Pensioners v Do-it Yourself'ers

[2B]

I'm not here to sell anyone on a variable annuity, and if you don't like them fine. I just ask that you give the rest of us the benefit of the doubt that they are a good option for providing accumulating & distributing retirement funds.

I'd like to thank you for helping my eventual retirement. The profits my insurance companies (in my index funds) make off idiots people like you help my overall returns.

My father and FIL bought variable annuities. They are full of fees and expenses that crush any return. You obviously met a good salesman financial advisor. I have never seen any credible reason that variable annuities make a better investment than index funds (very tax efficient) in an after tax account. Everything you get out of a VA is "ordinary income" but the capital gains get a much lower tax rate. The fees are also an order of magnitude (or more) lower.

You may have drunk the "kool aide" but I hope to give future victems pause before venturing into the quick sand.

 

[Dawg52]

I'd like to thank you for helping my eventual retirement. The profits my insurance companies (in my index funds) make off idiots people like you help my overall returns.

I'm surprised it took this long to get the "idiot" reference to anyone considering annuities. Yes, there are high fees and like Rich I would probably have a hard time writing a large check to an insurance company when it come right down to it. But I don't think it is a terrible idea in some situations. My sis-in-law bought a small one to supplement her salary when my brother died. An easy way to set up some additional lifetime income.

 

[REWahoo]

Dog, while I certainly do not condone the name calling and the unfortunate use if the "i" word, I think there is a huge difference between an immediate annuity as you are referring to and the variable annuity product mentioned in the OP. I can see no reason any informed person would choose a VA over a number of much better alternatives.

Are you still working?

 

[Jarhead*]

Dog, while I certainly do not condone the name calling and the unfortunate use if the "i" word, I think there is a huge difference between an immediate annuity as you are referring to and the variable annuity product mentioned in the OP. I can see no reason any informed person would choose a VA over a number of much better alternatives.

Rain, sleet, snow, will not keep the Moderators from their appointed rounds.

In the Dark ages, 60's and 70's, when we had much, much higher tax rates and no sponsored way, (IRA, 401's etc.) to defer taxes, Variable Annuities were actually pretty popular for the gentrified crowd.

As you mentioned, they make no sense at this juncture.

But if you personally need a write-off, you might consider sponsoring me in the next tournament event, (We can call it "Catholic Charities")

Good Job

 

[REWahoo]

But if you personally need a write-off, you might consider sponsoring me in the next tournament event, (We can call it "Catholic Charities")

I thought the whole-wheat division of Wonder Bread was your sponsor? Did you do something to let them down?

 

[Rich_by_the_Bay]

I thought the whole-wheat division of Wonder Bread was your sponsor? Did you do something to let them down?

It had something to do with his putts.

 

[Dawg52]

Dog, while I certainly do not condone the name calling and the unfortunate use if the "i" word, I think there is a huge difference between an immediate annuity as you are referring to and the variable annuity product mentioned in the OP. I can see no reason any informed person would choose a VA over a number of much better alternatives.

Are you still working?

I understand that but I also see the same bashing towards immediate annuities. But so be it.

Yes I am still working. Not long to go though.

 

[Jarhead*]

 

[Empty Pockets]

I thought I made it somewhat clear that I wasn't trying to sell anybody on an annuity. I don't want this thread to become an annuity bashing-defending thread, that's been done enough.

I thought I might have something to add to this thread since I have a Variable Annuity and I have a portfolio of after tax index funds. And yes, I work with a financial planner. I wanted to put more in the annuity and he talked me out of it. He said I should have a portion in the taxable funds.

There are a lot of good people here, but I'll be leaving this forum now. I can get called an idiot anywhere. I'm just a working stiff with a High School education, but if the S& P averages 9% for the next 18 years I'll have about $5,000,000 when I turn 59.5 Let me be an idiot and I'll leave the rest of you alone now. Good bye.

 

[Jarhead*]

I understand that but I also see the same bashing towards immediate annuities. But so be it.

Yes I am still working. Not long to go though.

Dog: I've been doing this high wire act for 20 years now, without a safety net.

I can totally understand the appeal of putting a small percentage in an immediate annuity.

What has always stopped me from doing so, is that I have children, and would like to leave them a little something, so that has been enough of an incentive to not do so.

You're single, and if you have no restrictions as above, and it makes you feel better why not? (In fact, my personal opinion is that it makes perfectly good sense for you to do so).

 

[Martha]

It had something to do with his putts.

 

[FinanceDude]

There are a lot of good people here, but I'll be leaving this forum now. I can get called an idiot anywhere. I'm just a working stiff with a High School education, but if the S& P averages 9% for the next 18 years I'll have about $5,000,000 when I turn 59.5 Let me be an idiot and I'll leave the rest of you alone now. Good bye.

Don't take it personally...........some people are just mean...........

 

[Jarhead*]

It had something to do with his putts.

Rich, and ReWahoo:

"I'm the gift that keeps giving", by supplying you guys with material.

 

[haha]

Hey, from what I hear, Jarhead plays the entire hole with his driver.

Ha

 

[FinanceDude]

I'd like to thank you for helping my eventual retirement. The profits my insurance companies (in my index funds) make off idiots people like you help my overall returns.

My father and FIL bought variable annuities. They are full of fees and expenses that crush any return. You obviously met a good salesman financial advisor. I have never seen any credible reason that variable annuities make a better investment than index funds (very tax efficient) in an after tax account. Everything you get out of a VA is "ordinary income" but the capital gains get a much lower tax rate. The fees are also an order of magnitude (or more) lower.

You may have drunk the "kool aide" but I hope to give future victems pause before venturing into the quick sand.

Now THAT was professional.....................

 

[Nords]

As one of those slimy bottom-dwelling scum-sucking COLA-pension-with-healthcare recipients I've been too cowardly to join this thread, but never let it be said that I'd hide behind somone willing to make the ultimate sacrifice by throwing themselves into the fray shouting the battlecry "Variable annuities!!"

I thought I made it somewhat clear that I wasn't trying to sell anybody on an annuity. I don't want this thread to become an annuity bashing-defending thread, that's been done enough.
I thought I might have something to add to this thread since I have a Variable Annuity and I have a portfolio of after tax index funds. And yes, I work with a financial planner. I wanted to put more in the annuity and he talked me out of it. He said I should have a portion in the taxable funds.
There are a lot of good people here, but I'll be leaving this forum now. I can get called an idiot anywhere. I'm just a working stiff with a High School education, but if the S& P averages 9% for the next 18 years I'll have about $5,000,000 when I turn 59.5 Let me be an idiot and I'll leave the rest of you alone now. Good bye.

Geez, it's impossible to please every poster on this board, EP (and as a moderator you could be guaranteed to please just about none of them) but you can get called an "idiot" anywhere on the Internet by complete strangers or even at home with your family-- so why not here among the people you know?

I can't defend the use of the "I" word, either, but I suspect that it's difficult to find a board anywhere that would support any investment product with high expenses & fees, no matter how iron-clad the "guarantee".

As Rich has said, "We all done good". Many of us won the game in the third quarter and have just been running up the score ever since. But there always has to be a distinction between the cold-hearted Vulcan logic of financial analysis and the emotional "sleep at night" comfort of paying extra for some sort of reassurance or assistance. Either is an equally valid reason for making a choice-- as long as it's an informed choice. Of course the two camps can barely communicate with each other, let alone comprehend the other's thoughts & feelings.

While a COLA pension + benefits sure looks good from this side of the finish line, I also hope that no one chooses their career, even their employment, by saying "Gee, and the benefits are good!" A few years later you might be saying "Man, this job sure sucks and that third heart attack almost got me, but I'm hoping to survive these health risks long enough to collect that pension check!"

There's nothing like the feeling you get when you realize that your career is over and you're eight or nine years short of vesting your benefits, let alone retirement. (In the Navy the phrase is "FITREP fodder", someone who's there just to provide a pool of candidates against which the future admirals can be ranked #1.) While we'd all agree that something should be done about that situation, it's mighty hard to find the solution when you're overworked, underslept, and too focused on the short term (to say nothing of the next paycheck). You can't easily step back for a complete fiscal & emotional inventory followed by a thoughtful analysis of where you need to go and a detailed timeline of how to get there. You'll never be able to do it if your boss can't even understand the meaning of the words "time off" let alone laugh at your request.

So as one of those pensioneers, let me say that I feel lucky to have survived the experience. It's ironic that I spent one of my worst tours surrounded by literally dozens of helpful & happy Reservists yet I couldn't begin to figure out how to "solve my problem" of dealing with active duty and what was left of my time served career. I think that for everyone with an occasional feeling of "pension envy", there's someone else who envies their career flexibility and their choices.

Even after the victory lap I'm still trying to decide where the grass is greenest. And on my deathbed I'll probably bolt upright, open my eyes wide, grab one of my great-great-grandchildren by the throat, and gasp "See, the other side says that the SWR is really 5.32%!!" before I expire. Everyone will shake their heads and mourn "What a shame Gramps was so hallucinated & delusional before he croaked." "Besides, everyone knows that the one true SWR is 3.764%."

Everyone needs to find their own roads to Dublin. We don't have to follow each other, and we didn't necessarily pick the best routes.

 

[BarbaraAnne]

Nord, really well-stated. Thanks as always for sharing your insight.

 

[kcowan]

Besides, everyone knows that the one true SWR is 3.764%.

I had a similar experience to EP on another board. I quickly jumped in and started to share all my good and bad financial experiences. I quickly discovered through a barrage of potshots that the board regulars had some strongly-held biasses that they were not open to move away from.

I still enjoy that board immensely and sometime even bait the hook for another bite. The thing is that some people have discovered things that work for them and are unlikely to radically change just because alternative evidence is presented. And of course YMMV too.

 

[haha]

The thing is that some people have discovered things that work for them and are unlikely to radically change just because alternative evidence is presented. And of course YMMV too.

It's the old, "I may have only one data point, but it's a good one because it is mine!"

Still, I think the i word is pretty strong. I used it once, and (rightly) had my mouth washed out with soap by a moderator. I am embarrassed by doing that, properly contrite, and glad I was corrected.

Ha

 

[2B]

As the writer of the offensive "i-word," I can only say it has apparently been either taken out of context or over-reacted to. I was trying to make a strong point (I did scratch it out) but also giving the reason (high fees) and EP certainly isn't alone because the group includes my father and FIL. Variable annuities are truly sold today to people that don't do their homework.

Since my father died and left his VA to his children, I am a 20% owner of a VA. I couldn't convince them to cash it in early and pay the penalty. I'm looking forward to Jan 2009 when it "matures." Until then, I'm getting bled by a 1% annual annuity fee and mutual fund fees ranging from .7% to 1.6%. Fortunately (or unfortunately), it's a trivial part of my net worth.

Education level has very little to do with someone being an idiot or not. Not being willing to think for yourself and examine alternatives are a big part of whether someone is an idiot.

As for EP leaving the forum, he must have a very thin skin for my comment to drive him away. Not once did my post involve his sister, mother, his parentage or fascists.

Please consider me self-disciplined. I will attempt to be more sensitive in the future.

As for my financial base, I have a pathetic non-COLA future pension which is currently less than half of my future social security benefit at age 66 (11 years). I, of course, have the COLA's annuity the US members have -- SS. After that it's almost all in indexed mutual funds. I am very attuned to safe withdrawl rate options along with Bernicke and Guyton.

 

[riskadverse]

What's funny to me is people who love their pensions, but trash annuities. Tie a yellow ribbon on your SUV.

 

[Nords]

What's funny to me is people who love their pensions, but trash annuities.

IMO it's not whether it's a pension or an annuity, but rather the expense!

 

[Linney]

Rich,

Thanks for starting this topic. I enjoy many of the topics on this board, but especially those that give me reason to re-think through my plans and ideas.

I am not retired yet and will eventually get a very small non-COLAed pension so I'm in the DIY camp. I find it interesting that I mentally treat my pension as its lump-sum cash value, not as its income stream value. I think I don't trust to leave my money with my former employer but would rather take the money and run [it over to Vanguard]. I would be interested to understand the feeling of security that those with pensions have as it pertains to a government-backed pension versus a company-backed pension. I know that company-backed pensions are insured by the government, sort of . . . . (limits apply, age eligibility rules, etc)

I've thought about Scott Burns advice to turn over a portion of one's retirement funds into an immediate annuity and while that has its own appeal, I too have trouble with the idea of turning over a huge lump sum to an insurance company (what if THEY go belly up, eh?)

There is definitely a lot for us Do It Yourselfers to worry about. And it doesn't help that I'm a first class worrier myself

 

[samclem]

I would be interested to understand the feeling of security that those with pensions have as it pertains to a government-backed pension versus a company-backed pension. I know that company-backed pensions are insured by the government, sort of . . . . (limits apply, age eligibility rules, etc)

Mine is a COLA'd, govt pension. I believe it is very secure, but I'm not sure there won't be changes that will decrease its value. >IF<< things turn sour in the US (Medicare underfunded, SS underfunded, continuing govt deficits, economy facing slow/no growth due to foreign competition and poor fiscal discipline in the US, etc), then I think the guarantees could suffer. We've already seen this with Active Duty military dependent medical care and with retiree copays for medical care. I think the decrease would come around the edges: annual increases tied to a CPI computation that is even more out of whack than today (don't get CFB started!), or even a decrement at the higher payment levels in tune with the class warfare theme ("This bill brings fairness to our system. Retired generals, most with well paying second careers, should not be taking home giant bundles of taxpayer cash while Social Security recipients are eating dog food!"). Look for no drop in Congressional benefits.

I don't think there's a high likelihod of this, but I do think it is a risk. And, like other risks, we can diversify our assets to help reduce the impact. That's why we have a higher percentage of equities than most retirees. I'm thinking about increasing our foreign holdings as well (we're at approx 15% foreign stocks now, plus the usual unknown amount of US stocks with heavy foreign presence).

 

[2B]

What's funny to me is people who love their pensions, but trash annuities. Tie a yellow ribbon on your SUV.

A pension is something you get for working somewhere that offers them. I can't say it's free money but, like social security, you get it whether you would rather have the cash instead or not. It's been shown (RE Home Page?) that a typical defined benefit pension can be duplicated by an individual saving 1 - 2% a year over their otherwise pensionless career.

In a few years I'll start drawing my meager non-COLA'd collection of pensions. I would rather have their "annuitized" cash value in my IRA instead.

I'll freely trash variable annuities. They are poor investment vehicles by any measure (unless you sell them) and I've never seen one worth owning over a low fee, index mutual fund outside the "tax shelter" of the annuity. I'm still waiting for someone to send me the details of one they think is. I am open to be proven wrong.

Immediate fixed (or inflation adjusted) annuities are another matter. I personally have never seen one I'd be willing to purchase but the concept is tempting. It gives "money for life" and stabilizes income. FIRECalc will give a portfolio using an annuity a higher survival rate than one without. I personally think that's a bug in the software. You can do even better in FIRECalc if you self-annuitize over your time period but that that's gaming the system.

On the downside I've run the numbers and the only way I come out better with a fixed annuity is if I live about 15 years longer than my mortality table says I should. When I see people going, I can get 8% return (meaning pay out and not true return) on my annuity, I say wait another year and you'll get 9%. So far, no annuity for me.

Run the numbers -- it isn't complicated. Use your brain. Be willing to change your opinion with new data.