@H200h did you collect your lower jaw from the floor yet?
I enjoy investing, but there is something to be said for not having to think about it.
But what we’re talking about is the delta between an RMD that you must pay taxes on and an annuity payment that you must also pay taxes on. The RMD is probably going to be less than the annuity and you still have a big chunk that you can access for emergencies. I think you have more flexibility with the taxable IRA taking the RMDs.
And with your particular QLAC, what happens if you don’t live to be 85?
About the link you posted in post #23?
Looks like the Medicare premiums are about the same as 2022. I don’t pay a lot of attention to it because they just deduct it from my SS check.
The premiums are the same, but the penalties are of concern. A single filer has a problem above MAGI $123,000. That’s where I’m headed if I don’t get clever with mitigation of my large IRA. Many people get into the same trap, they only hear about IRMAA after it has affected them.
The QLAC cited has no death benefit, but I’m now leaning towards return of principal benefit to heirs. As someone else pointed out here, the deferred income annuities “smear” the RMDs out over time - they aren’t eliminated - so that if the planning is right, you won’t pop over an undesirable IRMAA cliff. And it’s a zero variance cash flow which adds stability to the Monte Carlo, and you can’t outlive it. And it’s a small amount of my portfolio. Diversification of cash flows, instead of betting my financial life on Mr. SPY or Ms. AGG or whatever.
I think you just found out about IRMAA! The IRMAA lookback period starts two year before age 65. I’m going to be 65 in 2026, so my tax returns for 2024 onward will be used for IRMAA calcs.
If you have large projected RMDs, it’s really rotten. Who wants to pay essentially double for Medicare Part B, at $123k MAGI for a single filer?
And it’s a CLIFF, the worst part. If you’re $1 over, you pay the progressive penalties at each cliff wall.
The only way to deal with this is heavily rely on Roth accounts while you work, convert to Roth IRA when you can, don’t be afraid of taxable accounts if you use tax-efficient investments, be mindful not to create a huge wall of tax-deferred IRA 401k money which is going to fall on you, and use QCDs (Google it) and deferred income annuities to smear the money out over time.
Those are the only ways I know how to take care of it. Oh, get married if you’re single? IDK… when I’m single again in my 70s, I don’t plan on it, frankly. I gave at the office, as they say.
Unless she has really a really secure LTC plan in place, I would not dare have to go through the married couple impoverishment exercise to get a Medicaid LTC bed like my Dad had to. Two people who are in love can, with the right legal docs, have everything they need to function as a married couple without being married. The way the US treats married elderly is abusive. All of our benefits are individual, but the needs calculation is couple-collective. I can take better care of a loved one if she runs down her assets but I have all of mine, and she gets a Medicaid bed.
By penalties, do you mean the increase you pay above the AGI thresholds? I’ve occasionally bumped into the next AGI threshold and it’s a pain to keep track of because of the lag when you’re close to the line and they implement the bump-up based of the AGI of two years previous.
I’ve always looked at my RMAs as adding a lot of flexibility to my tax, budgeting and charitable giving strategy. I use them to withhold my FIT Y/E rather than mess with estimated quarterly payments.
I don’t even know what you’re asking. I’m talking about MAGI impacts on IRMAA if you’re reasonably well off. I think I’ve described it in excruciating detail, I won’t repeat myself.
If you don’t notice an extra $65 or $166 getting pulled out of your SS check every month as you cross over IRMAA cliff faces, then you’re much more relaxed about money than I am. I have better things to do with $1992 per year in after-tax money than give to the Government.
I used Fidelity’s Monte Carlo simulations a lot in my retirement planning during the early 2000’s. They turned out to be way off the results I experienced in the real world. Basically, they were consistently under actual performance.
You don’t pay the extra premium until the next year or so. It’s easy to miss it until it shows up.
I planned my retirement without hanging my hat on SS income so for me it’s free money. And after 80, I don’t spend so much time fretting over every nickel I pay in taxes. 
Excellent topic and discussion -kudo’s to all involved.
My plan is to use ROTH conversions now and QCD’s in the future to reduce my future RMD’s. I’m skeptical of all flavors of annuities (give us a pile of money today and we promise to give you back even more later); I’d rather hang onto my investments take my chances with the stock market. And although I don’t like the idea of paying extra IRMAA for medicare, its not an obscenely large penalty; I could live with it. But I will say that ochotona has obviously thought this through carefully, and if he is comfortable with the annuity path, then go for it.
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Like Clark says… any kind of annuity where the payments are not guaranteed in a contract, run away from it!
I’m going to buy a QLAC. The IRR if I live to 95 (my end of plan) is 6%. If I live to 88, I get IRR = 4.2% = US Treasury 30 year rate. If I live to 100, I won’t outlive it. I’m basically buying something like a Treasury that I can’t outlive. On the day I buy it I will sell bonds and buy more risk assets in the portfolio, to compensate for buying this bond substitute. If I die before I start taking distributions, my heirs get my initial payment refunded to them as a death benefit. The net effect will be at age 82 I will be getting an amount which will double-up my Social Security, so that will go a long way towards covering any spike in end-of-life costs.
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I bought it. Paid $200,000 now for $73,622 per year (paid monthly) starting on my 82nd birthday… in slightly less than twenty years. I did opt for the death benefit… my heirs are guaranteed to receive $200,000 no matter what. The IRR, assuming I live to end-of-plan (95), is 6.51%.
The $200,000 rolls from the IRA, no taxable event in 2023.
When I subtracted $200,000 from my IRA and added the $73,622 income stream into the Flexible Retirement Planner software, my retirement plan got better. I could spend $6,000 move over my entire lifetime to the same 95% probability of success, my heirs get more in the end.
Interestingly, I did take a pension rollover TO my IRA in 2019 over concerns Schlumberger might not be around in 2056, my end of plan. I’m basically rolling a similar amount BACK OUT and getting a pension again… but different timings, and the issuer is New York Life (A++ A.M. Best, Aaa Moody’s AAA Fitch, AA+ S&P). I trust them more than Schlumberger, that’s for sure.
Should I be blessed enough to get the payments, they will probably double up my Social Security.
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Hope it works out for you @ochotona .
Do you mind sharing what the fees were for your $200k investment ?
Good question. I just rolled through 87 pages of the application form and disclosures, and the only thing I saw was a 0.04% Premium tax (State of Texas?) I am 100% certain Fidelity and my Advisor are compensated, but it’s not visible to me. The $200,000 was the total net amount, nothing added on top of that that I can see. I was tempted to shop it out, but shopping out financial products offered by Fidelity or Schwab is kind of pointless… who else would I go to? Ed Jones? Ameriprise? World Financial Group? (I know some sellers who work for them, ex-Schlumberger guys who hawk costly life products because they could not find oil patch jobs in 2015). I’m very happy with Fidelity as my one-stop-shop, and my (complimentary at the Private Client tier) Advisor helps me a lot, even though I’m a knowledgeable buyer. She helps me frame the issues properly, which is invaluable given the hell my family is going through with cancer under our roof and all.
Live till your 95 and you’ve got yourself a FV $1,327,960 bird in the bush…
I’m not letting myself get fooled by a Money Illusion… Inflation will take much of that gain away, but it will still be about 3.5% real if inflation is 3%.
The Clark Podcast talks about Longevity Insurance today… he likes them, Great minds think alike! (I think he takes cues from this community what topics to bring up on his broadcast)
TRANSCRIPT
This is something to solidly think about. And there’s a solution that’s almost impossible for me or anyone else to get anyone to consider. It’s what’s known as Longevity Insurance. The way it works is when you’re going into Retirement or you’re approaching Retirement or you’re already retired, you figure out, okay, I gotta have so much money to make it to age 80 or age 85 or whatever the number is. And those are the two most common for what I’m gonna talk about. And so you have this money that would be okay to exhaust completely by age 80 or 85 because then you can buy Longevity Insurance policy that pays you a check every month for living longer than what you might’ve expected.
So If, you buy it starting at age 80 for 80 plus the number of years you live, you live to a hundred for the next 20 years, it’s gonna pay you every single month a good amount of money, 85 If, you wait till then, then it’s gonna pay you a lot more money per month, every month going forward. And so there’s no free lunch here. The way it works is you buy one of these policies, make sure it’s from a really solid insurance company, rated eight plus or eight plus plus by am best you buy one. Usually people buy it in their sixties and then it starts paying at 80 or 85 Most common So, it pays you so much because it’s a roll of the dice.
So many people who buy these pass away before they turn that age. So the insurers keeping all that money. And then if you’re somebody who lives longer than they expect, then you trigger that policy payment starting at 80 or 85 and you’re getting a really hefty check from the years the insurance company was able to make money on your money that you already paid them to buy this Longevity Insurance. So you get that plus you get additional money because so many other people didn’t make it. So the policies can be really generous. The insurance company can make money, your money earned money and then your money has more money because of all the people who didn’t make it.
Now I don’t know, anybody will never know, right? Because they’re going who’s like, oh man, I never should have bought that policy because I’m not gonna live long enough to benefit from it. So what the whole purpose of this is to not outlive your money. And that’s why I love these. I have a briefing on Longevity Insurance how it works, how you buy one policy at Clark dot com, but it is a solution to a real problem and that we’re living longer than people thought we would. But a lot of us as we get later in our years, we’re not tooth be told is healthy as it would be fun to live with And. it requires more expenses, more care potentially. And the Longevity Insurance is there to help you through that time of your life. So Krista, how long would you If you to close your eyes and think how long do you think you’re gonna live? Because you eat all this healthy food all the time and you exercise like a maniac.