurance companies. They used Guardian for our annuity. I am not one bit worried about them going bankrupt.
@@penelope5500 I can understand Josh's point. I believe there are other options as my wife worked for a hospital for 15 years and they gave her other options but each one lowered the monthly payout by $75 ish. You could get it for her life, Her life and your spouse or even leave some to your kids.
@@penelope5500 Same here... we researched this before proceeding with Fidelity and there is some level of protection by states with their own Guarantee Association....we have one in CT but so do other states.... and from what I've been told the companies in this industry will buy out anyone in trouble to keep the industry in good standing. I'm not worried a bit and feel good know we basically bought our own pension with some of our retirement funds....not all so that some can be in the market for growth.
No!! Life Insurance companies are highly regulated, and that money is put into treasury bonds, and some corporate bonds. No stocks. The life insurance company has a pretty good idea of how long you and the others in the annuity pool are going to live and they take that money and purchase bonds that extend approximately your life expectancy. Some in the pool dies early and the others benefit from this as well as the insurance company. Income annuities are paying extremely well right now because interest rates are high and so are government treasury bond yields.
You can't count on SS to be there for your retirement, especially after January 2025. That's when president musk wants to steal the rest of the SS trust.
Thanks for the video and integrity in which it’s delivered. I see merits to this if you don’t want to deal with building your own fixed income annuity. Building your own will produce guaranteed income using a a combination of bond,notes,t-bills along with tip/ibond purchases with a better IRR and purchasing power protection. Something the annuity does not do. Plus the loss of liquidity using an annuity is too daunting for me. I agree annuities have their place but from my own experience you are buying income insurance and are too locked in. They are great for people who struggle with overspending or lack of financial knowledge or willingness to handle finances on are regular basis. In these cases annuities can be a great answer but you are paying a service charge. Love the video’s as you always invoke thought processes along the entire retirement wealth spectrum.
Love your videos, Josh! But to contrast this specific analysis, what about keeping that initial 400k in a fund (say, the Wellington) and siphon off 4% every year, for life? At 400k, that's $1,333 per month, and assuming the fund averages at least 5% annual growth, your money will certainly outlive year, and then pass on to your family (and not the insurance company).
CR4337...the answer lies in one word in your response that does apply to a discussing of Annuity Income...ASSUMING. Yes, you MIGHT make a higher return with Wellington, using 4% a year, BUT it is NOT GUARANTEED. If you are feeling lucky...leave all your money in the market.
Way to get educated on annuities. Multi year guaranteed annuities is the way to go. When i retired last year, i placed 60 percent of my retirement plan into MYGAS earning six percent. The other forty percent in other stuff. I wont access for a couple of years and will be able to live off the interest for the next ten years while still keeping my principle. I sleep very well at night!
You are choosing to look at this wrong. With an annuity, the life insurance company is guaranteeing a payment for life. They can do this because of the law of large numbers, which rules the life insurance world. If you know of a single investment anywhere else in the US Stock market that can do this, speak up. After all...what do you think your Social Security Benefits are? They are a life annuity with COLA...plus a few other benefits, for married couples.
@@rightwingprofessor1356 And all these insurance companies are competing against one another for your business while earning themselves a profit. Government regulated capitalism. The best form of economy man has come up with. Unless you believe they're all in cahoots to screw their would be clientele. The insurance industry ain't exactly the same as the payday loan industry.
While I personally am nota big fan of annuities, I’m lucky and have a pension. I can tell you the peace of mind to have a guaranteed income enough to cover basic expenses is worth any missed lot. So if I didn’t have my pension I could see getting a big enough annuity so that it along with SS could cover monthly expenses, and keep the rest invested.
I went a different way. Im 54 years old also. I've had 100% in the C fund. A week before the elections I transferred 1/2 of my 160,000 to the G fund. Plan is to transfer it back after a correction. I belive we are due. I was up 29% for the year when I did the transfer.
Hey Josh, I'm 68yo, retired, and I'm postponing Social Security until age 70. Right now I'm living on $4K per month IRA distributions. I'd like to set-up a future passive income bucket. I'm considering investing $300-400K in Schwab Dividend ETF SCHD. I'd reinvest the ETF dividends for a few years to increase my future quarterly payments. It's my understanding SCHD pays qualified dividends that would be taxed at the preferred long-term capital gains tax rates. How do feel about qualified dividend income in comparison to interest from an income annuity? Comparing these two investment options is giving me a headache!
I’d rather put the whole $400k into dividend ETFs averaging 5-6% and preserving my capital so o can leave it to my kids. But I have a pension coming, plus rental property income and maybe Social Security
Or leave the 200k in the market and draw your guaranteed money from your home equity through a reverse mortgage tenure payment. You will need a 500k home to guarantee the same 15k of annual payments that the 200k annuity is paying the main difference is that by using your the reverse mortgage you will achieve the same income at a much lower opportunity cost.
Not necessarily. The whole point is not to lose half of it in a market collapse scenario..at a totally uncertain time. The annuity shields you from that risk and locks in income. I’m not against reverse mortgages but they can remove some flexibility in being able to move or sell etc. whereas an annuity is a guaranteed income without strings or extra fees or interest making what you owe on the house more & more with time. Not a problem if you die there but the annuity with 20 year guarantee is much easier to leave to a beneficiary as well. The whole point is to get some money out of the market and set it up for certain income vs possible loss over time.
This is how I see it you have 2 options to guarantee yourself 15k of annual income Option #1 take 200k from portfolio to purchase the annuity Option #2 reverse mortgage a 500k home. Option #1( annuity with 200k) )This option will have an opportunity cost of 3.5 mill (equities earning 10% over a 30 year retirement) Option #2(reverse mortgage) will have an opportunity cost of 1.4 mill (reale estate appreciating at 3.50% over a 30 year retirement) This simple illustration shows how not using a reverse mortgage will cost your heirs over 2million dollars in opportunity cost. So why spend from an asset that over a 30 Year period has appreciated at 10 to12% in order to preserve an asset that has appreciated at 3 to 4% all while both options will protect your income from a bad sequence. You do make a valid point that if you plan on not making this your last home then a reverse mortgage will not be a good option for you.
@@sergiosantana4658 I understand your reasoning but the key issue is “opportunity cost” which is NEVER guaranteed in the stock market. Real estate is better but also not guaranteed. The whole point of the annuity over the market OR reverse mortgage is that the annuity is the only one that provides guaranteed income! Josh was showing the wisdom of putting 200k in an annuity that will guarantee no loss of principal abc the other 200k in the market to grow…. So you can have it both ways. You mentioned multiple millions in opportunity cost of 200k. What if half of that would still be way more than enough and you’d rather risk only 200k vs 400k when you really only need the income that the 200k annuity provides. Why risk a 500k house? You never know what could happen and when… so why risk losing so much when you don’t need to? Greed can be a fools game in retirement. The goal should not always be trying to maximize the probability of max returns but to guarantee a successful & comfortable retirement! Guaranteed income comes with a lot of peace of mind. Now is a good time for annuity for sure. Reverse mortgages not so much… you are just paying interest and borrowing money essentially. With an annuity you are establishing truly a fully portable and permanent income stream.. for both you & your heirs. A reverse mortgage is a constantly growing credit line where an annuity is a guaranteed income stream for life -. I would take that any day of the week!
Why risk a 500k home. Because by creating the same guaranteed income stream from the reverse mortgage through the tenure option (the tenure option works just like an annuity i am not talking about the growing line of credit)you can secure the same income stream for life for you and your spouse as long as both of you are over the age of 62. This will now allow you to keep the whole 400k in the market without any risk of a major crash disrupting your income. You are right there are no guarantees but over a 30 period I will always take 200k in the market over a 500k home. This has nothing to do with greed this is just how the math works out I'll ask you why risk an opportunity cost of over 3.5 mill dollars (the 200k annuity)in order to preserve the opportunity cost of 1.4mill (your home) this makes no sense.
@ I bet the people who retired at the end of the roaring 20s would disagree with you.re “opportunity cost”! Some markets take 10 or 20 or more years to recover and if that is the last 10-20 of your life it can be bad. The income from an annuity in a depression would come in handy.
Did it last year... (sold and locked in gains) I missed 25% gains ytd 2024 in the S&P500 while earning a paltry 4% in treasuries. All while real inflation was in the high single digits. Let it ride. Anything lost comes roaring back (historically 100% of the time) in just a matter of months. Annuities are a hard NO for me. They are complicated and stacked with legal jargon. They get too complicated for those with age related cognitive decline (everyone). If you dont have someone managing them, they find ways to reduce or stop the payments... i.e research Metlife circa late 1980s.
A 25% loss in the market requires a 33% gain to get back to square one...and that doesn't account for the inflation in the interim. There are far more instances where it took individuals well over five years to achieve what they had before a crash than there are of those recouping their losses in a matter of months. I have two annuities myself and I find the legal jargon to be fairly straightforward. There are a myriad of annuity options, tailored to the risk tolerances of each individual, but once the plan is chosen, the parameters are clearly spelled out in the contract. Now if you want to play the variable annuity game, that's a different story. Still, you're told upfront about the caps to your earnings that are the price you pay for the assurance that you won't lose money if the market takes a dump.
My only issue with this is it would force me to take more income sooner than if I wait for RMDs at 75. And as things stand right now it would probably force me to pay more tax on my SS from 65-75 & beyond than would otherwise be the case. Also what if you already have 40% in stock market? And have a pension from 2020..
@@markcobb8253 Yes they do. For years brokerages have allowed you to purchase equities for free and they charge nothing to hold the note. Most people don’t own individual stocks, but for those who do it is free.
I’m not sold Josh. I trust the stock market’s natural long term progression more than I do an insurance company. Yes, the market does crash. But it always recovers. Companies not necessarily so. Nor can a stock market bribe politicians to steal your money. You have to pay capital gains when you sell stock to buy an annuity. Also, annuities income is taxed as income. I suppose you can have so many annuities the taxes don’t matter. But that would take a lot money and a lot of annuities. I’m not saying you’re wrong but I’m not sold there’s an upside.
"But it always recovers." - not true for many retirees that will go to heaven long before a slow recovery that takes 10-20 years. Not recommending an annuity but a 20y bond at 5% is safer than the biggest bubble in American history. When your bond doubles and your stocks are worth 50% or less, rebalance.
@@Amir-je6wl It always seemed to me like people who warn of assuming you could survive a steep LT market correction think nothing of assuming low inflation rates for their lifetime. Pick your poison.
@@Amir-je6wl The last stock market that took 20+ years to recover its previous high was the 1929 Stock Market crash which erased 36% of the S&P500 - almost 100 years ago. I'm not saying that can't happen again. But I'd venture - and bear in mind I think we're heading for another crash in the next 1 to 2 years - that one that long lasting isn't likely. As far as bonds go, 5% isn't that good when you consider inflation and taxation. Even normal taxation. Though you can get around some state taxes if you invest in municipal bonds. Bonds are good enough to hold money in without losing it. And I've heard some investors will keep 50% of their money in bonds to buy up stocks during a crash at a discount, then rebalance when the market recovers. But aside from that plausible strategy I'm not sold on them either.
@@5metoo U.S. has too much debt for the Fed to allow high rates for long. There are many options outside of the s&p 500 as well as within the fixed income universe (TIPs, shorter duration, CLO) that will address a higher inflation scenario.
In my situation, I was required to take my money out of the retirement program of the company I retired from. Every bit of it was in their company stock. My choice. The money had to be out by March of the year after I reached 62. That money goes directly into an IRA with a brokerage and is then transferred to the annuity. No taxes...yet. That money will now be treated as ordinary income as I receive the monthly payments. On the bright side, that money is now "diversified". Yeah, I'm not sold on selling stock outside that retirement program, paying the capital gains and then investing it into an annuity where I'd be paying regular income taxes.
Just not sure how good that is in an inflationary environment. With the debt levels we have, the government has no choice but to monetize it, which means the years of 2% inflation are over. Keeping money in the market at least guarantees beating inflation over the long term.
And no one recommends putting your entire portfolio in an income annuity. And even if you wanted to the insurer would not allow it as it would not pass their suitability policy. So, even if you went out as far as 50% of your portfolio in an income annuity the other 50% would be at your disposal for growth.
Can someone Please tell me who I should buy the annuity from what company? Thank you in advance! Plus, I’m single and I have no errors. I don’t need to leave a cent to anyone even though I will still have a 401(k) and such but as far as an annuity, I could do life only and get the most amount per month, correct?!
You want the highest rated company. The most financially solid. MassMutual is the best out there. New York Life is the other titan. I went with MassMutual b/c their rate on the type of annuity I was looking at was giving me about 5% more in total cash from the payments over the life of the annuity than New York Life was. I went with a 20 year term. New York Life is giving just about the best rate for lifetime annuities. Lifetime annuities pay the least PER MONTH. My 20 year annuity is paying about 12% more per month than if I'd have gotten a lifetime annuity. Josh used a calculator about midway through in this video from the site where I just got my annuities from. Don't think I can leave the website on here.
Exactly! This is why I don't trust anyone to manage my money. Financial literacy is so important. He is telling his viewers that giving up your principle for 3.5% is a good deal. Is he serious? You could even do better with a CD.
@@beatricerights You can't do better in a CD. The taxes would eat you up. 20 year immediate annuities are currently paying 4.5%. 5 year deferred annuities are paying 5%...tax deferred.
@@robnunurbiznezz7618 Your principle would stay intact. Anuities are such a bad idea I don't understand how anyone could buy into it. You give someone a large sum of money and they give you a little bit at a time. Why can't you do that for yourself.
@@beatricerights the deferred annuity maintains your principle. Annuities at today's rates are a good bet to beat CD rates in the future. What are the chances a CD will be paying 4.5% for any extended period? Sure it's a gamble. Hyperinflation for several years makes you a loser with a lifetime annuity.
To be honest, annuities are only good when you need income as opposed to growth. Eventually most of us will want income unless we want to die rich and leave it to someone else. So in my case I’d rather keep the $200K invested long term and see it grow until the time comes when growth is irrelevant and income is everything.
You'd have to be a fool to take the majority of your savings and invest in the market in the hopes of accumulating massive wealth that you end up passing on to others when you die...and then having them blow the wad in a fashion that you could have. The idea should be to leave something to your heirs that will lessen their load in life, but not make them a waste of oxygen. Money is appreciated far more when one earns it themselves. Gates has the right idea when it comes to passing an inheritance on to his children. They'll be wealthy (how could they not be?), but they won't approach anywhere near the wealth of Gates himself.
I just went with the 20 year period certain from two different insurance companies. If I die before the 20 years is up, my beneficiaries get what remains. Both are paying 4.5% interest. I'll receive, in total, about 155% of the premium I paid. Of course, once the 20 years is up, it's up. People need to keep in mind that they may not always use the entire monthly payout. They may very well have a surplus on many occasions. That surplus can be reinvested in something else. It's not a given that they'll reach the end of the 20 years and be left with no income but their SS.
So Josh I assume I am not understanding something between this video and an old video you did on an indexed annuity where you were not at all thrilled about indexed annuities but you also seemed to say an annuity (including an income annuity general?) was a bad idea as it's not adjusting for inflation so the purchasing power of the annuity is eroded over time. So what am I missing? This video th-cam.com/video/Y3FK5TfEAwo/w-d-xo.html
Annuities are really only beneficial for people with longevity in their families. If you die at 85 your real return is only 3.75% after you factor in the depletion of your $200,000 (Fyi - life expectancy for a 65-year-old male is 83 years). If you live to be 95 years old, the return works out to be about 5.85%. Live to 120 years, it will be 6.9%. For people with an average life expectancy, they would be better off buying a 20-year Treasury bond paying 4.8%.
4.8% interest on 200k is only $800 per month. The annuity provide $1180 per month, nearly 50% more. If the goal is to have income and legacy, then put 135k into an annuity for $800 per month income and then put the remaining 65k into 100% stocks for growth.
@@Amir-je6wl The expected return of a 4.8% bond is 4.8%. If you are betting on getting a different return, then you are wandering off into the graveyard of market timing.
@@peaceofcake8464 Bond yields are not stocks that tend to go up. The 10y (20y traded for just 12 years) treasury was under 4.5% in almost the entirety of the last 20 years. Every time the economy hits a wall rates decline.
Absolutely right Josh create an income floor with the fixed index annuity in Social Security and let the rest grow in the market. What good are the returns if you’re only taking 4% you can never touch them because you’ll always be worried. You’ll run out of money if the market tanks.
Absolutely right Josh create an income floor with the fixed index annuity in Social Security and let the rest grow in the market. What good are the returns if you’re only taking 4% you can never touch them because you’ll always be worried. You’ll run out of money if the market tanks.
Absolutely right Josh create an income floor with the fixed index annuity in Social Security and let the rest grow in the market. What good are the returns if you’re only taking 4% you can never touch them because you’ll always be worried. You’ll run out of money if the market tanks.
Absolutely right Josh create an income floor with the fixed index annuity in Social Security and let the rest grow in the market. What good are the returns if you’re only taking 4% you can never touch them because you’ll always be worried. You’ll run out of money if the market tanks.
Absolutely right Josh create an income floor with the fixed index annuity in Social Security and let the rest grow in the market. What good are the returns if you’re only taking 4% you can never touch them because you’ll always be worried. You’ll run out of money if the market tanks.
Absolutely right Josh create an income floor with the fixed index annuity in Social Security and let the rest grow in the market. What good are the returns if you’re only taking 4% you can never touch them because you’ll always be worried. You’ll run out of money if the market tanks.
It’s more like 1.6% per year if you die within the 20 year window. $1100x12=$13200x20=$264,000. $64,000/$200,000=32%/20 years = 1.6% per year unless I’m misunderstanding something?
When I retired 18 years ago, I took a cash buyout instead of a pension. I got a income producing annuity and bought an additional rider policy that guaranteed my initial investment. When I leave this miserable world, my son has the option of cashing out the annuity or keeping the monthly income. Win win.
That annuity will have a payout rate of 7.1% for the first... year? Maybe months. It is not inflation indexed. In 12 years (with historical modest inflation) it will be worth 30% less than it is today. In 24 years, ~ 50%.
why not just buy a 20 year tbill and get 4.8 guarantee?
Does that give you a monthly income?
1) You would need $295,000 in a 4.8% Tbond to yield the equal yearly annuity payout of $14,160
2) That $14,160 payment ends after 20 years.
3) Yes you would then have your $295,000 returned to you to do something else with it.
Key is the contractually guaranteed income for life from the insurance company. Its a transfer of risk. The annuity is giving you back both your money and interest in combination, until your premium is gone, at which point the insurance company is still contractually obligated to continue paying you the same payment. In this example case, the bond requires 33% more in principal to get the same payments.
@@northtexan95quarterly
@@go2gym agreed...i was comparing 20 year to 20 year
LONZ (CLO) pays over 8% and its safer than an annuity in the long run.
To be considered only after you have taken advantage of all of the social security delayed credits.
I spent 5 weeks researching have proposals in hand. My life expectancy is another 26 years. For 24 years im only getting my own principal returned. It’s a pretty crappy proposition. The best to be said is protection against getting dotty. T bills are better, maybe.
T bills is not guaranteed
@@pongmolina2157 what?
@@ronmorosey672 different rates when you renew. get it?
@pongmolina2157 the 20 year t bill is guaranteed rate for 20 years..get it?
@@ronmorosey672 Don't you have to renew it after 20 years? if so, rates maybe higher or lower than what you had before.
Thank you for the video. I was recently talking with my financial advisor about doing something just like this. Take half of my IRA and lock it in an annuity, let the other half do what it still can in the market. I've already changed my investments to a more conservative plan between stocks and equities to protect what is staying in the market.
Happy New Year!
Me too, and I sleep great 😊😊
Absolutely right!! It worked great for me. Since my work did not offer a pension. I put some of my personal investments into a fixed income annuity 7 years before retirement. It grew without the risk of market downturns. My SSA covers my basic expenses. The annuity covers anything I want to do and the leftover IRA money is still moving with the market.
This sounds very similar to my situation. I am fortunate enough to have a pension as well, as I was one of the last groups of employees at my company that got one.
Congrats on planning ahead....and following through with the plan.
This is my exact plan. an annuity and SS to cover expenses and let the IRA ride with the Market. with Cash on the side for emergencies
Thanks for your financial analysis and have a prosperous new year.
You have to leave the money in the annuity, and often for years, or you pay a penalty. Sometimes this penalty can wipe out any gains! Plus the annuity company is investing your money, and they face risks just as you would.
This is an income annuity- not a deferred annuity
Your statement is false, period. The penalty to which you refer, is for those under 59 1/2. As far as leaving your money in the annuity for an extended period, that is the entire purpose of a deferred annuity, tax deferred growth and the benefit of the exclusion ratio, when appropriate.
Read up a little more on annuities, my friend. Josh has a number of books laying this out for you.
@@rightwingprofessor1356 Thanks to you and Josh for explaining this. I am used to the term single payment annuity rather than income annuity.
May work for people who are questionable on running out of money or not. But if you're pretty wealthy, I don't get the benefit of giving an insurance company money and hope they pay you back. Would rather live off of dividends
What happens if annuity company goes bankrupt?😮😮😮
Read the replies that refer to state guaranty funds.
Isn't an annuity like any other 'guarantee' in that it is only as good as the provider is in business?
States have guaranty funds for failed insurance companies. Insurance companies that want to do business in that state must pay into those funds. Reimbursement limits are generally $250K to $300K per company per individual. For example, an individual can have several annuities with one particular insurance company that total, let's say, $235K. Every bit of that money would be reimbursed by the state in which the individual lived when the contract was initially signed. If you want to put more than the limit into annuities, you spread the money out over multiple companies. Each company would be protected by the state of domicile of the annuitant up to the $250K-$300K limit.
Absolutely right Josh create an income floor with the fixed index annuity in Social Security and let the rest grow in the market. What good are the returns if you’re only taking 4% you can never touch them because you’ll always be worried. You’ll run out of money if the market tanks.
I took some gains this year. I put it into the house. Needed a new roof.
We did same along with a newer model car.
What companies do you recommend for annuities? Great video
Ask Stan the Annuity Man. He has a Utube channel Straight up guy from what I can tell. Lots of great info to.
T bill, annuity, etc
I like how Josh is thinking
Take some gains and keep some in the market
It doesn’t have to be all or nothing, you can have the best of both worlds-
Would that make you take a large tax hit pulling all that money at once? And how do annuity payments contribute (if any) to your taxes?
T-ira to annuity is not taxable event. The amount of taxes you owe is base on your monthly income.
The way I understand it is that this is split in 2 parts Principle and interest. One part is taxable. you have to ask about that up front.
@@91210paige If it is from T-ira everything is taxable just depends on when you get the income.
If you fund the annuities with IRA dollars, the treatment is the same. No taxes due until RMD time. If you use Roth Dollars, like I did, there is no tax issue and the income is income tax free, for life. You can also use brokerage dollars, if you have LTCGs, depending on your income, there may or may not be a tax issue.
If the insurance co goes bankrupt is the fiu guaranteed by fed government?
No.
@@HeritageWealthPlanning Is there a rating like bonds for these company out there?
@@91210paige Idk if you'd call it a "rating" but when we bought our annuity thru Fidelity they told us they only used 4 insurance companies. They used Guardian for our annuity. I am not one bit worried about them going bankrupt.
@@penelope5500 I can understand Josh's point. I believe there are other options as my wife worked for a hospital for 15 years and they gave her other options but each one lowered the monthly payout by $75 ish. You could get it for her life, Her life and your spouse or even leave some to your kids.
@@penelope5500 Same here... we researched this before proceeding with Fidelity and there is some level of protection by states with their own Guarantee Association....we have one in CT but so do other states.... and from what I've been told the companies in this industry will buy out anyone in trouble to keep the industry in good standing. I'm not worried a bit and feel good know we basically bought our own pension with some of our retirement funds....not all so that some can be in the market for growth.
Where do they put money when invested in annunity? In the stock market for bonds ?
No!!
Life Insurance companies are highly regulated, and that money is put into treasury bonds, and some corporate bonds.
No stocks.
The life insurance company has a pretty good idea of how long you and the others in the annuity pool are going to live and they take that money and purchase bonds that extend approximately your life expectancy.
Some in the pool dies early and the others benefit from this as well as the insurance company.
Income annuities are paying extremely well right now because interest rates are high and so are government treasury bond yields.
I have a pension and SS. I don't need another annuity.
At least you know, you’re already set
Nice humble brag bro. No one cares.
You can't count on SS to be there for your retirement, especially after January 2025. That's when president musk wants to steal the rest of the SS trust.
I agree with taking profits, and possibly a small portion of nest egg in annuity.
Thanks for the video and integrity in which it’s delivered.
I see merits to this if you don’t want to deal with building your own fixed income annuity. Building your own will produce guaranteed income using a a combination of bond,notes,t-bills along with tip/ibond purchases with a better IRR and purchasing power protection. Something the annuity does not do. Plus the loss of liquidity using an annuity is too daunting for me.
I agree annuities have their place but from my own experience you are buying income insurance and are too locked in. They are great for people who struggle with overspending or lack of financial knowledge or willingness to handle finances on are regular basis. In these cases annuities can be a great answer but you are paying a service charge.
Love the video’s as you always invoke thought processes along the entire retirement wealth spectrum.
How did you calculate that 3.6% annual return?
Love your videos, Josh! But to contrast this specific analysis, what about keeping that initial 400k in a fund (say, the Wellington) and siphon off 4% every year, for life? At 400k, that's $1,333 per month, and assuming the fund averages at least 5% annual growth, your money will certainly outlive year, and then pass on to your family (and not the insurance company).
CR4337...the answer lies in one word in your response that does apply to a discussing of Annuity Income...ASSUMING. Yes, you MIGHT make a higher return with Wellington, using 4% a year, BUT it is NOT GUARANTEED. If you are feeling lucky...leave all your money in the market.
Way to get educated on annuities. Multi year guaranteed annuities is the way to go. When i retired last year, i placed 60 percent of my retirement plan into MYGAS earning six percent. The other forty percent in other stuff. I wont access for a couple of years and will be able to live off the interest for the next ten years while still keeping my principle. I sleep very well at night!
Unless I am missing something, why would I make a bet with a professional odds maker who is dictating the odds of the bet?
You are choosing to look at this wrong. With an annuity, the life insurance company is guaranteeing a payment for life. They can do this because of the law of large numbers, which rules the life insurance world. If you know of a single investment anywhere else in the US Stock market that can do this, speak up.
After all...what do you think your Social Security Benefits are? They are a life annuity with COLA...plus a few other benefits, for married couples.
@@rightwingprofessor1356 And all these insurance companies are competing against one another for your business while earning themselves a profit. Government regulated capitalism. The best form of economy man has come up with. Unless you believe they're all in cahoots to screw their would be clientele. The insurance industry ain't exactly the same as the payday loan industry.
Most importantly, what are the tax implications?
Pay ordinary income tax on your gains, unless it’s an Ira then OI on the whole income
While I personally am nota big fan of annuities, I’m lucky and have a pension. I can tell you the peace of mind to have a guaranteed income enough to cover basic expenses is worth any missed lot. So if I didn’t have my pension I could see getting a big enough annuity so that it along with SS could cover monthly expenses, and keep the rest invested.
I went a different way. Im 54 years old also. I've had 100% in the C fund. A week before the elections I transferred 1/2 of my 160,000 to the G fund. Plan is to transfer it back after a correction. I belive we are due. I was up 29% for the year when I did the transfer.
Hey Josh, I'm 68yo, retired, and I'm postponing Social Security until age 70. Right now I'm living on $4K per month IRA distributions. I'd like to set-up a future passive income bucket. I'm considering investing $300-400K in Schwab Dividend ETF SCHD. I'd reinvest the ETF dividends for a few years to increase my future quarterly payments. It's my understanding SCHD pays qualified dividends that would be taxed at the preferred long-term capital gains tax rates. How do feel about qualified dividend income in comparison to interest from an income annuity? Comparing these two investment options is giving me a headache!
I’d rather put the whole $400k into dividend ETFs averaging 5-6% and preserving my capital so o can leave it to my kids. But I have a pension coming, plus rental property income and maybe Social Security
Or leave the 200k in the market and draw your guaranteed money from your home equity through a reverse mortgage tenure payment.
You will need a 500k home to guarantee the same 15k of annual payments that the 200k annuity is paying the main difference is that by using your the reverse mortgage you will achieve the same income at a much lower opportunity cost.
Not necessarily. The whole point is not to lose half of it in a market collapse scenario..at a totally uncertain time. The annuity shields you from that risk and locks in income. I’m not against reverse mortgages but they can remove some flexibility in being able to move or sell etc. whereas an annuity is a guaranteed income without strings or extra fees or interest making what you owe on the house more & more with time. Not a problem if you die there but the annuity with 20 year guarantee is much easier to leave to a beneficiary as well. The whole point is to get some money out of the market and set it up for certain income vs possible loss over time.
This is how I see it you have 2 options to guarantee yourself 15k of annual income
Option #1 take 200k from portfolio to purchase the annuity
Option #2 reverse mortgage a 500k home.
Option #1( annuity with 200k) )This option will have an opportunity cost of 3.5 mill (equities earning 10% over a 30 year retirement)
Option #2(reverse mortgage) will have an opportunity cost of 1.4 mill (reale estate appreciating at 3.50% over a 30 year retirement)
This simple illustration shows how not using a reverse mortgage will cost your heirs over 2million dollars in opportunity cost. So why spend from an asset that over a 30 Year period has appreciated at 10 to12% in order to preserve an asset that has appreciated at 3 to 4% all while both options will protect your income from a bad sequence.
You do make a valid point that if you plan on not making this your last home then a reverse mortgage will not be a good option for you.
@@sergiosantana4658 I understand your reasoning but the key issue is “opportunity cost” which is NEVER guaranteed in the stock market. Real estate is better but also not guaranteed. The whole point of the annuity over the market OR reverse mortgage is that the annuity is the only one that provides guaranteed income! Josh was showing the wisdom of putting 200k in an annuity that will guarantee no loss of principal abc the other 200k in the market to grow…. So you can have it both ways. You mentioned multiple millions in opportunity cost of 200k. What if half of that would still be way more than enough and you’d rather risk only 200k vs 400k when you really only need the income that the 200k annuity provides. Why risk a 500k house? You never know what could happen and when… so why risk losing so much when you don’t need to? Greed can be a fools game in retirement. The goal should not always be trying to maximize the probability of max returns but to guarantee a successful & comfortable retirement! Guaranteed income comes with a lot of peace of mind. Now is a good time for annuity for sure. Reverse mortgages not so much… you are just paying interest and borrowing money essentially. With an annuity you are establishing truly a fully portable and permanent income stream.. for both you & your heirs. A reverse mortgage is a constantly growing credit line where an annuity is a guaranteed income stream for life -. I would take that any day of the week!
Why risk a 500k home. Because by creating the same guaranteed income stream from the reverse mortgage through the tenure option (the tenure option works just like an annuity i am not talking about the growing line of credit)you can secure the same income stream for life for you and your spouse as long as both of you are over the age of 62.
This will now allow you to keep the whole 400k in the market without any risk of a major crash disrupting your income.
You are right there are no guarantees but over a 30 period I will always take 200k in the market over a 500k home.
This has nothing to do with greed this is just how the math works out I'll ask you why risk an opportunity cost of over 3.5 mill dollars (the 200k annuity)in order to preserve the opportunity cost of 1.4mill (your home) this makes no sense.
@ I bet the people who retired at the end of the roaring 20s would disagree with you.re “opportunity cost”! Some markets take 10 or 20 or more years to recover and if that is the last 10-20 of your life it can be bad. The income from an annuity in a depression would come in handy.
Did it last year... (sold and locked in gains) I missed 25% gains ytd 2024 in the S&P500 while earning a paltry 4% in treasuries. All while real inflation was in the high single digits. Let it ride. Anything lost comes roaring back (historically 100% of the time) in just a matter of months. Annuities are a hard NO for me. They are complicated and stacked with legal jargon. They get too complicated for those with age related cognitive decline (everyone). If you dont have someone managing them, they find ways to reduce or stop the payments... i.e research Metlife circa late 1980s.
A 25% loss in the market requires a 33% gain to get back to square one...and that doesn't account for the inflation in the interim. There are far more instances where it took individuals well over five years to achieve what they had before a crash than there are of those recouping their losses in a matter of months. I have two annuities myself and I find the legal jargon to be fairly straightforward. There are a myriad of annuity options, tailored to the risk tolerances of each individual, but once the plan is chosen, the parameters are clearly spelled out in the contract. Now if you want to play the variable annuity game, that's a different story. Still, you're told upfront about the caps to your earnings that are the price you pay for the assurance that you won't lose money if the market takes a dump.
I honestly don't understand how he can advertise this. It's insane to me..
My only issue with this is it would force me to take more income sooner than if I wait for RMDs at 75. And as things stand right now it would probably force me to pay more tax on my SS from 65-75 & beyond than would otherwise be the case. Also what if you already have 40% in stock market? And have a pension from 2020..
The tax man is gonna get you, either now or down the line. Your decision is when you want to feel the pain.
Annuities are designed to enrich the salesman.
That's getting old. Stockbrokers don't work for free.
@@markcobb8253 Yes they do. For years brokerages have allowed you to purchase equities for free and they charge nothing to hold the note. Most people don’t own individual stocks, but for those who do it is free.
Heeeellll no! I’d rather work a few extra years than give my wealth away to insurance companies unnecessarily.
I’m not sold Josh. I trust the stock market’s natural long term progression more than I do an insurance company. Yes, the market does crash. But it always recovers. Companies not necessarily so. Nor can a stock market bribe politicians to steal your money. You have to pay capital gains when you sell stock to buy an annuity. Also, annuities income is taxed as income. I suppose you can have so many annuities the taxes don’t matter. But that would take a lot money and a lot of annuities. I’m not saying you’re wrong but I’m not sold there’s an upside.
"But it always recovers." - not true for many retirees that will go to heaven long before a slow recovery that takes 10-20 years. Not recommending an annuity but a 20y bond at 5% is safer than the biggest bubble in American history. When your bond doubles and your stocks are worth 50% or less, rebalance.
@@Amir-je6wl It always seemed to me like people who warn of assuming you could survive a steep LT market correction think nothing of assuming low inflation rates for their lifetime. Pick your poison.
@@Amir-je6wl The last stock market that took 20+ years to recover its previous high was the 1929 Stock Market crash which erased 36% of the S&P500 - almost 100 years ago. I'm not saying that can't happen again. But I'd venture - and bear in mind I think we're heading for another crash in the next 1 to 2 years - that one that long lasting isn't likely.
As far as bonds go, 5% isn't that good when you consider inflation and taxation. Even normal taxation. Though you can get around some state taxes if you invest in municipal bonds. Bonds are good enough to hold money in without losing it. And I've heard some investors will keep 50% of their money in bonds to buy up stocks during a crash at a discount, then rebalance when the market recovers. But aside from that plausible strategy I'm not sold on them either.
@@5metoo U.S. has too much debt for the Fed to allow high rates for long. There are many options outside of the s&p 500 as well as within the fixed income universe (TIPs, shorter duration, CLO) that will address a higher inflation scenario.
In my situation, I was required to take my money out of the retirement program of the company I retired from. Every bit of it was in their company stock. My choice. The money had to be out by March of the year after I reached 62. That money goes directly into an IRA with a brokerage and is then transferred to the annuity. No taxes...yet. That money will now be treated as ordinary income as I receive the monthly payments. On the bright side, that money is now "diversified". Yeah, I'm not sold on selling stock outside that retirement program, paying the capital gains and then investing it into an annuity where I'd be paying regular income taxes.
200,000/20 years= 10,000 that's with out and interest. SSA is my annuity.
Couldn’t agree more ! Great video.
TIPS ladder?
Big ups
Are annuity payments part of the calculation for provisional income for determining social security taxes? And can annuities impact IRMAA
Yes and yes, on both counts.
What about taxes?
"Consult your financial advisor"
Just not sure how good that is in an inflationary environment. With the debt levels we have, the government has no choice but to monetize it, which means the years of 2% inflation are over. Keeping money in the market at least guarantees beating inflation over the long term.
Guarantees?
How do you define "long run"? It didn't work from 1965 to 1982.
And no one recommends putting your entire portfolio in an income annuity.
And even if you wanted to the insurer would not allow it as it would not pass their suitability policy.
So, even if you went out as far as 50% of your portfolio in an income annuity the other 50% would be at your disposal for growth.
Can someone Please tell me who I should buy the annuity from what company? Thank you in advance! Plus, I’m single and I have no errors. I don’t need to leave a cent to anyone even though I will still have a 401(k) and such but as far as an annuity, I could do life only and get the most amount per month, correct?!
Correct, Life Only will pay out the most if you aren’t worried about a partner or heirs. Research mutual insurance companies for options.
@ thank you!
Stan the annuityman, the best😊
LOL I almost spit out my supper reading "I have no Errors" to funny I'm knew what you meant but I'm happy Speck check gets others to. Good luck!
You want the highest rated company. The most financially solid. MassMutual is the best out there. New York Life is the other titan. I went with MassMutual b/c their rate on the type of annuity I was looking at was giving me about 5% more in total cash from the payments over the life of the annuity than New York Life was. I went with a 20 year term. New York Life is giving just about the best rate for lifetime annuities. Lifetime annuities pay the least PER MONTH. My 20 year annuity is paying about 12% more per month than if I'd have gotten a lifetime annuity. Josh used a calculator about midway through in this video from the site where I just got my annuities from. Don't think I can leave the website on here.
An annuity? Is this some kind of joke?
Exactly! This is why I don't trust anyone to manage my money. Financial literacy is so important. He is telling his viewers that giving up your principle for 3.5% is a good deal. Is he serious? You could even do better with a CD.
@@beatricerights You can't do better in a CD. The taxes would eat you up. 20 year immediate annuities are currently paying 4.5%. 5 year deferred annuities are paying 5%...tax deferred.
@@robnunurbiznezz7618 Your principle would stay intact. Anuities are such a bad idea I don't understand how anyone could buy into it. You give someone a large sum of money and they give you a little bit at a time. Why can't you do that for yourself.
@@beatricerights the deferred annuity maintains your principle. Annuities at today's rates are a good bet to beat CD rates in the future. What are the chances a CD will be paying 4.5% for any extended period? Sure it's a gamble. Hyperinflation for several years makes you a loser with a lifetime annuity.
To be honest, annuities are only good when you need income as opposed to growth. Eventually most of us will want income unless we want to die rich and leave it to someone else. So in my case I’d rather keep the $200K invested long term and see it grow until the time comes when growth is irrelevant and income is everything.
yes I agree I'd rather use bonds, CD and High interest savings accounts then give it to a company to manage.
You'd have to be a fool to take the majority of your savings and invest in the market in the hopes of accumulating massive wealth that you end up passing on to others when you die...and then having them blow the wad in a fashion that you could have. The idea should be to leave something to your heirs that will lessen their load in life, but not make them a waste of oxygen. Money is appreciated far more when one earns it themselves. Gates has the right idea when it comes to passing an inheritance on to his children. They'll be wealthy (how could they not be?), but they won't approach anywhere near the wealth of Gates himself.
I just went with the 20 year period certain from two different insurance companies. If I die before the 20 years is up, my beneficiaries get what remains. Both are paying 4.5% interest. I'll receive, in total, about 155% of the premium I paid. Of course, once the 20 years is up, it's up. People need to keep in mind that they may not always use the entire monthly payout. They may very well have a surplus on many occasions. That surplus can be reinvested in something else. It's not a given that they'll reach the end of the 20 years and be left with no income but their SS.
I approve of this message.😄
Buying annuitys is wrong. Buy some insurance and keep your lump sum....
* annuities
Because annuities aren’t insurance?
Huh?
Don't fall for the annuity scam. You will be leaving way too much money on the table people.
So Josh I assume I am not understanding something between this video and an old video you did on an indexed annuity where you were not at all thrilled about indexed annuities but you also seemed to say an annuity (including an income annuity general?) was a bad idea as it's not adjusting for inflation so the purchasing power of the annuity is eroded over time. So what am I missing? This video th-cam.com/video/Y3FK5TfEAwo/w-d-xo.html
Do people really make terrible decisions like this?
The only way I run out of money is if the government runs out of money and my pension of $125K a year stops. No annuity for this guy!
Sounds like a "blue" state. No worries. They'll always bail California out.
No annuity for this guy. Never. Ever.
Annuities are really only beneficial for people with longevity in their families. If you die at 85 your real return is only 3.75% after you factor in the depletion of your $200,000 (Fyi - life expectancy for a 65-year-old male is 83 years). If you live to be 95 years old, the return works out to be about 5.85%. Live to 120 years, it will be 6.9%. For people with an average life expectancy, they would be better off buying a 20-year Treasury bond paying 4.8%.
No- you’re comparing an income product - an annuity- to an INTEREST product, Treasury bonds.
The annuity beats Treasury bonds hands down for income
4.8% interest on 200k is only $800 per month. The annuity provide $1180 per month, nearly 50% more. If the goal is to have income and legacy, then put 135k into an annuity for $800 per month income and then put the remaining 65k into 100% stocks for growth.
No one understands bonds. The 20y bond can return much more than stocks and it can happen very soon.
@@Amir-je6wl The expected return of a 4.8% bond is 4.8%. If you are betting on getting a different return, then you are wandering off into the graveyard of market timing.
@@peaceofcake8464 Bond yields are not stocks that tend to go up. The 10y (20y traded for just 12 years) treasury was under 4.5% in almost the entirety of the last 20 years. Every time the economy hits a wall rates decline.
🫡
Absolutely right Josh create an income floor with the fixed index annuity in Social Security and let the rest grow in the market. What good are the returns if you’re only taking 4% you can never touch them because you’ll always be worried. You’ll run out of money if the market tanks.
Absolutely right Josh create an income floor with the fixed index annuity in Social Security and let the rest grow in the market. What good are the returns if you’re only taking 4% you can never touch them because you’ll always be worried. You’ll run out of money if the market tanks.
Absolutely right Josh create an income floor with the fixed index annuity in Social Security and let the rest grow in the market. What good are the returns if you’re only taking 4% you can never touch them because you’ll always be worried. You’ll run out of money if the market tanks.
Absolutely right Josh create an income floor with the fixed index annuity in Social Security and let the rest grow in the market. What good are the returns if you’re only taking 4% you can never touch them because you’ll always be worried. You’ll run out of money if the market tanks.
Absolutely right Josh create an income floor with the fixed index annuity in Social Security and let the rest grow in the market. What good are the returns if you’re only taking 4% you can never touch them because you’ll always be worried. You’ll run out of money if the market tanks.
Absolutely right Josh create an income floor with the fixed index annuity in Social Security and let the rest grow in the market. What good are the returns if you’re only taking 4% you can never touch them because you’ll always be worried. You’ll run out of money if the market tanks.