Fixed Income Annuity

Has anyone here bought a FIA (Fixed Income Annuity)?
The return of FIA is not great, but for people who are close to retire, it could be a part of the Roth IRA portfolio to protect your principle. I’m interested in hearing your experiences.

You want to buy a tax-deferred product inside a tax-sheltered account ?

No, not a tax-deferred product.

Personally I would never mix investing and an insurance product.

Whats your time horizon for your Roth ?

10 years to retirement, maybe. This is primary for principal protection, not investment. Bonds is not great to protect the principal.

Hi Ferrari, I bought a QLAC last summer, here is the original discussion thread.

I spend $200,000 out of my tax-deferred IRA (I’m 62, the youngest age allowed to buy a QLAC), no tax impact in 2023, and at age 82 it pays me $73,622 per year until I die. Of course, NY Life and I are placing opposing bets on how long I will live. In the aggregate, the always win… they’re the house after all, right? But individuals may win if they have longer than average lifespans.

The exact problem I was trying to solve was the following:

  1. I can’t add any more benefit to my LTC policy which pays max $500,000 over my lifetime, they won’t let me, and anyway I hate paying for something I might get priced out of or not use, and yet I’m sensing that inflation is going to rip $500,000 apart pretty quickly over the rest of my life (3% inflation over 30 years turns $500k into $200k)
  2. The QLAC gives me 100% certainty of a large “pulse” of cash late in life, and I don’t have to make any claims, meet any conditions, it’s not conditional on the stock market, or my investment savvy, and I make no further payments. THERE IS NOTHING I CAN DO TO STOP THIS MONEY FROM COMING. They have my checking account info, starting on my 82nd birthday there will be monthly deposits of $6135.
  3. If I die, my heirs get my initial $200,000 back, guaranteed
  4. Using the QLAC pushes some of my RMD into the future - I have a large IRA, and I have a looming RMD problem, don’t get me wrong, it’s a great problem to have, but I have to engineer around it nonetheless or else I am going to get hit on the head

I am very satisfied with the purchase. I bought it from one of Clark’s favorite children - Fidelity.

People have raised the concern - “you could do better in the stock market”. That’s a false equivalency. You cannot compare basically risk-free cash flows with stock market returns. QLAC has to be compared to Treasuries or AAA or AA rated investment grade bonds. If I live as long as I think I will live (based on family history) the QLAC beats any bond I could ever possibly buy by miles and miles.

It’s a bond replacement that I cannot outlive - and I still take large bets in the stock market with the rest of my portfolio. So I get these nice non-correlated returns. QLAC is like a self-funded private pension for old people. Nothing bad about that.

I actually have your original post saved in a document for later in life.

Lets run some rough numbers to see how the stock market might compare. If we use a 10% rate of return over the next 20 years, your $200k would compound to $1.35M. Lets ignore dividends along the way for simplicity. If we then use $73k in annual dividends that would equate to a 5.4% dividend from your $1.35M principal. So with some “back of the napkin” calculations…it doesn’t seem like a bad choice. I don’t know how to adjust for risk…but I imagine that would make it appear better…

Are your annual payouts starting at 82 indexed for inflation? Or is it the same amount every year ?

Not indexed to inflation. Back in the original post, I mention that I ran the IRR calculation on the cash flows, and they were 6.51%, now if risk-free long-term US Treasuries ever rise above 6.51% then maybe it wasn’t a good choice… but, I can outlive a pile of US Treasuries. I can’t outlive a fixed annuity. And it wasn’t a huge part of my portfolio. My portfolio has about “healed” from that withdrawal already.

Here’s what I do - I don’t include QLAC income in my retirement planning. I pretend it doesn’t exist. I’m not pre-spending it. I want it to be like a LTC policy about the time most people need LTC. That’s why I chose 82.