Question for the Money Doctors

Question submitted on Apr 10, 2023.

Question

My wife and I have a net worth of approx 5m, 3 of which is liquid in qualified tax deferred accounts. Retirement is imminent. Is it crazy to put 500k into a (6 year) joint life deferred annuity that pays out $43k a year for life?

Answer

Is an annuity sales person trying to convince you this is a great idea?   Before you do this, find out the costs of the annuity because there are ongoing expenses every year.   Find out if there is a surrender charge.  Most importantly, find out how much of a commission the sales person is getting up front and every year.

Is this $43,000 for both your life and your spouse's?   This means it will continue to pay after the first of you pass away.   If there is a remaining balance in the annuity, who gets it?   Does it go to the insurance company or your family?

You did not state your age, so it is hard to check the math to see if this make sense.

Also, you did not state when the annuity will start paying since you state this is a deferred annuity.

I suggest consulting with a knowledgeable financial advisor who does not make money from selling financial products to run some numbers comparing investing in a well diversified low cost porfolio and compare this annuity - how much will be left upon your death?

Also, if your money is not locked up in an annuity, you have a lot more flexibility.

As you can tell, I am not a fan of this idea.  Please do not let the sales person pressure you to give him a big commission check.  You can do much better in a diversified low cost portfolio.

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