Lately, I’ve been thinking much about an early retirement. Have worked over 20 years in the same company. Plus, always good to prepare as I’ve seen friends and family get an early retirement forced upon them. I was thinking about using an immediate annuity (along with a pension) for a guarenteed income stream. However, since a regular income wouldn’t keep up with inflation, I’d definitely still want to have money invested in mutual funds too.
Let’s say the annuity plus penison brings in about $50,000 a year, with about $400,000 left in other investments and a Roth IRA about $50,000. Also, no mortage in home, no dependents to provide for. With $50,000, some of that can still be used to continue investing in mutual funds even in retirement. Thus, if a bear market comes along, it’s comforting to know there is a steady income stream.
Would that combination of annuity and mutual funds be the best of both worlds for a stress free early retirement?
mybluemax1
February 19, 2010 at 1:19 pm
I recommend talking with a finiatial consultant, Edward Jones or Charles Schwab (at least for ideas). There are pros and cons to every decision.
Michael K
February 19, 2010 at 1:24 pm
You sound like you know what you are doing, but speaking to a financial advisor is a good idea. In my experience annuities are rarely good investments; high fees (often ‘hidden’), restrictions, and penalty provisions. Take a good look at exchange traded funds as an alternative.
Franco
February 19, 2010 at 2:05 pm
It seems to me that you are reasoning quite well. I recommend ensuring that your annuity be of the index linked type, or one which rises annually otherwise your real income will be falling. Shop around for the annuity, because the rates quoted vary widely.
Then consider your mutual funds. These should be of the equity income and property income type, invested in a variety of good markets, like US, UK, and Europe. You can assume that the income from them will at least keep up with inflation, but would probably do better. The income from them is published in newspapers, magazines and in the managers’ brochures,so it will be quite easy to do your own calculations of expected income, and the apportionment you prefer between annuity and mutual funds
Have a long and happy retirement.
MostChoice.com
February 19, 2010 at 2:24 pm
As the other answerers have noted, you seem to have a firm grasp on the basics of investing and appear to have already established personal investing tendencies. In your case, you seem to want to take risks on money you won’t absolutely have to depend on. As the others have mentioned, speaking to multiple financial (and tax!) advisors is probably a good move. You might want to see if increasing fixed annuities are offered in your area. They offer an increasing rate of income payments throughout your life. One of the sacrifices you’ll have to make is a lower starting level of retirement income compared with standard level fixed rate annuities. You also might want to explore fixed annuities that are tied to a market index or an interest rate index.
I work for a Web site that specializes in online annuity rate quotes and can connect you to annuity representatives in your area. You’re not obligated to buy anything from anyone. The idea is that one of the local annuity reps will deliver a plan that makes sense. Just be sure that they detail ALL the fees associated with the annuity you are considering.
You can find the Web site here:
http://www.mostchoice.com/annuity.cfm
Hope this helps,
Barnes@MostChoice.com