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Old 09-02-2016, 06:17 PM   #21
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But you know OP has no kids and no plans to leave anything behind.

In a light of this annuity may be good choice for OP since it guarantees you leave this world with everything spend. There is no other investment with such guarantee.

In general it makes insurance company happy because they are in business of making money.
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Old 09-02-2016, 06:28 PM   #22
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Originally Posted by eta2020 View Post
But you know OP has no kids and no plans to leave anything behind.

In a light of this annuity may be good choice for OP since it guarantees you leave this world with everything spend. There is no other investment with such guarantee.

In general it makes insurance company happy because they are in business of making money.
No question the insurance company "wins" on average. it's insurance. By definition that's how it works. However, if you live to 105 you'd be darn happy with some annuities! Again, not for everybody. I just can't imagine being healthy and 85 or 90 and realizing that firecalc wasn't right 35 years ago. Oh crap.... If I had no kids to leave anything to an "expensive" annuity would seem MUCH smarter to me.
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Old 09-02-2016, 06:28 PM   #23
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Even in this case, an annuity starts to make more sense only if:
1) The annuitant is old (because mortality credits make the monthly checks a lot higher than they would be for a 55 year old)
2) Interest rates are higher

Waiting to buy one of these things makes a lot of sense for this couple for the reasons above. Plus, they'll know more about their life situation, have a better idea of their health status/likely longevity, and it reduces the number of years they'll need their insurance company to survive. Buying one eventually might be a good idea, buying one now is almost certainly not.

Otar's book/approach make a lot of sense. If you are getting older and starting to slip into his "red zone" (looks like your assets won't be able to match your lifelong spending reqmts), then it's time to consider an annuity.
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Old 09-02-2016, 06:32 PM   #24
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If I had no kids to leave anything to an "expensive" annuity would seem MUCH smarter to me.
Price out an inflation-protected annuity for a 55 year old couple and then make the case. If you don't have the numbers, you don't really know, right?
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Old 09-02-2016, 06:35 PM   #25
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No question the insurance company "wins" on average. it's insurance. By definition that's how it works. However, if you live to 105 you'd be darn happy with some annuities! Again, not for everybody. I just can't imagine being healthy and 85 or 90 and realizing that firecalc wasn't right 35 years ago. Oh crap.... If I had no kids to leave anything to an "expensive" annuity would seem MUCH smarter to me.
I am convinced I will have several times higher income if I just buy 60/40 VTI/VXUS and spend dividends..... if I live to 105. 1.2 million dollar portfolio can generate about 25k in dividends and it will grow faster then inflation. So I will have more and more money every year.

This is what I saw in my 30 years of buy and hold

I may have a lower income first 7-10 years but thereafter it will be higher then annuity.
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Old 09-02-2016, 06:44 PM   #26
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I am convinced I will have several times higher income if I just buy 60/40 VTI/VXUS and spend dividends..... if I live to 105. 1.2 million dollar portfolio can generate about 25k in dividends and it will grow faster then inflation. So I will have more and more money every year.

This is what I saw in my 30 years of buy and hold

I may have a lower income first 7-10 years but thereafter it will be higher then annuity.
You are 100% right... assuming history repeats itself.
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Old 09-02-2016, 06:46 PM   #27
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Price out an inflation-protected annuity for a 55 year old couple and then make the case. If you don't have the numbers, you don't really know, right?
You got me there. Since I have kids it's not an option for me so I have not priced them. I will though for fun. Thanks for suggesting that.
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Old 09-03-2016, 09:29 AM   #28
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Here's a rough estimate of the cost/benefit of an inflation adjusted annuity.

An ImmediateAnnuities.com quote (from today) for a non-inflation adjusted fixed annuity for a 62yo couple has a payout ratio of 4.75%.

The paper @ the link below (from 2009) calculates and illustrates the "cost" of purchasing an inflation adjusted annuity.

https://www.ebri.org/pdf/programs/po...ties_value.pdf

Using the table in the paper & interpolating for a 62yo couple, the cost is ~28% to purchase inflation protection. See excerpt below.

* Adjusted annually for the cumulative increase in the cpi-u since purchase.
The table indicates that, in the current environment, an inflation-protected life annuity guarantees “real” payments that start at 25% to 30% below the comparable fixed annuity, before we consider the effects of income taxes. But, this relationship changes over time as inflation runs its course. Chart 2 shows the comparison over time for our age 65 male example assuming annual inflation runs at 4%.


Discounted by 28%, our 4.75% payout ratio would be 3.42% for an inflation protected annuity...not very high huh.

The OP has to make their own decision but, it seems to me there are several low risk options to achieve an equivalent return to produce an equivalent or higher payout ratio for 40+ yrs. If this was me, I'd max SS @ 70 and manage a very low risk portfolio until I HAD to annuitize (using Otar's zone concept or Fullmer's Annuitization hurdle approach), as has already been suggested here.

The benefits of this approach are that, in most scenarios I would not have to annuitize to maintain my desired income stream and, I would retain control of my capital.
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