My 74-Year-Old Dad Has $800K In His 401(k), And My Brother Keeps Telling Him to Move It Into An Annuity. Is This A Smart Move?

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When someone hits their 70s, every financial move starts to feel permanent. One reader says her 74-year-old father has about $800,000 sitting in a 401(k) and a brother who keeps telling him to “lock it up” in an annuity.

The pitch sounds convincing — guaranteed income, less market risk, and peace of mind. But rolling an entire 401(k) into an annuity isn’t as straightforward — or as universally smart — as it sounds.

Yes. It’s called a direct rollover, which lets someone move money from a 401(k) into an IRA annuity without triggering taxes or penalties. Financial advisors sometimes recommend it for older retirees who want predictable income and no exposure to stock market swings.

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However, it’s not a casual choice. Once that money is moved into an annuity, it becomes part of a contract with an insurance company — no longer a flexible investment account. You’re trading control and liquidity for stability and simplicity.

If a retiree rolled the full $800,000 into a fixed immediate annuity, they could expect roughly $4,000 to $5,000 per month for life, depending on rates and contract terms.

Current annuity payout rates hover around 5% to 6%, higher than they’ve been in years. That steady income can feel like a private pension — reliable and easy to budget around.

But there’s a catch. Unless the annuity includes inflation protection, those payments stay fixed. A $4,500 monthly payout today might not stretch nearly as far a decade from now.

Guaranteed income: Annuities offer peace of mind. Once payments begin, they’re typically guaranteed for life — regardless of market performance.

No stock market stress: Retirees who fear another market crash may find comfort knowing their income won’t drop if the S&P 500 does.

Tax deferral continues: Rolling over from a 401(k) into an annuity keeps the funds tax-deferred until withdrawals begin.

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High fees and surrender charges: Some annuities include layered fees or steep penalties for early withdrawals. Those costs can quietly eat away at the overall value.

Loss of flexibility: Once the money is committed, it’s difficult to access large sums for emergencies or medical expenses.

Limited growth: The trade-off for security is potential upside. With the money locked in, retirees miss out on market gains if stocks soar.

Inflation risk: Without inflation-adjusted payments, buying power decreases over time — a silent but significant risk.

This is one of the biggest reasons annuities stir debate.

If a retiree buys a lifetime income annuity and passes away early in the contract, the payments usually stop — and what’s left may stay with the insurance company. That’s the cost of lifetime guarantees: the insurer pools risk across everyone in the plan.

Some contracts offer “period certain” or “joint-life” options, which continue payments for a set number of years or to a surviving spouse. But those features lower the monthly income.

Critics call annuities a gamble — you could live comfortably to 95, or you could pass away at 76 and leave nothing behind. Supporters say that’s the point: it’s not about leaving a legacy, it’s about never running out of income while you’re alive.

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Leaving the $800,000 in a 401(k) — or rolling it into an IRA — keeps full control with the retiree. Withdrawals can be customized, investments adjusted, and remaining funds passed down to heirs.

But that flexibility comes with risk. A market downturn early in retirement could shrink the account just as withdrawals begin, shortening how long the money lasts.

For some retirees, guaranteed income is worth the trade-off. For others, annuities feel too restrictive — a safe bet that costs too much freedom.

The right answer depends on health, risk tolerance, and how much guaranteed income already exists from Social Security or pensions.

Before making a move this big, it’s smart to consult a licensed financial advisor — preferably one who doesn’t earn commissions from selling annuities — to compare products, fees, and long-term implications.

Because at the end of the day, this isn’t just about numbers. It’s about peace of mind — and deciding whether control or certainty matters more.

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This article My 74-Year-Old Dad Has $800K In His 401(k), And My Brother Keeps Telling Him to Move It Into An Annuity. Is This A Smart Move? originally appeared on Benzinga.com

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