Should I transfer 401(k) funds into an annuity?
At age 60, is it wise to transfer $70,000 worth of 401(k) funds into an annuity? I would do this in order to retire at 62 and use the funds for medical insurance premiums. I also have a $250,000 annuity, long term care policy.
When you reach 65, you will be eligible for Medicare. At full retirement age of 66 and six months, assuming that you choose to accept Social Security benefits at that time, the basic cost of Medicare will be deducted from those benefits. In addition, to take care of the 20% that Medicare does not cover, you will need a Medicare supplement policy, which will cost about $200 a month. Given that information, my sense is that you would be better advised to leave the funds in the 401k rather than moving into an annuity which almost certainly will have far greater fees involved. If you choose a fixed annuity, yielding perhaps 5%, those funds will be transferred irrevocably. Although the regular payouts will be assured, I suspect that you be better off moving to a rollover IRA, which with proper asset allocation should be able to generate 5% or more annually over time. What's more, the funds would be available to you if you should need them.
If the annuity you refer to is a variable annuity, the costs would also be higher and you'd end up in a less advantageous position.
The annuity long term care policy is a hybrid that offers some protection if long term care is needed, but since these are typically fixed annuities, my sense is that you would have been better off investing the money with a lower cost vehicle, paying for a LTC policy with the returns from that investment, and continuing to have access to the funds in the future.
It is imporatant to have as many income streams as possible once retired. 401k's usually don't offer lifetime income. I call them "Lump Sum Timebombs" because they have no income stream option. That being said, if you already have an annuity, their may be a better place for the additional $70,000. What is the ultimate goal for that money?
An annuity MIGHT help your situation, but it depends on what kind of annuity you decide on, and you'll have to sit down with an insurance agent to figure that out. There are at least a half dozen different annuities that you could consider. I might lean toward a fixed indexed annuity since it has no upfront commission.
But I'm not convinced that an annuity is the right way to go. You could keep the money in the 401k and just take distributions from the plan just to fund the health insurance premiums. You'll have complete flexibility on the amount of the withdrawals, where with the annuity you'll only get a fixed amount. As health care premiums rise, the annuity payments won't enough.
This is a difficult question to answer online for a few reasons. The first is that even though you provided some information, it is far from enough. I would recommend sitting down with a financial advisor to review your needs in retirement.
Secondarily, it is hard to know what your experience and definition of an annuity is. Annuity can mean many things, and so I do not really know what you have, or what you may be considering.
Overall, annuities are a tool to manage risk. Mostly today though they are not the types that I would recommend if you need income.
Since you have so much in an annuity already that likely is not growing as much as it would be if it were not, and knowing nothing else about your circumstances, I think you may want to consider staying diversified with your rollover outside of an annuity. But, I can not give any specific advice on your circumstances over the internet and without far more information about your circumstances, goals, and needs.