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Is there information were I can go to see how much income I will be receiving if I were to purchase an Annuity?

Am 3 years away from retiring. I have about 800k in a 401k. I am looking to add an additional $300-$350/month for 4 years until Social Security kicks in. Its is my understanding that buying an Annuity should be part of my retirement strategy. i understand there are pro and cons with each annuity. However, the one thing that is clear with an annuity the guarantee stream of income. How much of an Annuity I need in order to generate $300-$350/month for 4 years?

Apr 30, 2016 by Edwin from Fresh Meadows, NY in  |  Flag
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Rich Winer Level 20

Edwin, Annuities are just one of many retirement investment options, and they may not necessarily be the best. There are pros and cons to every investment it's especially critical that you understand them when it comes to annuities because every annuity comes with penalties and restrictions and exchange for guarantees. For example, many annuities will lock up your money for as long as 8 to 10 years. So, even though you may be receiving a comfortable amount of regular cash flow, most will only allow you to withdraw 10% a year penalty free. So, if you have an emergency and don't have adequate liquidity outside of your annuity, you will be charged with steep penalties on whatever you are forced to withdraw. Also, it's important for you to understand the different types of income that are available to you through annuities. Most annuities provide you a guaranteed stream of income over various periods including your lifetime. However, once you turn on the income stream (also called "annuitization"), you are turning your money over to the insurance company and can't get it back. If your income stream turns out to be insufficient for any number of reasons, you are out of luck. Many annuities offer a "guaranteed income" up to a certain percentage each year (depending on your age) that doesn't require annuitization. However, what they are really doing is giving you back your principal. If you live longer than they expect, then they are obligated to continue to pay you for life. However, if you need more than the guaranteed amount each year, it will decrease what they will pay you in future years. And if you die, I believe your beneficiaries will only receive what's left of your annuity principal. There are lots of moving parts so be sure you know what you're doing and work with someone you can trust. There are unfortunately lots of people selling annuities because you don't have to be securities licensed to sell them and they pay the agent sizable commissions. So it's important that you work with a financial advisor who will make sure you understand all the pros and cons of annuities and also provide you other retirement income planning options. I would like to offer my services, if you are interested. My associate, Steve Katz, specializes in "safe money" annuity planning, so he would be a good person to tell you all your annuity options and explain the pros and cons. I can provide you other options that might be better, or that you could incorporate along with an annuity to provide greater growth and liquidity. We work with people all over the country and would be happy to assist you.

Comment   |  Flag   |  Apr 30, 2016 from Woodland Hills, CA

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Rich Winer Level 20

Edwin, Annuities are just one of many retirement investment options, and they may not necessarily be the best. There are pros and cons to every investment it's especially critical that you understand them when it comes to annuities because every annuity comes with penalties and restrictions and exchange for guarantees. For example, many annuities will lock up your money for as long as 8 to 10 years. So, even though you may be receiving a comfortable amount of regular cash flow, most will only allow you to withdraw 10% a year penalty free. So, if you have an emergency and don't have adequate liquidity outside of your annuity, you will be charged with steep penalties on whatever you are forced to withdraw. Also, it's important for you to understand the different types of income that are available to you through annuities. Most annuities provide you a guaranteed stream of income over various periods including your lifetime. However, once you turn on the income stream (also called "annuitization"), you are turning your money over to the insurance company and can't get it back. If your income stream turns out to be insufficient for any number of reasons, you are out of luck. Many annuities offer a "guaranteed income" up to a certain percentage each year (depending on your age) that doesn't require annuitization. However, what they are really doing is giving you back your principal. If you live longer than they expect, then they are obligated to continue to pay you for life. However, if you need more than the guaranteed amount each year, it will decrease what they will pay you in future years. And if you die, I believe your beneficiaries will only receive what's left of your annuity principal. There are lots of moving parts so be sure you know what you're doing and work with someone you can trust. There are unfortunately lots of people selling annuities because you don't have to be securities licensed to sell them and they pay the agent sizable commissions. So it's important that you work with a financial advisor who will make sure you understand all the pros and cons of annuities and also provide you other retirement income planning options. I would like to offer my services, if you are interested. My associate, Steve Katz, specializes in "safe money" annuity planning, so he would be a good person to tell you all your annuity options and explain the pros and cons. I can provide you other options that might be better, or that you could incorporate along with an annuity to provide greater growth and liquidity. We work with people all over the country and would be happy to assist you.

2 Comments   |  Flag   |  Apr 30, 2016 from Woodland Hills, CA
Rich Winer

Sorry for answering twice. My computer took forever to post the first answer and when I clicked again it posted a second time.

Flag |  Apr 30, 2016 near Woodland Hills, CA
Edwin

No problem. Thank you for clearing up some of my ignorance with annuities. That is why I choice this blog in order to get ideas in retirement planning. As I mention I am 3 to 3 1/2 years alway from retirement and I need to start thinking what types of RETIREMENT STRATEGIES i going to need.

Flag |  May 02, 2016 near Fresh Meadows, NY

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Daniel Glanville Level 10

Edwin, this is a fairly simple calculation to figure out with a Single Premium Immediate Annuity (SPIA)

$300 per month x 48 months= 14,400 in a SPIA ( slightly less with interest, but this will not add up to much over just 4 years

$350 would be $16,800

Depending on your age, I would consider trying to get to your full retirement age at 66/67 or, better yet, all the way to 70. This will drastically increase the benefit from Social Security.

Adding another 4 years of the same income would essentially double the amount in the SPIA. These have no direct cost to you.

And yes, annuities are a great way to do income planning. With an income annuity you can know exactly what you are getting at a certain age. There some that can outperform that income level, but they have a guaranteed minimum. The earlier you start them the better. You can even roll SOME (not all) of your 401k money into one of these products.

There is also an investment company that can pay a guaranteed amount out per year like an annuity, but you keep all your liquidity. This is more designed for when you want income to start. Again, what is nice about this product is 1) It maintains liquidity and 2) It actually participates in market gains, but also guarantees your payout if the market goes down.

If you would like a more detailed illustration, I'd be happy to run that for you.

Congratulations by the way. You have a done an excellent job saving.

Daniel

Comment   |  Flag   |  Apr 30, 2016 from Colorado Springs, CO

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Larry R Frank Sr Level 20

Hi Edwin, you could go to immediateannuities.com and input your information. Note that on the first page you would need to put in $30,000 minimum. But, after you enter the information, the results page at the bottom, has the option to put in your desired monthly income instead (delete the lump sum amount you see there). The site will tell you how much you need to purchase the immediate annuity. There are various options as to time periods the money may last so be sure you understand what the differences are for those. All the time periods are based on YOUR living unles If you decide you need a little help, the I suggest you seek out a fiduciary fee only adviser on NAPFA.org. Wishing you the best, Larry

Comment   |  Flag   |  Apr 30, 2016 from Roseville, CA

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Edwin:

After reading the answers above from my esteemed colleagues, I add just a few things to think about:

You should be looking for advice from a CERTIFIED Financial Planner(R), one who has proven to have attended the courses needed and continuing education to prove expertise and experience in the world of financial planning. Anyone can call themselves a financial planner- it's the CERTIFIED that makes the difference. Tenure also counts: how long is the person in the industry helping people like yourself and others? Check licensing for disclosures and claims against them, as well as reputation. Lastly, don't be swayed by those who try to scare you about those who earn commissions: as long as all fees are disclosed, you are in with eyes wide open. Be aware that fee-only planners don't work for nothing.

With the "legalese" above, the plain talk about liquidity is who owns the money. In a Single Premium Annuity you give up all rights to ownership of the money you worked so hard for in exchange for a constant stream of income, meaning when you are gone, so is the principle- it doesn't go to the kids or spouse. Other plans allow you to have guaranteed income as well as the ability to pass the remaining principle to your heirs. Simple explanations lead to simple understanding.

Before deciding on an annuity or any other investment vehicle, a thorough assessment of your other holdings, cash flow, short and long term goals, liquidity needs, tax remificaions and other pertinent facts should be considered before deciding on any investment plan.

Lastly, picking a person to help you with your finances is like picking wine: the most expensive does not mean it's the best, and age usually adds to the flavor. Work with a person you feel most comfortable with for a long term, values-based relationship... I've earned every grey and white hair on my head! Feel free to call...best of luck.

Comment   |  Flag   |  May 02, 2016 from Suffern, NY

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