Hi, more or less up the creek (with a paddle, we hope),

Your profile doesn't say much about you - but Happy belated Birthday, New Year kid!

What age are you - how long before you may begin to collect the pension?

Is there family history of weakness that might lead you to suspect that you might not live to a ripe old age, thus able to enjoy your pension for an extended period?

Does your hubby's pension system allow for continued payment to a surviving spouse after his demise? If so, how adequately?

Does yours?

What are your relative ages - is there a substantial disparity, especially if your spouse is younger and has a pension inferior to yours?

If you save and invest $500./mo., it'll only take you 10 years to build an asset of $60,000. if you get no return on your investment. In the real world, it'll take less time, especially if you can invest wisely and get a substantial rate of return.

How about investing that $500./mo. outside of a retirement account? Are you skilled money managers, could you build an asset that would provide a better return in the future?

If you die shortly after retirement, your pension stops (apart from almost certainly reduced continuing benefit for your spouse, but it will stop at his demise).

If you invest outside of a retirement account and can develop a large enough asset to provide you with the extra amount that your pension icrease would have during your retirement, if there is any left on your death, it'll be yours to dispose of as suits you.

Enough for now.

Good wishes for wise use of your assets in the New Year - learning how money works is an interesting hobby ... that pays well.

ole joyful

upa,
joyfulguy asked some pertinent questions, however, speaking for myself this would be a no brainer.

I can buy this amount back by taking the needed $60,000 from my husband's retirement trust (federal and state taxes would need to be paid on this amount).

So how much would your husband have to withdraw to cover the federal and state taxes? This is the actual amount that the $500 will cost you.

We can live just fine without the $500 a month
Then why take out over $60,000?

My thought is the $500 loss a month is much less than the amount of money we earn on the $60,000
Especially when you consider the fact that those earnings are compounded.

Finally, again I don't know how close you are to retirement, but if that $500/mo is not indexed to inflation, in 10, 15 or 20 years it will not be worth what $500 is today.
Best of luck!

Let me be sure I understand the situation correctly: You have the option of withdrawing $60,000 from your husband's retirement account, and paying taxes on it, in exchange for which you will receive $500/month for life. Or you can leave the $60,000 there, tax-free, and ultimately withdraw it and its earnings.

My first observation is that because of the tax factor, $60,000 isn't $60,000. I'm going to guess that that withdrawal will certainly put you in the 25% tax bracket, so you'll pay an additional $15,000 in taxes on the $60,000.

So the question is whether you should pay $75,000 in order to get a payment of $500/month for life.

Well, $500/month is $6,000/year, which is 8% of $75,000. So the question comes down to this: Would you rather earn 8%, fixed rate, for life, or would you rather take your chances with your own investments?

The answer depends on three factors, none of which you can decide for yourself:

1) How much do you care about the size of your estate? Alternatively, how much difference is there between "for the rest of your life" and "forever?" You may think that there is no difference, but that's not true if you have heirs, nor is it true if you still have the option of spending that money near the end of your life if you need it.

2) How confident are you that you can earn more than 8% over the long term? The answer depends both on things you can control (i.e. how you invest the money) and things you can't control (i.e. how the economy will do in the future).

3) How much of a problem will it be if you can't earn the 8% you expect?

Once you know the answers to these questions, you can figure out what to do. My personal opinion is that it is not an obvious decision, and you could not be faulted for going either way.

Good points, alphacat. However now that you do the math it seems even more clear cut. The OP might be "earning" 8 percent or $500 a month on that investment, but that $75,000 would be lost forever to the company that is backing the annuity. Better, in my opinion, to hold onto the money while hopefully earning that 8 percent or more ... and still retaining ownership of the principal. It sounds like this is an investment only for someone who can't bear any fluctuations in monthly income.

Even if you did buy into this annuity for a higher payout, keep in mind that $500 a month will decline in value over time. It won't be worth in 20 years what it is today.

Thanks all for their insight and questions to prompt the brain to THINK! I've thought about this a lot today and believe I would rather "lose" the $500 gross a month on my monthly annuity, which by the way, gets a cost of living allowance most every year and leave the $60K in hubby's account which has been drawing great overall interest all the years he has been vested.

I'm planning on retiring in Jun of this year and hubby in Dec. At that time I will be 57-1/2, he will be 59-1/2. Most all the questions that have been asked, we've asked ourselves. I will leave a survivorship on my annuity for hubby. If hubby dies before pulling all his $ out, I will continue pulling out money at the rate I need until it is exhausted or until I die. At that point any dollars left go to the kids in a lump sum. My annuity ends when the survivor dies.

Joyful, thanks for the birthday wishes! And we are excited about the next chapter in our life. Thanks all for the help!

I'm a big fan of staying away from annuities if at all possible. So, I certainly wouldn't sink any more principal into one. You should be able to make a better return on that $60k yourselves.

Hi again up the river,

I'm not much of a fan of annuities, either.

Especially in these days of fairly low interest rates, as annuities usually offer payouts geared to current rates.

Have you considered borrowing the $60,000. to pay the cost?

Would your annuity start soon, or when you retire, or at a specified age, e.g. 65?

With the huge debt and current deficits that the U.S. gov't. is running, I think that interest rates will need to rise soon in order to entice lenders to buy their paper.

Good wishes as you make your plans.

Send me an email if you're interested, as you have not given me the opportunity of sending a private message to you on your profile page - check my profile page for channel.

ole joyful

This is a no brainer if your numbers are correct. Do you mean to say that your husband's 60K is growing by over 20% per year? What's the name of that fund? Obviously my money is in the wrong place.

Oops, I had a brain blip. It is 10%. Even so, your husband can beat a guaranteed 10% + colas? or did it not include colas? Does any remainder from the fund go to your husband should you pre-decease him? It still seems like a good deal to me, but my husband's retirement continues through both our lives, so that probably influences my thinking.