Gyroscopic Investing

I have a variable annuity I have held since 2009. There is no surrender charge anymore so I am free and clear to take the value. I bought for 720,000 and it's cash out value is 880,000. The amount I collect on it is up to $4500.00 a month (about 54,500 a year) for income. The amount it pays grows 7% off the accumated value of which I can take 5% a year for income. It stops growing when I start taking the payments. I get them for life and the life of my wife if she outlives me. Should I keep it and let it grow, take payments now or cash out?

I don't think I would give up an annuity like that but I also don't think anyone can offer advice without knowing some more details, like how long before you retire and start collecting the money and do you have other assets?

In my case it's only a few years before I retire and we DO have other assets so that's why I say I would probably keep it. $4500 + my SS would give us more income than we currently are budgeted to live on and I could just sit on my PP and watch it grow as an insurance policy in case either income stream fails to deliver.

I have a PP of 2.6 million outside of the annuity. My SS next year when I am 66 would be 2,300 a mo if I take it. I have expenses of 15 k a month after taxes. So it's close if I can retire next year or not, or if I should start the annuity and SS or let them grow (SS 8% a yr and annuity 7% a yr) or retire off the PP.  PP for whatever reason hasn't grown in 2 years and who knows when it will again, so depleting the PP without growth would hurt the value to leave my heirs as the annuity can't grow because of the high expense rate and SS can't be passed on. The answer is not retire but I would like to. What's your take on this?

Helping grown kids struggling and a their student loans I co signed for starters.  A country club at $1200. a month. Mortgage, health ins, and well, before you know it…it's up there. I could get it down to 12,K for some months. Figure 160,000 a year.

That seems really high to me too. Spending some time pruning unnecessary expenditures could pay some real dividends in the form of a smaller portfolio needed to support your lifestyle.

Pointedstick wrote: That seems really high to me too. Spending some time pruning unnecessary expenditures could pay some real dividends in the form of a smaller portfolio needed to support your lifestyle.

I'm with PS. Been doing everything I can to cut down expenses as I approach retirement. It makes my head hurt to think of needing 15k/month. That would be about equal to my best after-tax earning year.

Obviously we occupy different universes so my advice is probably useless to you. Still would probably keep the annuity if I had that much money in my PP and it sounds like you can also retire at 66 and delay SS until 70 to get the max.

Plan on working as long as I can myself (I'm 64) because I have no clue what to do with myself when I retire and my wife is 17 years younger than me.

I work for myself so I can make money part time. I just want to compute it without working so I will have no pressure in retirement. If I want to go to St. Croix, VI for Jan and Feb, I don't want to think about money or work. If I sell the house, that would solve it as I would have zero debt paying off all loans but my wife hates change. She likes me working so she can do what she wants without hearing the
budget word.

portart wrote: If I sell the house, that would solve it as I would have zero debt paying off all loans but my wife hates change. She likes me working so she can do what she wants without hearing the budget word.

As with so many things, money issues often turn out to be not really about money at all.

portart wrote: Helping grown kids struggling and a their student loans I co signed for starters...Mortgage...

FWIW I don't think it makes sense to draw down an investment portfolio while holding debt. In principle you are earning interest in one hand and paying interest from the other. It's simpler and safer to pay down the debt and eliminate the monthly debt payments, even if that means pausing portfolio contributions or liquidating part of the portfolio. If I were you I'd think about immediately paying off the student loans and mortgage.

I'm a frugal/ERE sort of guy so the country club made me spit out my coffee.    Personally I would cut that, and maybe some other things like it, in a heartbeat, but it's your money so spend it how you want.

All good points, thank you., Golf is all I do for leisure and the club is social as well. I agree with the debt part and my plan this year is to work off the 105k student loan. The rest of the debt is mortgage. If I pull money to pay off that, I will pay taxes since it is in IRA money.

portart wrote: All good points, thank you., Golf is all I do for leisure and the club is social as well. I agree with the debt part and my plan this year is to work off the 105k student loan.

portart wrote: All good points, thank you., Golf is all I do for leisure and the club is social as well. I agree with the debt part and my plan this year is to work off the 105k student loan. The rest of the debt is mortgage. If I pull money to pay off that, I will pay taxes since it is in IRA money.

I thought you said you co-signed the student loan. I co-signed a car loan for my stepson but I expected him to pay it off. Sounds like you're taking on the whole debt yourself.

I have co-workers who have spent a lot of money putting their kids through expensive colleges and I can't relate because my dad was a blue-collar worker and this wasn't something that was expected of him. I was supposed to put myself through college if I wanted to go (which I didn't but I have done fine any way thank you) but my brother did with no help from my parents (and for the record I have made a LOT more money than my brother).

Every single one of my kids and now the granddaughter I adopted had severe learning disabilities so college was out of the question and I never had to deal with this. Not sure what I would have done if I had. Sending kids off to expensive colleges to live in dormitories used to be an upper class thing but now it is becoming more and more middle class. Sounds like you have done just fine but I think for a lot of folks this must put quite a dent in the retirement plans.

ns2 wrote: Sending kids off to expensive colleges to live in dormitories used to be an upper class thing but now it is becoming more and more middle class. Sounds like you have done just fine but I think for a lot of folks this must put quite a dent in the retirement plans.

It's the new "keeping up with the Joneses" fashion among educated liberals. In certain circles, not putting your children through a fancy expensive school is the cause of much shame and embarrassment, and probably the worst thing your kids can possibly do after high school is go into the military. It would be better if they turned out to be murderers. At least then you could blame that on bullying or their mean middle school teacher. But the military?? A true sign you've failed as a parent.

I know people who have drained themselves financially to put children through expensive colleges, and in some especially tragic cases, the kids ruined their own finances in the process and all they have to show for it are six-figure student loan balances and few serious employment prospects.

Needless to say, they are all Democrats who believe that access to higher education needs to be expanded through even more generous student loans.

This call was on me. I put my younger kid through college working and paying with no issues.  His older brother kept screwing up and changing colleges. I told him he would have to get a loan if he wanted to try again. Naturally they wouldn't give him the loan without me co-signing. It wasn't' an expensive school. It was the loan going up and an up with making minimal payments at a high rate of interest. He got married and could barely make enough to pay his own rent never mind the loan and his wife was making very little. In any case, I refi'd the loan under my home out of the high interest to get a lower rate and stop the bleeding.

I will take responsibility because I never should have let him borrow the money. If I push the loan on him, he will be buried and they will go after me for the money anyway. It is what it is. I am going to bust this year and not contribute to retirement and try to get rid of the debt before I think about retiring. My business is still good and I think I can get rid of it or make a serious dent in it. Maybe his stars will align and he will make it financially and pay me back but his history tells me it's a long shot. If I didn't have what I have, he probably would have never had the loan to begin with so that's life. I was a a HS dropout, went back to HS after getting out of the Navy, went to college for two years on the GI Bill, worked nights for four extra years to get my BS degree, worked 16 years for the government and quit at 37 to start over with my own business and became pretty successful. So no one ever game me anything but I was lucky to find my niche. I think its much harder to that in todays world.

Cosigning a loan is the same as lending the money yourself, only worse because it affects your credit score if the other borrower doesn't pay on time.

I'd pay off the loan, even if you have to take money out of investments.

Then cut your expenses to something reasonable for your assets.

The annuity is the last thing to worry about at this point.

I agree totally. I don't want to pull money from retirement because a 100k loan turns into a 130k loan when I pay Uncle Sam the taxes. It's true I will pay the taxes anyway as I work it off this year but I despise seeing my account balance go down when I am still  working. It's an incentive to bust my ass at least for one more year. It will an interesting exercise.