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keeperumiami, Senior Tax Expert & Financial Planner
Category: Social Security
Satisfied Customers: 7197
Experience:  Sr Tax Expert/Financial PlannerCPA/PFS (retired)Over forty years of advising individuals & small businesses
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It's a question about an annuity, Trying to figure out best

Customer Question

It's a question about an annuity
JA: The Retirement Accountant will know how to help. Please tell me more, so we can help you best.
Customer: Trying to figure out best option for an annuity with a lump sum payout of $10,888 both tax and investment-wise
JA: Is there anything else important you think the Retirement Accountant should know?
Customer: other options in clude life expectancy payout, actual life payout and 5year withdrawal
Submitted: 12 months ago.
Category: Social Security
Expert:  keeperumiami replied 12 months ago.

Hello, my name is***** goal is to give you a complete & accurate answer. I am working on your request now & I will respond as soon as possible.

Expert:  keeperumiami replied 12 months ago.

Given the current climate of extremely low interest rates, it is very difficult if not impossible to find a decent return on safe investment (where your principal is safe). It's a miracle to find a term certificate with an annual interest rate of even 1%.

Have you considered rolling over the annuity proceeds to another annuity? If eligible that would keep the full $10,888. earning interest, continue the deferral of income taxes on the portion of the annuity representing the accumulated interest included in the $10,888.

Steve G.

Customer: replied 12 months ago.
I'm not sure that explains it. My understanding is th $10,888 now is worth $1000 annually for 30 years assuming the annuity earns 7.5% annually.
Expert:  keeperumiami replied 12 months ago.

Well, that's quite a big assumption.

What is the guaranteed rate of return under that option?

If you could get even a 5% guarantee and don't have an immediate need for the money, I'd take it in a heartbeat.

Annuity terms are all over the place with all sorts of provisions, terms and contingencies; so generally it's not wise to focus on one aspect of the annuity (the interest rate) without understanding all the provisions.

Look at it this way, if the annuity is structured to pay 1,000. a year for 30 years, the first year, if the annuity earned 7.5%, that would equal $816.67. So that 1st year the balance of the $1,000. would come from principal, or $183.33. That would leave a balance of $10,704.67 for year 2 @ 7.5% would equal 802.85 and the balance of the $1,000. withdrawal would have to come from principal or $197.15 leaving a principal balance for year 3 of $10,507.52, and so on.

The only problem is, that the Insurance Company has the same investment problems you do. Where are they going to earn 7.5% in today's investment market? Making unrealistic projections is only one of the significant problem with annuities.

So, the only projection you can rely on, is the guaranteed rate of return and only then if the Insurance Company itself has at least an A rating as their obligations are only as good as the Insurance Company's ability to stay in business and honor their commitments. In the past, many Insurance Company's defaulted on the their annuity obligations because they couldn't achieve the investment earnings "guaranteed" in their contracts.

How much did your current annuity earn over what period? What was your initial deposit?

Steve G.

Customer: replied 12 months ago.
I don't know how much it earned because my grandfather set up the annuities as a death benefit. The annuity is with Fidelity. How am i texted on the yearly payments?
Customer: replied 12 months ago.
Customer: replied 12 months ago.
Also,Iknow there is a trust form a different financial isntitution. Is it possible to base trust payout amounts based onthe annuity payout the beneficiary selects? For example,if you take the lump some and then find out the annuall payout for the trust is $10,000 because had you selected the 30-year instead of thelumpsoum. Also, what is an average asset amount that makes a trust worth setting up. The grantor was married but she passed a few years before. What i am asking is if I choose the lump sum payment and then the terms of the trust are relseased, could they say, "you shortsighted people who wantedmoney now and didn't incorporate my long-term growth principles get on the lump sum payout and those who chose deferred options may be subject to more money for making the m0re responsible.decision above an beyond what the $1000 per year payout would beSn annuity is not a trust payout is it or can a trust be setup to disburse annuities at death. The annuity camefromFidelity, the trust is from PNC bank...
Customer: replied 12 months ago.
Posted by JustAnswer at customer's request) Hello. I would like to request the following Expert Service(s) from you: Live Phone Call. Let me know if you need more information, or send me the service offer(s) so we can proceed.
Expert:  keeperumiami replied 12 months ago.

I was off yesterday (Sunday) so I just received your request for a telephone consultation which I am happy to accommodate. Just let me know what time is good for you. I'm on EDT, so it's 9:20 AM now & I'll be on & off

the computer until about noontime today; then I'll be back on at approximately 1:30 this afternoon until sometime this evening. Anytime within those times will be fine with me. Let me know & I'll post the offer of the Premium Service at the suggested cost. If you can give me a general idea of what you'd like to discuss and some lead time, say 1hr., I'll make sure I am prepared to respond in general to the topics you are interested in exploring further. Or, we can continue here in this manner; it is totally up to you. Steve G.