Should I really buy that annuity for a successful railroad retirement?
Welcome everyone to another edition of the Highball Advisors Railroad Retirement Whiteboard. My name's John McNamara of Highball Advisors, and today we're going to talk about annuities, right? You hear them a lot on the radio, guaranteed income, a lot of advisors talk about them. So just to give you a little about what they are, they're usually contracts with insurance companies that guarantee you a certain amount of money, no matter what, in exchange for a large lump sum of money up front, okay? I'm not a big fan of them, there's a lot of fees associated with them. The expression is, nobody buys an annuity, they're sold annuities so very, very confusing contracts, because that's what they are, they're financial contracts. Very tough. But these are the kind of things I want you to think about when you're thinking about buying an annuity, right?
Do you have enough income for retirement, right? So for a railroader you're going to have your tier one and tier two, which is a good amount of money. And then, if you're married you also have a spousal tier one, spousal tier two. And remember, if you started in that 30 years of service, that starts at 60 years old, guaranteed, and you might possibly have a pension so that's almost five streams of income if you're married and getting a pension, four if you're not getting a pension and are married. So you want to step back and say, "Well, how much guaranteed money do I really need in retirement every month?" If it doesn't meet out of this ... One, I would check my budget. Two, then you could possibly look at an annuity. All right? But that is the beauty of railroad retirement is this actually takes out the need for annuities, the tier two.
But anyway, some people would like to have that guaranteed retirement income through annuity so something you can think about. But before you purchase one, do you have enough money to even purchase one of these? They're very expensive up front. So you put up 50 or $100,000 and then 20 years later the insurance company will give you a steady stream of payments, as long as you're alive. So that initial outlay of money, that might take away from other things that are important to you; maybe an emergency fund or paying down the mortgage, or you might have medical bills, whatever it is, credit card debt. So you've given this large amount of money for this insurance contract, this annuity, and it's taken away from you so that's something also to think about.
Another thing is, have you been funding your other goals, right? So, once again, large amount of money. Have you been maxing out your 401k, HSAs, IRAs? All very important, right? So if you think about ... The way I look at annuities is I'm giving an insurance company a large amount of money and what are they doing with it? Well, they're investing it. And what are they investing in? Well, they're probably investing in stocks, bonds, other assets, that type of thing. Well, that's what you're doing at a much cheaper rate of doing it, right? Because there's a lot of expenses when it comes to annuities so that's something to think about. And then the last one, it really comes down to your health, are you likely to have a shorter life I expectancy? So how is your health? So that's the thing with annuities, right? Once you start that stream of income and it ends, once you pass away, then the insurance company gets the money or it might continue to a beneficiary also.
But once both those are gone, then the annuity is no longer. So if you're concerned about something for your family, just go out and buy some life insurance, some term life insurance. Very, very cheap. Lot of competitors in that space. Insurance is for insurance, investments are for investments, so when I look at these products, annuities, I'm pretty skeptical. You're going to have to make a pretty good case for me as an experienced railroader, right, especially if you have your 30 years, for the need for annuity. I would like to hear that case, I haven't heard it yet to date. So I hope you found this video helpful when it comes to purchasing annuities or being sold an annuity as they say.
Click on the subscribe button, keep growing the number of subscribers to the Railroad Retirement channel, I do appreciate it. Share this with other railroaders and, until next time everyone, please stay safe, stay on track, and take care. So long everybody. Bye.
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