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Fidelity investments have just announced a new and interesting retirement investment vehicle for people that would like to have professionals handle things for them. It looks somewhat like a variable annuity in that you have to invest a certain amount to get a monthly payment, but there the similarity ends. With an annuity you basically buy a monthly payment and when you leave this earth the monthly payment ends and your capital is gone. With this program you define the investment duration and the monthly payment you want to receive. The combination of those two things defines how much you need to invest at the beginning, much like an annuity. The big difference is that whatever is left in the program is returned to you at the end of the program. There are two major problems with annuities; 1. Your investment is gone when you pass away, 2. You have no flexibility if your situation changes. The money is tied up once you invest. This program seems to get around those two issues and yet provide a monthly benefit for a defined number of years. This could be useful to “bridge” a gap between early retirement and when you want to take social security to maximize that benefit. The monthly payment you receive may vary depending on market performance but it may also be set to increase annually to account for inflation. Of course this is complicated by the fact that you are withdrawing capital and the amount that is returned at the end will be a lot less than if you hadn’t touched it at all. For this reason it is difficult to see if this is a good thing or not. Retiring early will always deplete funds sooner than later so fundamentally I don’t see a free lunch here. The one thing that needs to be determined is how much returns at the end, if that is even possible, and what the benefit is. Can you get more from social security and give up some savings to get it? The answer, of course, is yes; but it will take some serious math to find out if there is any net gain and the risk involved. Interesting new program but it needs thought and professional advice. Comments |
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