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Ought to I Purchase a $3M Annuity So I By no means Fear About Cash Once more?

Expensive Penny,

Please assist me consider a tantalizing temptation. I’m a 58-year-old single homosexual white male school graduate with no dependents. I labored arduous, prospered, lived frugally and saved for over 30 years. In my early 50s, I used to be promoted past my expertise and talents and consequently floundered professionally. 

Presently, I’m self-employed proudly owning/managing a trip rental and three single-family residential leases — all debt-free. These leases gross/web roughly $6,000/$4,000 month-to-month, respectively. Moreover, 5 RV website leases web between $1,200 and $3,000 month-to-month relying on occupancy. 

Along with the aforementioned $1.4 million of actual property, I’ve saved roughly $800,000 in certified retirement accounts. 

Quickly, I’ll inherit a present of two $400,000 debt-free homes, which I intend to personal/handle as extra leases that can gross a mixed $4,400 month-to-month. 

Oh, and at 70 (three years past full retirement age), I’ll begin receiving $3,228 month-to-month in Social Safety. 

Right here’s the place I’d like recommendation, please. Why ought to I not, in some future yr, liquidate this $3 million right into a responsibility-free and work-free annuity and easily get pleasure from $15,000 or extra month-to-month (plus Social Safety) for the remainder of my life? Oh, the temptation!

-Exhausting Working and Terribly Lucky

Expensive Exhausting Working,

Annuities are a much-maligned monetary product, however I’ll keep away from supplying you with the knee-jerk response in opposition to them. A lot of the unhealthy rap is deserved, however I do assume they’re applicable in some circumstances. I’m simply undecided it’s the most suitable choice in your specific circumstances.

An annuity is technically an insurance coverage contract, not an funding — although some annuities do have underlying investments. Annuities defend you in opposition to the chance of outliving your cash by offering assured earnings, usually for all times.


Annuities could make sense for somebody who’s in good well being, for the reason that longer you reside, the more cash the contract will in the end pay out. Typically, they’re a superb possibility for somebody with excessive earnings who’s maxing out their retirement accounts since they arrive with tax benefits. They will also be an honest selection should you’re the sort whose blood strain skyrockets at any market volatility.

So what’s the case in opposition to annuities? For starters, they’re usually ridiculously advanced, with a great deal of less-than-transparent charges. Commissions can vary anyplace from 1% to 10% of the contract’s worth, relying on the kind of annuity.

They’re additionally comparatively illiquid. In the event you purchase an annuity and later remorse it, you can pay a hefty give up payment to get your a refund within the early years of the contract.

Inflation is one other consideration. In the event you go for an annuity with mounted funds, your cash will purchase much less annually. You should purchase inflation safety for an annuity. However until inflation stays abnormally excessive for the long run, there’s a superb probability you’d find yourself overpaying for the choice.

My query for you is: When did an annuity turn out to be such a “tantalizing temptation”? Have you ever been dreaming of cashing in your actual property holdings for assured earnings for some time? Or have current occasions led you to ponder an annuity?

Annuities spike in reputation when folks fear a few bear market. The second quarter of 2022 noticed report annuity gross sales, in response to the Life Insurance coverage Advertising and Useful resource Affiliation. The earlier report? It was set within the fourth quarter of 2008, within the midst of the Nice Recession.

If a chronic recession would jeopardize your retirement, an annuity would benefit critical consideration. However clearly, you don’t have to fret about operating out of cash. Furthermore, the truth that you’re an entrepreneur suggests that you just’re not utterly risk-averse. So be sure you’re not making choices about your seven-figure nest egg based mostly on short-term market fears.

I can’t provide you with a definitive reply about whether or not an annuity needs to be a part of your retirement plans. However the great point right here is that you just don’t want free recommendation. You may afford to rent a monetary planner to guage whether or not an annuity is acceptable in your targets. Search for a fee-based monetary planner. They’ll receives a commission for the providers they supply as a substitute of a gross sales fee.

A monetary planner could possibly design a personalized withdrawal technique that gives the earnings you need with out plenty of threat. Dividend-paying shares and exchange-traded funds (ETFs), actual property funding trusts (REITs), bonds and certificates of deposits are all good choices for buyers who need predictable earnings.

This additionally doesn’t must be an all-or-nothing choice. You could possibly estimate your primary retirement bills and purchase an annuity that can cowl these wants. That means, you wouldn’t have to fret about outliving your cash, however you wouldn’t have all of your cash tied up in a single product.

Annuity or not, you’re going to get the responsibility-free and work-free retirement you crave. Simply ensure you discover the options that will show much more tantalizing.

Robin Hartill is an authorized monetary planner and a senior author at The Penny Hoarder. Ship your tough cash inquiries to [email protected].


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