Fixed Income Annuity Lifetime Rider qualified money

[gg80108]

I'm retired 67 and purchased a Fixed Income Annuity/ Lifetime Rider qualified money. I put the annuity income in starting in 10yrs and I subtracted the cost of the annuity from my Tax Deferred portfolio value(since its not available without penalty and not the same as the leftover IRA). RMDs are due of course on the Contract value before the Lifetime payout income starts 10yrs. Looking at the Extended chart the median RMD reflects results on the Tax Def Annuity Value(which of course is short the annuity.. If I add it back in to the Tax Def value the cost of the annuity, the program can use the amount for additional withdrawal, when really no value is available easily, the contract value is going to zero with each annual payment. After starting the income the contract value goes zero in about 10yrs and no RMD value.

[jimr]

This is a tricky one to capture, but you should be able to get pretty close with a handful of additional inputs entries.

I think you're on the right track with removing the lump sum from the tax deferred portfolio right from the start. The trick is to figure out any other cash flow implications from having to take RMDs on money that's not in your portfolio.

Since there are no RMDs for the first 3 years (if I read your post right), it seems like you'll have RMD implications for about 17 years total. For the first 7 years, before the payments start, the RMDs should be relatively stable give or take. For the next ten years the RMDs effects will be gradually declining.

I'd suggest breaking the cash flows down into maybe three distinct time-spans and using additional inputs entries to capture everything that happens in each time-span. The first time-span will be the initial 7 year period of roughly stable RMDs (age 70 to 76?). Next, you'll have maybe two 5-year sets of entries to handle the second phase of declining RMD effects (these could use 5 year averages to approximate the cash flows - not perfect but probably good enough - could use 3 chunks of 3-4 years if more resolution is needed).

For the first 7 years, I think you'll need two cash flow entries in additional inputs (each covering the same 7 years). The first entry will be a "negative" savings entry from tax deferred for the estimated amount of the 'phantom' RMD (say it's -$5k). Negative savings cash flows are sort of a hack and taxes are not deducted automatically. The next step is to add a taxable savings cash flow entry to put the net amount left over from the manual RMD withdrawal, with taxes manually subtracted (say 20% of $5k is $1k, leaving $4k net going back into taxable savings). That'd mean a 7 year taxable savings entry of $4k to go along with the 7 year negative tax deferred savings entry of negative $5k. I think, but am not absolutely sure, this should roughly accurately represent what's going on. You'll want to look carefully at the detailed output table (with 'show more detail' selected) to verify that the planner is doing what you think it is.

For the other two chunks, you'd do basically the same thing, except use average amounts for the 2 cash flows that are based on the average of the the declining RMD over each 5 year period.

That's my best guess at how to model this. I do need to provide the standard disclaimer that this comes with no guarantees or warranties. I built the tool and have a good handle on how it works, but I can make mistakes with trickier situations like this and I'm not in the financial planning or advice business.

Jim