In the summer of 2020, I wrote a blog post about why we decided to purchase two annuities. Recently, a friend asked me if we were glad we made the purchases and if I thought purchasing an annuity today was still a good idea. The answer, as with everything in financial planning is, “it depends.”

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As someone who knows a lot about financial planning in general, and how retirement income is taxed in particular, this past year I discovered there was one area of the tax law that I was not knowledgeable of all the details. That is, how much of your social security benefit will be taxed. I am sure this is an area that many retired people are knowledgeable in, but, after talking to many retired friends this past year, there are many more who are not familiar. This is especially true of people who, whether retired or not, have not yet started collecting social security benefits.

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With the recent market volatility during 2022, I thought I would add a quick update to my blog site. What caused me to do this was a recent conversation I had with a family member. Like all of us, the recent down-draft in the stock and bond markets has been very unsettling to this person. And when you are in, or near retirement, this can cause the fear and anxiety to increase to the point that you feel like you need “to do something.” I do not use a financial planner as they are terribly expensive to employ to monitor and invest your assets (for a portfolio of $1 million, it is generally a 1% fee per year…or $10,000). However, in times like this, when we are in a stock bear market, I think a financial planner can be very helpful. The planner can help the investor-client control their market fear/anxiety, and, hopefully, not do any panic selling.

Today’s investment markets are extremely difficult. Safe fixed-income assets pay near zero interest and the stock market is at an historically high valuation. So what is a conservative investor to do, especially someone who is retired or is nearing retirement?

In the last few months I have been asked by many friends, “What do you think of Bitcoin?” The real question I think these people are asking is, “Should I own Bitcoin?” When I delve deeper, these friends are mostly concerned about all the mind-boggling US federal government spending that has occurred in 2020-2021. They are looking for a way, possibly Bitcoin, to preserve the value of some of their financial assets from inflationary forces that seem to be imminent in the future.

I have been reading in my investor newsletters as well as several other authoritative sources that the markets, especially the US stock market are, at present, extremely overvalued. Some of these sources presented data that, they believe, clearly indicate we are in the final stages of a “market melt up,” similar to the the tech bubble in 1999. As such, they all believe that a major market meltdown is on the horizon.

In the last couple years, I have been pondering this question, whether the 4% rule was still valid in the new investment environment going forward in the 2020s. I first wrote about the 4% rule in one of my first posts on this site in 2011 (you can read that post here). If you do not want to read my entire earlier blog post, I will summarize it here for you.

Recently, I have received a few emails on my recent post (read it here) that I advised, in considering whether to buy a commercial income annuity, one should first delay collecting their social security benefits until age 70. These emailers believe this is the wrong advice for collecting social security. One of their concerns is that the social security program is going broke and you should start collecting benefits right away before they stop the program. The other view is that since you do not know how long you will live; you should start collect benefits right away to be sure you get as much as possible. I will address both of these concerns.

My wife follows Twitter and sent me the below attached piece from Bloomberg about 401(k)s. I did not believe the title at first, but the article does make some valid points about the changes in tax laws and the availability of low cost funds to the general public since 401(k)s were created in the late 1970s. The article’s conclusion, that employer 401(k) plans offer less benefits to most taxpayers than they did 30 years ago, is true.

In the early spring of 2019, I wrote two blog posts on addressing the biggest risk every person faces in retirement, longevity risk, and how to fit an income annuity into your retirement income plan to help address this risk. You can read these two posts here and here. However, due to several major life events, we did not get around to actually purchasing the annuities I spoke of in those 2019 posts. As a result of this delay, I spent more time researching into the subject of income annuities and learned a couple other things. We, subsequently, purchased different annuities from what I wrote about a year ago. So, in this post, I will discuss my updated thought process and describe the products we ended up purchasing. First, let’s briefly review the reasons for considering an income annuity.