Treasury or annuity for retirement monies not needed?

[GON]

My Wife worked at job many years ago, that entitled her to a small pension when she turned 60.

The organization reached out to her, as it is time for her to start collecting the pension. They have offered a few options.

(1) $1200 month annuity, and if she dies before me, ten-year payment to me of $1200, or death, whichever comes first. If I die first, she collects the annuity until her death. The annuity is fixed, no changes in the payout due to inflation.

(2) lump sum payment into a 401k. They did not state the amount of the payment.

We don't want/ need to utilize the money for the foreseeable future. We are very concerned about taxes, as would hate to take $1200 per month, and pay $500 of it in taxes per month. We don't want any risk whatsoever. I started reading on annuities, and the risk seems to be failure of the annuity, or large percentage gains in inflation. I will continue to work most likely full time for the next six to seven years, and we pay a chunk annually in federal income tax, and expect that to be the case until I retire.

What we would feel best with, if available and feasible, is US treasuries, where the interest is reinvestable. Not sure a fund like that is available for a 401k. We don't want corporate or non federal government bonds. And zero interest in buying equities/ stocks, to include index funds.

 

[SC Maintenance]

I would suggest a financial advisor, or at minimum if your going to roll your own - you need to look at your entire portfolio inclusively, not just this one part, decide your mix, decide where each part of your mix will be held, decide on taxes and when you will use things, etc.

Treasuries are certainly available as part of a 401K or IRA. I can buy whatever treasury I want in my self directed IRA. However one of the big benefits of a treasury is there is no state income tax, so given your already going to be in a tax deferred account, that may not be the most ideal place to hold them - again given your whole portfolio.

I know nothing about an annuity.

 

[JHZR2]

If you don’t want or need the money for the foreseeable future, it seems like your risk profile may be able to be a bit higher. I’d argue that you really need to know the value of the 401k payout. You can probably find your statistical life expectancy, and thus how many months of payout you might expect, and decide from there.

 

[GON]

If you don’t want or need the money for the foreseeable future, it seems like your risk profile may be able to be a bit higher. I’d argue that you really need to know the value of the 401k payout. You can probably find your statistical life expectancy, and thus how many months of payout you might expect, and decide from there.

We had a financial advisor that put us all in stocks that crashed in 2000, took a tremendous hit. Every stock he had us in collapsed. The biggest loss we took was a company called Level 3 communications, symbol LVLT. LVLT had a great idea, instead of burying fiber optic cables into the ground like ATT did, they put 12 tubes of conduit into the ground. That way, when more fiber was needed, or new technology was available, they could just "push in" new fiber into the conduit, without having to dig. They also built data centers across the USA to connect a lot of the fiber. Issued appear to be LVLT could not win government or large corporate contracts on a MACRO basis. So ATT fiber took the traffic, while LVLT's fiber and data centers were underutilized. Kiewit construction was the original founder of LVLT, and LVLT also had close ties to the UP railroad for right of ways to lay lots of the miles of fiber.

We vowed never to buy equities after that.

 

[Pablo]

You have to know the 401K amount. How could you even start to compare?

I lean toward taking the lump, but again depends on amount.

Pure thumbnail:

If say greater than ~$300K, take the sum.
If less than ~$300K, take the payments.

Only based on 5% per year interest. Just a ballpark, from my head

 

[atikovi]

We don't want/ need to utilize the money for the foreseeable future. We are very concerned about taxes, as would hate to take $1200 per month, and pay $500 of it in taxes per month.

If you don't need the money, why are you concerned about paying taxes on it? Just consider it as getting an extra $700 a month you weren't expecting.

 

[GON]

If you don't need the money, why are you concerned about paying taxes on it? Just consider it as getting an extra $700 a month you weren't expecting.

We don't need it now, but may need it later, especially if I die first. My wife will pay any contractor whatever they quote her, etc. Need to have as much stashed away for her if I die first.

 

[JeffKeryk]

There are good annunities and bad annunities, just like most investment products.
Personally I hate annunities, because I was sold one at Fidelity and I am not a good candidate for one.
I dumped Fidelity after I learned more about this, and a few other things.

As others have said, find out what the payout is and tax ramifications.
I would talk to a Schwab rep. I can recommend someone to talk to.

I'm sorry you got bad advice in the past. I got bad advice from Fidelity. Please believe there are good advisors out there.

 

[Pablo]

The taxes would never be that much

Nothing wrong with using Fidelity

 

[JeffKeryk]

We don't need it now, but may need it later, especially if I die first. My wife will pay any contractor whatever they quote her, etc. Need to have as much stashed away for her if I die first.

That's another issue. Is there someone who can advise her in the future if necessary?

 

[Wrenchturner44]

GON, May I suggest that you look into this web site to find a CFP professional. A fee based, fiduciary advisor to give you and your spouse some clear vision of options for her pension monies.

Find a CFP® Professional

www.letsmakeaplan.org

 

[GON]

That's another issue. Is there someone who can advise her in the future if necessary?

Our Daughter, she and my Wife are super close. But my Daughter has no empathy for my Wife not doing her part when it comes to spending money (research). Our two Sons have not demonstrated the demensions to handle Mom's affairs.

 

[Davejam]

You cannot begin to evaluate this without knowing the lump sum payout.

Your aversion to equities is only founded because you bought individual stocks.
Buy SP500 or total market fund. Even in retirement it doesn't make sense to be totally out of equities. But to each their own, Sounds like your situation is better than most.

 

[Passport1]

Seems like a potential government default next month could crash everyone's strategeries.

 

[2dogs]

Check immediateannuities.com. input the lump sum and payout. That may help you decide which to take. I generally favor a lump sum as you control how the money is used.

 

[Davejam]

Seems like a potential government default next month could crash everyone's strategeries.

Anything can happen at any given time. Don't predict the markets unless you know something nobody else knows.

Either way your strategy should be based on long term outlook and include a risk tolerance...so it should not matter.

 

[thastinger]

You've got to find out the lump sum. If they are offering 1200/mo then the lump sum should be 3-500k (depending on her age). If the lump sum is taxable income, then it will all be in the highest bracket and (I'm assuming you are medicare age), your medicare payments will skyrocket for the year you take the lump sum.

 

[PimTac]

Talk to a professional.

 

[ArrestMeRedZ]

You've got to find out the lump sum. If they are offering 1200/mo then the lump sum should be 3-500k (depending on her age). If the lump sum is taxable income, then it will all be in the highest bracket and (I'm assuming you are medicare age), your medicare payments will skyrocket for the year you take the lump sum.

Nope, he said they would put it into a 401k type account. If they rolled the lump sum into a non-Roth 401k or IRA it wouldn't be taxable or count towards Medicare income until withdrawal.

 

[GON]

Gents,

Thanks for all the input.

What I can't figure out is why would Fidelty offer the below options to my wife, but never provide the lump sum payout amount?
1. Individual annuity
2. Beneficiary annuity
3. Fidelity IRA or 401K

Fidelity told my Wife if she takes #3, Fidelity will withhold 20 percent for taxes. We don't plan to use these funds for at least ten years/ 2033.

Leaning strongly towards #3, but of course need the lump sum amount, and if there is a method to avoid the 20 percent withhold.