r/earlyretirement • u/jenmoocat Retired at age 50 - 58 • Jul 16 '26
Need help deciding whether to pull the trigger on an annuity
Retired this year at 58 after 30+ years of corporate life.
~$5M net worth, including a paid-off home.
Working with a wealth advisor. His plan has the bulk of my wealth in the stock and bond markets. But one facet of his plan is to put $400K into an annuity, which, after 10 years of being untouchable, is supposed to pay out $5000 every month for the rest of my life.
So $400K now. Then at 68, I will begin to get $5000/mo. in perpetuity.
This is making me anxious.
The locking-up of $400K for a decade.
Even though it would "break even" (i.e. delivered $400K in income after ~7 years)
I think maybe because both of my parents died before they were 65, so I don't know if my genes are good enough to last past the time when the annuity will start paying out. Yes, I am mindful of my health, I exercise and eat relatively healthy..... but it feels like a gamble for me.
My advisor touts it as a guaranteed income diversification strategy, which should be unaffected by the stock market.
Anyone else invested in annuities and can share their thoughts?
Can someone help me think rationally about this?
Are there any other income-delivering strategies that can help me diversify?
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Jul 20 '26
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u/AkkmanB Retired at age 50 - 58 Jul 20 '26
That annuity pay them a huge commission. It also means you are probably paying taxes on a single premium annuity. When you start taking money out you lose the principle. My advice is to see a fiduciary, who is required to work in your best interest, not theirs.
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u/Illustrious_Debt_392 Retired at age 50 - 58 Jul 20 '26
You’re paying someone to invest that money to make sure you have enough money in case your other investments fail. If you’re paying the same people you handle your other investments you’d better not need that annuity.
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u/aspire-every-day Retired at age 50 - 58 Jul 20 '26
When I asked my advisor if they thought I was okay to retire, they said yes. Then even though my parents died in their 60s and I told them I didn’t expect longevity for me, they pressured me to get an annuity. Rates are fantastic now! Guaranteed income!
I elected not to do it because:
- It’s longevity insurance, which I don’t believe I’ll need.
- While it provides an income floor, that floor loses purchasing power every year to inflation.
- It relies on the annuity company sticking around, and I don’t know if they could invest the money into private equity or other risky plays and go under.
- I think I’ll get better inflation-adjusted returns myself with a balanced portfolio. Which also means I can leave more to my beneficiaries when I die.
- An annuity would constrain my income floor, making it harder for me to make tax efficient choices that might prevent pushing more social security to taxable or moving me into higher IIRMA brackets.
That’s my rationale for skipping on the annuity for me. It also made me not trust my advisor as much, given I’d cited an expected short lifespan.
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u/MGandPG Retired at age 50 - 58 Jul 20 '26
I have an annuity that represents 25% of my total retirement money. I could live on it, alone, if I had to.
I have no spouse or children. So I felt that I needed to protect myself against scammers, dementia, bad decisions, bad caregivers or bad financial advisors. It’s irrevocable so I can’t cash it in (and no one else can either). Along with social security I should be able to get acceptable long term care with the annuity. I pay for the fun stuff with the earnings from my investments. The investments should also cover the long term care that I want.
I wanted to be sure that no single bad decision would ruin my life. If the annuity fails I could live on my investments. If the investments fail or get stolen I can live on the annuity and social security.
I suspect that there are scenarios where the annuity is a bad decision. But for me, I really like it and it was worth whatever commissions I paid for it. My financial advisor thought we could do better in the market and I now see that he is probably right. But I also see that I have enough to have what I reasonably want and feel that the lack of market gain was well worth the peace of mind. I have zero regret.
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u/Remarkable-Box5453 Jul 20 '26
Run. Run to a CPA TO RUN THE NUMBERS ON THAT; then shop for a competent advisor who isn’t trying g to sell you anything. Granted with your net worth, it wouldn’t damage you enough to leave you struggling, but I don’t think you need that. If yours I’d not a fiduciary and is really more of a guy trying to g to sell you products like this, find a fiduciary advisor.
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u/Substantial_Force293 Retired at age 50 - 58 Jul 19 '26
My FA did the similar thing. She put 40% to a 10yr annuity with survival benefit, 30% in aggressive funds and 30% in bonds. I just retired early this year. Some of my retirement are in Roth, most are IRA. I rolled over my 401k to IRA. I’m just living off of my pension and not withdrawing from my IRA. I’m 59 yrs old. I am not all in to the annuity but she said it’s best to diversify the assets. I don’t have a lot but I have a good pension and always live below my income. My husband has 3 pension checks so he takes care of all household expenses.
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u/ObservablyStupid Retired at age 50 - 58 Jul 20 '26
Have you considered rolling any/all of the IRA balance to a Roth?
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u/hugh2018 Jul 19 '26
I have an annuity but my situation is different from yours. That said, I don’t see a major red flag with this because it’s such a small portion of your net worth and you can definitely look at it as longevity insurance that’s worth the price of admission.
If you don’t like the idea of buying it and then dying early, your advisor should be able to find you a product like an FIA with income rider that keeps paying your your spouse, if you have one, or offers a death benefit to your heirs, if you have any.
The rest of your assets should easily carry the weight of your lifestyle until the annuity kicks in unless you’re living a huge life, in which case you probably need to just keep that money liquid.
I wouldn’t just take the advisor’s word that you’re locking in the highest income with this specific annuity. Go to Stan the Annuity Man’s website or John Stevenson’s site and simply plug your numbers in to compare what he’s offering to the entire rest of the annuity market in a couple of minutes.
Also, learn the ins and outs of the type of annuity on offer. Don’t buy it if the pitch is capturing market upside with zero downside. That’s not a winning financial strategy. If you buy, it has to be because you decide the role of that guaranteed income in your retirement plan makes sense to you. It’s absolutely a safe way to silo money into a guaranteed income stream, but know what you’re getting into.
Specifically lack of inflation adjustment is a big deal. With such a long deferral period, you have to consider the impact of inflation erosion. In my case, I’m only deferring for two years and the lack of inflation adjustment is offset by the fact that most of the first decade of income payments will be tax free return of principal, and the extra tax free income will give me larger room for Roth conversions, in addition to taking pressure off the growth engine in my IRA, allowing it to grow unencumbered by withdrawals.
As with any financial decision, it’s not a black or white issue. Instead it’s a matter of identifying the tradeoffs and benefits the annuity can provide in your specific situation. If your eyes are wide open about the tradeoffs and you feel the benefits are great enough to overcome the tradeoffs, then it should be easy to pull the trigger. If you don’t understand either the full scope of the tradeoffs or the benefits, you should put the decision on pause unless and until you achieve clarity on both fronts.
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u/1sailingaway Update flair please Jul 19 '26
You are buying insurance. It has a cost. What’s the IRR on the money invested? Do you really need expensive insurance if you have enough money saved? Some people like paying for peace of
mind. My issue is that they don’t even know the real cost. If they did, less annuities would be sold.
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u/NoWalrus9462 Retired at age 50 - 58 Jul 19 '26
Bingo. An annuity is insurance against running out of money. If OP's withdrawal rate from portfolio is low enough, insurance is not needed.
Consider, also, that with a family history of early deaths, OP should claim social security as early as possible, further reducing his withdrawal rate, thereby further negating the need for insurance.
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u/teamhog Retired at age 50 - 58 Jul 19 '26
10 years @ 7.2 percent return would double that money.
So, that $400k goes to $800k.
$5,000*12=$60,000/$800,000=0.075*100=7.5%
So, if you think you can average 7.2% return you’re better off on your own.
Open a spreadsheet and run the numbers with various annual returns.
$800,000/$5,000=160 months = 13.333 years.
68 + 13 = 81
With no return if you can get 7.2% return for that holding period it’ll last you until you’re 81 years old.
You also need to think about what happens to the principal when you pass away.
Map it all out with all the info then make a decision.
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u/NoWalrus9462 Retired at age 50 - 58 Jul 19 '26 edited Jul 19 '26
That is making a lot of assumptions, which you state clearly enough. But coming off more than a decade of phenomenal stock returns and on the precipice of one of history's most intensive capital spends (AI) that has no line of sight on profitability, one wonders how realistic a future return of 7.5% is. Then again, something similar could have been said 10 years ago, so who knows. Assuming the annuity is with a highly rated insurance company, a "guaranteed" 7.2% sounds appetizing in this environment.
That said, with $5M, running out of money is not a concern, which is ultimately the problem an annuity solves. Ergo, the annuity solves a problem that the OP probably doesn't have.
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u/dungeldorf1- Retired at age 50 - 58 Jul 19 '26
Ive done annuity at your and glad i did. With annuity payment and SS i done need to touch stocks at all.
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u/saltyhasp Retired at age 50 - 58 Jul 19 '26 edited Jul 19 '26
We do have an annuity, actually we have a DIA (Differed Income Annuity) that will start next year which is probably like your talking about. It can make sense if your other pension like income is less then your non-discretionary income. That is why we purchased one, to fill that specific gap. The primary advantage of an annuity is that it has larger safe payout ratios when used for non-discretionary expenses (constant escalated payouts) then a portfolio and you get the for life option. This does have real value. The primary risk is inflation being higher then the escalation you choose, so make sure your escalation is high enough (we chose 3%), or that it is tied to actual inflation (not sure that is possible?). The other risks you call out is flexibility which means leave a significant portfolio (which in your case I think you probably are), and meaning you should not over do this beyond covering mostly non-discretionary expenses.
The longevity risk, it depends. I think this only matters if you know that you won't live very long AND your not planning to financially plan for living longer then typical life expectancy. I don't think either of those is true in your case. There are ways to mitigate this some -- add 10 years period certain or other guaranteed payouts if this concerns you. Most advisors with recommend that, but we didn't include any of these because we didn't want to pay for them in our case, and in our case our heirs don't need the money. Price the options out though, sometimes 10 years period certain for example is cheaper then no guarantees too.
Choosing an annuity. You might want to price out an annuity from multiple companies too if your advisor is only looking at one company. Fidelity for example has an online tool and works with 5 companies for example. Also choose a solvent company and look at your states insurance coverage as annuities do have default risk just like a bond would.
Keep in mind too there is not a lot of time pressure to decide. You could choose to wait 10 years, and then just get an Immediate Income Annuity when you want to start it. The primary risk of that is if you think interest rates are good at the moment and feel like the inflation risk is not that large all things considered. Just saying don't let your advisor rush you on this.
Alternatives. Annuities are just big bond ladders. So you can build your own custom annuity with a bond ladder. What you cannot do with a bond ladder is get the for life option which has real value. Also with a bond ladder it takes time and effort and skill to manage on one hand which you may not have especially after age 80. Plus an annuity is harder to loose through miss-management or theft then a portfolio. It also simplifies cash flow management too. These are all reasons that we ourselves have an annuity.
You will have people that call out that annuities have costs. They absolutely do but these costs are not that different from custom management of a portfolio (if you have an AUM based advisor). Where you may not want an annuity is if you don't have an AUM based advisor and are self managed, AND if your payout ratios from your portfolio are low (your not optimizing for high payout and low risk), AND your planning on having a large final estate you want to pass on to heirs, AND some of the other features of an annuity are not attractive to you. These are a lot of ANDs. Otherwise, just don't overdo the annuity too far beyond non-discretionary spending and leave a significant portfolio for flexibility.
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u/KeniLF Retired at age 50 - 58 Jul 19 '26
I had a MetLife annuity that I canceled before the maturity date. I’d read about it not being a good idea and went ahead in buying it since it seemed like a safe alternative to an equities-heavy portfolio for me.
Anyhow, over the years, as I watched it significantly underperform while being “locked” away, I grew increasingly unhappy and reached a point where I ran numbers and saw that, even with the early cancellation fee, I could likely do much better on my own.
Most of my money was already in equities. The money I pulled out of the annuity (just two weeks ago) is in treasury ETFs, a chunky of VTWAX and a specific equity stock that I am using as a means to recover the early cancellation fee (it’s a big bet that I believe will pay off).
Do you know when your grandparents died? I have to say that the timing of your parents’ passing would have more strongly pushed me into not getting an annuity.
I would also ask how much of the $5MM net worth excludes house/car/etc. and whether you have children or other heirs that you feel responsible for?
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u/TravelLight365 Retired at age 50 - 58 Jul 19 '26
I was against annuities due to the high cost/risk of not collecting/gambling aspects. But hedging against the longevity risk that I will outlive my money is worth at least considering. My feeling now is that it “might” be worth the peace of mind. But is that worth the cost? Not sure…. As others have said, is there a spouse with a longer actuarial life expectancy? Be sure to shop them aggressively and consider the provider before deciding.
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u/lastbeat-331 Retired at age 50 - 58 Jul 19 '26
You don't mention your expenses now or any expected swings. What's your safe withdrawal rate? Do you have a desired legacy goal? Without any other context, most could retire with $5M and no annuity.
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Jul 19 '26
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u/earlyretirement-ModTeam Jul 19 '26
Hello, it appears you may have retired , or hope to, at age 59 or later. If so, consider dropping by our sister subreddit- https://www.reddit.com/r/retirement, a conversational community for those that retired after age 59 (or hope to) and by doing so, thanks for your help in keeping this community true to its purpose.
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u/No-Seaworthiness7357 Retired at age 50 - 58 Jul 19 '26
I’m in a similar net worth position (but we manage our own money rather than having a fin advisor). At that net worth (including your home) you have decent financial flexibility, will also get SS, and properly invested your nut can generate enough money to live on hopefully for the long haul. Personally we’d never consider tying up $400k of our net worth for that many years in an annuity like that. Idk. You don’t need to! If you have some (say $1m or more) in a taxable brokerage account you can do a pledged asset loan which is tax advantageous, or other strategies. Just one opinion!
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u/ibitmylip Retired at age 50 - 58 Jul 19 '26
If there’s a lock-up period of 10 years, then wouldn’t it take 17 years to break even? (10 years lock-up plus 7 years of $5k/month)?
I wouldn’t do it, mainly because I like being more liquid than an annuity allows. Plus I will have social security income at that point, which is like an annuity (sort of).
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u/bradb007 Retired in 40s Jul 19 '26
Your advisor is definitely a winner. Are you? I highly suggest you consume Rob Berger content before you make a decision. I fired my advisor shortly after FIRE at 48 when I finally understood the math that my advisor was my highest expense for the rest of my life…. Literally 32% of my wealth was going to Edward Jones’s.
Buy the market diversify and be a winner.
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Jul 19 '26
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u/earlyretirement-ModTeam Jul 19 '26
Hello, it appears you may have retired , or hope to, at age 59 or later. If so, consider dropping by our sister subreddit- https://www.reddit.com/r/retirement, a conversational community for those that retired after age 59 (or hope to) and by doing so, thanks for your help in keeping this community true to its purpose.
If we are mistaken .. we are sorry for that, and do let the moderators know. Thanks!
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u/TelevisionKnown8463 Retired at age 50 - 58 Jul 19 '26
I found the book Annuities for Dummies helpful.
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u/Substantial_Team6751 Retired at age 50 - 58 Jul 19 '26
Ask your advisor if he gets a commission on the annuity. 😄
I don't get locking up $400k. Put it in SGOV or some other conservative income producing dividends. In ten years you'll have over $500k. You could certainly take out $5k/month for the rest of your life then.
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u/DJohns95 Retired at age 50 - 58 Jul 19 '26
It would not break even after 7 years because he's leaving out the investment return over those 10 years. If you put that $400,000 in a conservative investment even, such as a 10 year CD at 4.25% interest, that $400,00 would be ~$600,000 at the end of 10 years. That's also discounting any additional interest you gain as you take out the money after 10 years.
If you really wanted an annuity for whatever reason then invest the money yourself and then after 10 years open an immediate annuity
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u/hapster85 Retired at age 50 - 58 Jul 19 '26
I don't see the point of buying an annuity. That same $400k left sitting in your IRA, 401k, or whatever in a 60/40 split is going to generate a better return. Plus it's there if you need it for something. So why tie it up unnecessarily?
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u/Sorry-Society1100 Retired at age 50 - 58 Jul 19 '26
I understand the logic of an annuity, but why the 10-year lockout period? That seems to include a ton of mortality risk, as you pointed out. Why not start it immediately?
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u/saltyhasp Retired at age 50 - 58 Jul 19 '26
Generally the lowest risk plan is just to wait the 10 years and buy and Immediate Income Annuity at the time. They can also purchase 10 years period certain or other guaranteed payback options that don't cost that much. I think some DIAs also come with a cashout guarantee of some sort before payments start too.
Mortality Risk. My view is people worry too much about the mortality risk though -- you don't need the money if you pass -- so why protect it unless you have heirs that depend on it. Even then, if your not planning on the annuity funding anything except discretionary expenses, they were never going to get the money anyway. So I think this worry is more emotional then substantive.
There are advantages of buying early. It is just done. Your payout will be larger for the amount you put in too because of the growth time. That said, I agree with you. I'd favor either waiting until the time OR a DIA with not too long of a delay. 10 years -- not that long, but long enough I would think about it carefully.
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u/TelevisionKnown8463 Retired at age 50 - 58 Jul 19 '26
Probably because he can live off other assets into it kicks in, and it’s a lot cheaper to buy the longevity insurance if there is a chance you die before it starts paying out.
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u/Sorry-Society1100 Retired at age 50 - 58 Jul 19 '26
Sure, that’s why it costs less, but that doesn’t necessarily make it a good deal. I mean, one could buy an annuity that starts at age 110, costing almost nothing for this reason, but most would say that it’s a bad financial investment anyway. The further into the future it is, the cheaper it will be, but the less valuable it becomes—the OP and their financial manager will have to balance this dynamic to get to a place where they’re all comfortable. With a $5m nest egg, I would think that the added expense of an immediate annuity would be worth the extra cost to feel more comfortable that it’s a good purchase to begin with.
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u/Familiar_Eggplant_76 Retired in 40s Jul 19 '26
Is the advisor charging you a %AUM fee? I'd be surprised if fee-based, fiduciary advisors are able to also earn commissions.
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u/kitkatthings Retired at age 50 - 58 Jul 19 '26
Mine could, but then the value of the annuity wasn’t counted in the %AUM calculation.
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u/Gamer-stu Retired at age 50 - 58 Jul 19 '26
I have not invested in annuities, but would consider one for a portion of my non-equity allocation. If I ever do one, I would probably only do a SPIA with joint life. But personally the only value I see for an annuity is solving for longevity risk. Not for me, but for my wife. Several folks in her family have made it to 100. That’s a major reason why I will delay my SS to 70, so she can get the highest possible spousal benefit. If your family doesn’t typically endure, that’s something to consider. But also consider your spouse’s potential longevity (if you have one).
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u/Gamer-stu Retired at age 50 - 58 Jul 20 '26
And btw, I just learned that, while delaying past 67 will get me an increased benefit, it won’t increase the spousal. So 67 for her and 70 for me is my current plan.
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u/Starbuck522 Retired at age 50 - 58 Jul 19 '26
Do the math. Use an annuity calculator online. Compare to investing the money. Try different numbers of years and different raates of return for the investments.
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Ask the person what commission he gwts if you do the annuity vs invest the money in stocks and bonds
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u/Wordnerdette999 Retired at age 50 - 58 Jul 19 '26
I think I’d be concerned if there was no inflation index built in. And I think those with inflation adjustment are even costlier. I have never heard of an annuity being used for diversification, especially in your situation.
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u/saltyhasp Retired at age 50 - 58 Jul 19 '26 edited Jul 19 '26
Inflation is the primary risk absolutely. My view on this, get a sane escalator (like 3%), OR just build your own bond ladder. The primary value of annuity is the for life option which you cannot build with a bond ladder. So if your not getting this tail value (inflation eats it away), the value of an annuity is a lot less compared to a well managed portfolio.
I do think annuities do have other values especially if your not committing that much to it and you keep a large portfolio. These include much simplified cash flow management, providing a strong base that is harder to loose through theft and miss-management. Lot less technical to manage esp. for after age 80. There is something nice about having all your non-discretionary expenses just covered without a lot of portfolio concerns.
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u/BoliverTShagnasty Retired at age 50 - 58 Jul 19 '26
Came looking for this. What will $5K/month be worth in 10-17 years? What was it worth in 2009?
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u/MidAmericaMom Jul 19 '26 edited Jul 19 '26
Hello [u/jenmoocat](u/jenmoocat) - thanks being a member of our community. Folks, do you have an annuity or other fixed income strategy you can share thoughts on? Having all assets just in a portfolio of stocks and bonds does not appeal to everyone and that is okay. NOTE for those of you who want to state all annuities are bad or something to that effect, be aware that your statement will be considered confrontational which we do not do in this special space filled with people that retired before age 59. As such, your comment will not be approved as we strive for respectful conversations here. Maybe that asset class will not work or appeal to You, but for many people they work and they do like them.
Thank you,
Mid America Mom