Immediate annuities for lifelong payments

[Nmm540]

I was reading the book "The Number" by Lee Eisenberg which talks about all things retirement and it helped connect a short video I watched months earlier on youtube about how a guy made an offhand comment that putting "3 mill into an annuity and your set for life" was a possible end game. I was wondering what people thought about immediate annuties as a way to secure payments for the rest of ones life. I did some math (correctly I hope) and assuming that you had a lump sum of $2,000,000 (the Paycheck Pot) you put that into an immediate annuity at my age of 29 it would pay me every month $7,673 or $92,076 yearly. If I wanted to invest my lump sum at 5% yields a year in securites or some other investment vehicle I would be getting $8,333 a month or $100,000 a year. Wouldnt it be more passive and less riskier to just put the money in an annuity vs putting my money in the stock market yet having to check everyday how the companies are doing? I wouldnt be making as much as the stock market but at the same time the price of having TOTALLY passive income coming to you monthly would offset that price difference. Does anybody have any information on this subject? I did a cursury search into the topic so I'm just beginning to understand it. Thanks

 

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[jon.a]

What do you have your $2,000,000 in now?

 

[CareCPA]

I very much dislike them.
Even if it gave you a good rate of return, and was indexed for inflation, and wasn't full of crazy fees, what happens if you have an emergency and need access to more than your monthly allowance?

 

[jlwilliams]

Typically immediate annuities are not available for people your age. If they agree to pay you every month they almost certainly will lose in the end. But, since you seem to be asking more or less a hypothetical question to understand the concept as opposed to a pressing question about an immediately actionable plan, let's talk more about annuities.

Immediate annuities are a good way for a person with a lump sum to spread that lump out and not out live it. They can also have tax deferred growth, but that's one of those "it depends" deals. They are an excellent hedge against market volatility for stock investors. Like you said, you can get paid without the risk. The trade off being you don't get the upside that stocks can give you. So, some in stocks and some in bonds and some in insurance products (like annuities) equals a well rounded portfolio. It's not stocks or annuities, it's stocks and annuities unless and until you have a big nut and are old enough that you don't have the years to recover from a bad couple of years. Then you put that "F_ you" money into the safe harbor and cash the monthly (or quarterly) checks.

There are also annuities that you buy over time, and those might be something you want to look into when you have a business that creates a flow that you can tap into.

If you were twenty years older with a couple million a one pay annuity might be a perfect fit. If you are your age, then regular old whole life insurance or universal life makes more sense to get some growth, safety and of course.... life insurance. You want some insurance pretty much as soon as you have kids. Don't over buy. When your young you want to keep your liquid money pumping. Build the business, buy the income properties. Insurance policies "grow" in a really slow lane way. Keep enough so that if something happens your kids don't wind up in the projects.

 

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[CareCPA]

I personally dislike whole life insurance policies as well. I think they are way too expensive and grow too slowly to be beneficial to the average person.
When you're rich and looking to shield money from income and inheritance tax, then look into it. Otherwise, look into term, because as your assets grow your need for life insurance shrinks.
If no one is on the hook for your liabilities (i.e. you're single and no one has co-signed anything), then you really don't need life insurance.

Most of these products (annuities and universal life) prey on your fear of the stock market. Keep in mind these products are also based on the current interest rates, which are at historic lows. This means your payouts are going to be way lower than if you had locked one in during the 80s.

 

[Nmm540]

What do you have your $2,000,000 in now?

No I dont have that money now

 

[Harbourmaster]

No I dont have that money now

Hi @Nmm540 and welcome to the forum. I think the point @jon.a is trying to bring to your attention is that if you are serious about making it in the Fastlane then your energy, effort and brainpower is better utilized on accumulating the wealth needed to fund your passive income money system first. Once you are making money hand over fist, then is the time to worry about preserving and optimizing your liquid assets.

Happy learning!

 

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[Carnage]

What happens if the insurance companies goes under?
What happens if you die early? Your millions stay with them.
You also have nothing to pass on to your kids.
Municipal bonds/funds would be a better option. 5% yield, very tax-effective, and you get to keep your principal.

 

[SquatchMan]

Serious question.

Where do you think the insurance company is putting your money?

 

[fxmm]

+1

What happens if the insurance companies goes under?
What happens if you die early? Your millions stay with them.
You also have nothing to pass on to your kids.
Municipal bonds/funds would be a better option. 5% yield, very tax-effective, and you get to keep your principal.

 

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[fxmm]

With Madoff?

kidding!

A good question though.

Serious question.

Where do you think the insurance company is putting your money?