Leave It or Move It - Investing Your Retirement Funds

Q. I have recently retired at the age of 52 and I currently have a defined benefit annuity due to me. I have the option of taking the money out or leaving it in the defined annuity. I have $120,000.00 making 5.125% at the moment and I have been offered a Secure Plus Platinum Equity Indexed Annuity through Life Insurance Company of the Southwest guaranteed at 3% and capped at 8% for 15 years. Should I leave it where it is at or should I move it to the Equity Indexed Annuity?


A. If your only choice is to either keep the pension plan or to use the annuity then I would strongly suggest staying with the pension.

On the other hand, you can invest the lump sum pension in virtually anything by rolling it to an IRA. Then you have complete control over the money and can work with any advisor you want. The key is to find one you can trust. Run from the advisor recommending the annuity--he/she is just going for the commission. No competent advisor would ever recommend that you invest 100% of your retirement in anything.

If you don't have any investing experience you will have to greatly rely on an advisor. This is a concern for me because, regardless of how nice and trustworthy an advisor seems, if they are paid on commission there is too much temptation and conflict of interest on their part.

If you are going to use an advisor, choose one that doesn't not get paid by commission. People selling annuities will tell you that you don't pay a commission, yet he/she will earn close to a 10% commission on the annuity you mentioned! On the other hand, I get paid based on the value of my client's account. I receive an annual percentage (say .75%). I don't make any money by moving them from one investment to another.

There are many more attractive opportunities (long-term) available to you by taking the lump sum. For instance, I use a real estate investment for a portion of my client's accounts that is very stable and pays 6%-7.25% with a monthly check. I use some higher yielding securities that pay dividends between 6%-10%+ for another portion of their portfolios and the rest can be ultra-safe investments like CDs and/or some equities that are closely managed to minimize potential loss.

Your posted comments on this and other questions are welcome.
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