Retirement Planning/Annuity vs Investment


I really do not know a thing about financial planning so please excuse me if my question sounds stupid.  My wife and I just turned 59 and together we have accumulated roughly a million dollars in 401k/403b accounts.  I heard that with this amount of money we could buy an annuity that would provide us with about $100,000 per year income for life.  I was wondering if instead, I could invest the money somewhere relatively safe that would provide that income in the form of interest?  We would be willing to commit the money for a period of time (say 10 years) in order to increase the interest rate.  Does this sound feasible or am I dreaming?  Thank you for whatever insight you can provide.

The Financial Quarterback
The Financial Quarterb  
Thanks for your question and I hope I can help.

You question is long and involved and I would definitely first recommend that you visit with a Certified Financial Planner who works with individuals and families in your part of the country and deals specifically with retirement income distribution. Its important that the individual you are working with really understands the concept of working with individuals who are taking distributions from their portfolio. The rules and methods are a little different than when folks are accumulating money in their portfolio.

To get back to your example, lets just review your question. There is no realistic investment vehicle that you will be able to invest $1,000,000 and receive a guaranteed $100,000 (or 10%) for the rest of your life. The last individual that attempted to do this very same scenario is now in jail and his name is Bernie Madoff. Although I am joking, I just want to make you aware that this does not exist (and has never existed).

When it comes to retirement distribution planning, an individual needs to make sure that their portfolio will provide them with an inflation adjusted income that will not only continue to grow into your entire retirement and that of your spouse but also make sure that you do not run out of money or be invested in a manner that will decrease the value of your account to a point that will force you to take less income in the future. Your income and portfolio also needs to make sure that it takes into account issues dealing with taxes, inflation, long-term care, survivor needs, and estate planning concerns.

There are all different methods of planning for retirement distribution and which one selects is dependent of many variables. A good rule of thumb (and nothing else) is to consider a withdraw rate of approximately 3% to 4% a year.  The biggest problem with the 4% rule is that one can’t attempt to finance a constant non-volatile spending plan using risky, volatile investments. Maintaining the same withdrawal rate in down markets will potentially cause the retiree to run out of money.

So the questions you have to ask yourself is this… “How stable is your income source and what’s the worst case scenario with your current plan?”I will like to inform you that there are a few things you can put in place to help you protect your principle as well as your income during retirement. Such approach we often call “Income for Life” income planning or “Buckets of Income Planning” or Time Segmented Model. Whatever, you want to call it, it works the same way.

Basically, this approach to proper income distribution planning revolves around putting together a plan that uses multiple investments, divided into multiple time frames, and some income guarantees. This approach strategically combines shifting risk and investments to achieve Reliability of Income (ROI) and better be able to manage your emotions at retirement.

Although definitely not the only approach to retirement distribution planning, this strategy has proven to allow retirees to maintain their initial principal and weather bad markets or life experiences.

You only get “one” retirement and you need to get it right. You need to find yourself a financial advisor that can demonstrate expertise in retirement income planning. It may require that you change advisors, just like you would change doctors, if your current physician was not able to treat your condition. There are a multitude of retirement income models to select from, but only a few that will meet your needs and are easy to understand. Remember , Retirees don’t go to the pharmacy with their financial statements; you go with your check book. Your life savings is at risk. So make sure you have the right plan!  

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Richard E. Reyes, CFP


I can provide answers to questions relating to retirement especially relating to; income distribution, tax efficiency, long-term care insurance, life insurance, estate planning, asset protection, variable and fixed annuities, alternative investments and prudent portfolio design.


Through the years Richard has built a reputation as one of Central Florida's expert on retirement income distribution by providing sound, unbiased wealth coaching. We believe that Financial Planning is the problem and Wealth Coaching is the solution. The Wealth Coaching process gives you Peace of Mind, so you can stop worrying about your future. It helps you find happiness as it guides you in the TRUTH of investing, by teaching you how to make wise choices as you journey through your life’s stages. It is all about your relationships and what you value, not your net worth.

Seminole Success Magazine “Retirement Planning” Seminole Success Magazine “Small Business Snapshot” The Orlando Sentinel – Ask the Expert Financial Section (Various) Greater Orlando Broker Agent Magazine “The New It” Senior Market Advisor “Random Reader, Random Questions”

B.S. University of Florida, Gainesville, FL
CFP Certificate, University of Central Florida, Orlando, FL

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