If your wife is also 65 you will be allowed to start with a withdrawal rate of 5 percent. Because this is an insurance product with insurance guarantees, your annual income will remain the same regardless of what the markets do and you'll have a shot at seeing your income increase if your account value exceeds the original value of the account.
Of course, the orignal value of the account will have to grow enough to overcome your withdrawal, the insurance expenses of the product (1.25 percent a year), and the management expenses of the fund (0.57 percent for Fidelity VIP Balanced fund). As a practical matter, you've got a better shot with Fidelity than with typical insurance products since they will have both higher insurance costs (average of 2.05 percent) and higher fund expense ratios. While your investments will be supporting your 5 percent withdrawal and 1.82 percent in fees, a typical insurance product will be carrying the same withdrawal rate and about 3.00 percent in fees.
You can also boost your income on your own simply by taking 5 percent from your own portfolio and taking the gamble that the portfolio will grow enough to overcome your withdrawals or at least stay even. What you are paying the extra 1.25 percent for is to have an insurance company shoulder the risk of a down market that could reduce your income drastically. For may people, the assurance of a guranteed minimum annual income is worth the additional expenses of the insurance.
Before you make that commitment, however, you might also try to measure what your real risk IS by visiting www.firecalc.com. This website, which I've mentioned in many columns, will allow you to test the survival odds for your portfolio. A portfolio that is 60 percent equities and 40 percent 5 year Treasuries and that costs 0.57 percent a year to manage, for instance, has a 98 percent chance of surviving a fixed annual withdrawal of $50,000 (5%) from an initial portfolio of $1 million for a withdrawal period of 30 years. That's about 5 years longer than the joint life expectancy of a 65 year old couple.
Given those odds, Fidelity is being very well rewarded for taking the risk of lower investment returns. Imagine how well rewarded the insurance companies that charge so much more are!
Scott
