The majority of my retirement savings is in an IRA managed by a large brokerage firm, and my current portfolio allocation is 60% stocks and 40% bonds. My portfolio manager, a CFP professional and fiduciary with the firm, has recommended moving a portion of the bond allocation into a deferred fixed annuity offered by a highly rated, unaffiliated insurance company. We discussed interest rates, bond yields and how rising yields can affect bond-fund values as investors move money in search of better returns.
I believe I understand the concern with remaining heavily invested in bond funds in the current environment, but I’d appreciate other perspectives. The annuity was recently offering a 5.75% rate on a jumbo contract with a five-year term and no fees. The three-year option offers a slightly lower rate.
I would have the option to withdraw up to 10% annually if needed, although I don’t anticipate doing so. At the end of the term, the plan would be to move the funds back into my managed IRA account. The remaining portfolio would then be reallocated to a 70/30 stock/bond mix.
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I haven’t committed to the strategy yet and would appreciate some independent perspectives. What am I potentially overlooking? Are there downsides to this approach, particularly regarding liquidity, inflation, insurer risk, taxes or the opportunity cost of locking in a fixed rate for five years?
Does this seem like a reasonable strategy for someone in my position, given that Social Security covers my fixed expenses? I’d be interested in hearing from anyone who has considered or used a similar strategy, as well as from those who see potential drawbacks I should discuss with my adviser before making a decision. **See:**I made $500,000 from a stock sale in my IRA. Could this change my retirement?
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