Fascinating thread. Sounds like Gigi (OP) is learning a lot. Yes, we move from "earning and accumulating" to "sleeping well at night." In Gigi's case, maybe the main driver is not age, but just predisposition and an aversion to annuities !
..and thanks, Gigi, for sharing your tentative decision. Financial decisions, I'm learning are often (usually?) driven by emotion, rather than financial logic. Took me a while to learn after many years of education and spending most of my former lives doing the latter!
To the substance:
- 60/40 split will not guarantee the money will be available as you envision it. It's subject to volatility, up or down. There may be other, more predictable (fixed) options available within that annuity.
- There will be tax savings if you take the money out over time.
- The bank (and IRS) has to recognize the basis as non-taxable money. The nuance is how it's recognized. When you make a partial withdrawal from an annuity, gains come out first. Gains are 100% taxable at ordinary income rates. After all gains are accounted for, you get the basis, which is not taxable.
In a predetermined payout (as opposed to owner dictated random withdrawals descibed above), the taxable and non-taxable amounts are often both paid over time, so that each payment has a taxable and non-taxable component. The ratio of non-taxable to taxable is called an exclusion ratio.
It sounds like what the bank person is saying is that she doesn't know which scenario applies. Should be easy to find out before you decide anything. The differences will be smaller compared to the overall savings you'll achieve by taking the inheritance over time.
Forget the proposal to buy another annuity. That just confuses the question. It's a whole different topic and bears no relation to your withdrawal decision. As many have pointed out, that's an investment decision for the money after it's in your bank account.