[USER]

My aunt had asked me for some help with her retirement and I’d like to get your input. She has money invested in a 401K and due to health reasons needs to retire now, at 60.

She sought the advice of a financial advisor who suggested that she convert the balance of her 401K into an annuity.

That will give her a money stream for life.

She has $150K. The annuity will pay out $800 or so a month that she will need to live on until SS in 18 months.

She also has a small pension of $1400 a month. And has access to health insurance through that pension, but it costs about $700 a month.

I just assumed the right move would be to withdraw 4% a year and that should keep her principal in place.

No mortgage, no car payment. Minimal expenses.

Any thoughts? Does an annuity make sense?

[Jean]

An annuity is never the answer. It will cost way too much in fees. Please steer clear.

[Mandi]

A CD would pay $500-625 monthly without touching the balance assuming 4-5% rate. A structured note (a little more risk involved) would be about 7% right now which is $825 a month.

These are usually about 2-3% higher than CD rates from what I remember.

I am not an expert on annuities and I know there is a place for them, but for her to have her entire retirement balances (401K) rolled into one?? I don’t know. Is there a beneficiary payout still?

Is that important to her that there is. It just seems like $800 isn’t all that much when other products offer similar ROR without touching the principle.

If she’s in a position to downsize and have access to some extra cash that way it might not be a bad idea either.

If she is being forced to retire (rather forced into retirement) for health reasons are any of those health issues “blue book” for SSDI?

Even if she applied and I think there is a long wait time it could be worth it long term if she is blue booked.

[Stef]

She should apply for SSDI disability- which she should think of as early retirement for medical reasons.

She’d get full retirement from her qualification date.

[Carey]

Is it a fixed indexed annuity? If so, what is the projected rate or return?

[Mickael]

I don’t think you want all her funds into an annuity because it won’t keep up with inflation.

Calculate her essential expenses minus her reliable income (SS + pension).

If there is a gap maybe partially annuitize to supplement and keep growing the remaining assets for discretionary expenses or contingencies.

[Author]

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