Annuities- On Pause

 

OK, so this morning I'm gonna have another quick word about money all right I was talking about annuities. I started investigating annuities. I used to be allergic to them, didn't want to have anything to do with them. 
They had a negative reputation. Suddenly, it started to look like a possible way for me to, as my broker put it, have permission to spend my own money. That's a very powerful phrase, and the reason being, if I have money, but I'm afraid to spend it because every dime that I spend, every dollar I spend takes away from the money I have in that nest egg, that said, that's a deterrent. 
You know, I don't want to spend it down to zero. That's the fear. Okay. 
So that was what was driving me because of an annuity guarantees income for life, and that's a very strong statement. And, ohh, my God, I can keep taking money out of this, and yet I'll never run out because it's guaranteed for life. But here's the deal life is short as the phrase goes and we just don't know how long or short it is so that was kind of my dilemma. 
How long am I gonna last? And the calculations on an annuity were kind of run around 10 years. They're looking at, you're paying you back over a 10 year period. 
Now, give or take some months, okay? But bottom line is, if you give them your money and they pay you back over 10 years, and obviously we know that they're in this business to make money. They have a couple of calculations going. 
One would be, they are paying you back immediately true, but they're also investing that money and making money on it. So they want to make more on their money than they're paying you out. Secondly, they have actuaries to say that you won't last 10 years. 
And ironically, I have already maximized her gum beyond the average expectation for a white male, 77. I don't know what it is. Bottom line is, you know, I could go another five years, another 10 years, another 20 years. 
But I don't know. But that was the driving force behind the annui. But here's the deal. 
My broker has been extremely helpful and very honest and forthcoming and so forth and so on, and in this last correspondence, he said that if I had X amount in order to make this amount of money every month to generate this amount of cash, let's just say a dollar a month, okay? In order to generate that dollar a month, I would have to have so many dollars in savings at such and such a percentage. This was like the last sentence in his letter, and I re read that, and I thought about it, and I looked, and sure enough, in order to acquire this annuity, I looked at how much cash I have, which just happened to be more than the amount that he told me. 
Well, isn't that an interesting surprise? So, in other words, if I leave my money where it is, earning the amount of interest that's currently being paid, I am generating as much money as I would get out of the annuity. Well, now, there's something to really think about, because in the annuity, I've handed that money over. 
They're going to give it back to me. Based on today's interest rates. And he kept emphasizing that, and that made me think, too, because based on today's interest rates, I'm making the kind of money that I would in an annuity. 
But I'm not but it's not locked up. And it's compounding. It's compounding within that system, and I can see the compound interest. 
And so if I don't spend it, then it's going to keep compounding for the next 10 years, and I would end up with quite a bit more money in that pot. But if I spend it, which is the whole point of the annuity, the spending part, if I spend it, then in theory, it's like a cow giving milk. The cow is still gives milk. 
So each month I take I skim off the interest and I spend it, but the cow keeps giving me milk. So, and I don't mean to be mean to cows. But my sailings keeps producing more interest until or unless I start delving below and taking more out than the interest generated, that cash cow just keeps giving. 
So it really made me pause to think, which is what I'm doing now and I'm talking it over with myself, as usual. I'm thinking no. Certainly no pressure now to buy the annuity because, look, I'm generating income that I can spend if and when I want to. 
And that's the other thing, if and when I want to. And I started thinking about that, getting my annuity check, I went through the whole mechanics of how it would be passed on to me. It is going to be paying for my RMD, but the thing here is, my required minimum distribution, it's doing that inside the 401k already, which I kind of wasn't thinking about that, but it is. 
It's generating interest inside the annuity. They're going to, you know, they're gonna calculate my RMD based on how much is in there. I would not be actually reducing my RMD and I really had to think about that. 
By taking the money out of the 401K and putting it in the annuity, it's still, in effect, considered part of the annuity just to kind of a separate part. And I'm paying taxes on every check that they send me, a percentage of it as regular income, and I still have to pay taxes on what's left inside the 401K. So bottom line is you never escape your taxes. Death and taxes, like he said, that's it. 
So right now, I'm cooling my jets on the annuity. I'm going to give it some real thought. I'm going to take a look and do calculations on how much interest I'm accruing every month and and dividends, which I get good dividends. 
And, you know, I keep reinvesting those, which is why my portfolio grows. But in theory, in theory, I could start spending those dividends same concept with the cash cow. I'm not growing it anymore like when you reinvest it, but I am spending it, which is what we're talking about the quality of life. 
So I'm really circling back to just keeping my portfolio the way it is, possibly spending more of my RMD, which I've not spent any of it. And then the other thing is, how do I justify buying a new car and I'm really looking at that and I'm really thinking about justifying it because I just put $400 into the CRV, which is not a lot of money, but that was just routine maintenance, nothing. That was just an oil change and whatever. 
And, you know, my warranties are gone, they're gonna be gone on the bolt, get a new car, $300 a month, you know, that's all my expense, no other expenses. That has proven to be a good deal. And I just watched a video where he basically did the math on that and made, you know, showed how that is a good deal. 
People poo poo everything, no matter what you do, they're going to be negative attitudes. What you have to do is listen to them, just like I listen to or read the negative reviews on Amazon. That doesn't mean the product's no good. 
It just means those people had a bad experience with it. I'm going to shut up now. I only want the eight minutes. 
That's enough. But right now, I'm taking a second look at annuities, and right now, I'm going to put it on pause. Thanks for listening.