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Old 01-13-2018, 08:08 PM   #21
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Old 01-13-2018, 08:41 PM   #22
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Well since we have had 11.96 (2016) and 21.83(2017)S&P returns, I wonder if he will change it to 2017 retirees. The first 5 years are the most critical years. I refer you to his last statement. Flexible is the key word. Of course watch out the sky might hit you.

Unfortunately, we do not know what the future will bring, and, ultimately, retirees should remain cautious and flexible.
Dr. Pfau also states in the same article that SWR is net of advisory and mutual fund fees. Fair enough. However, given his role at an investment advisory firm, he clearly wants to be paid for his efforts...How much one might ask? 1.0% for “unavoidable fees” is quoted on page 9 in http://corporate.morningstar.com/us/...rawalRates.pdf. Another article Dr. Pfau co-authored assumes 1.6%+ management fees (1% advisory + 0.6%+ mutual fund fees). See Study from 'Professor of Retirement Income' Dr. Wade Pfau shows you can double your income by dumping your financial advisor..

Doesn’t take a CFA or PhD to use a 60/40 AA with Vanguard or Fidelity funds and keep almost all of those “unavoidable fees” for yourself.
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Old 01-13-2018, 09:27 PM   #23
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That’s my take as well.

Below is a link to another recent Pfau article on today’s SWR, with an excerpt (my bolding), which clearly states that 4% is not safe for today’s retirees.

https://retirementresearcher.com/sus...retirees-2016/

“To be conservative, a lower withdrawal rate is required to account for the additional random fluctuations from outside the model. This analysis further confirms the idea that the 4% withdrawal rate cannot be treated as safe for retirees in today’s market environment.
Well since we have had 11.96 (2016) and 21.83(2017)S&P returns, I wonder if he will change it to 2017 retirees. The first 5 years are the most critical years. I refer you to his last statement. Flexible is the key word. Of course watch out the sky might hit you.

Unfortunately, we do not know what the future will bring, and, ultimately, retirees should remain cautious and flexible.
Hopefully, you realize you’ve made my Pfau’s point.
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Old 01-13-2018, 10:56 PM   #24
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Hopefully, you realize you’ve made my Pfau’s point.
No I made my point. The more things change the more they remain the same or this time its different. We don't know what's going to happen and neither does Pfu. So i say go with 4% WD until the SHTF, because guess what it might never happen. Then your going to say coulda/shoulda. I saved money so I could spend in retirement damm if I'm going take it to the grave with me.
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Old 01-14-2018, 12:12 AM   #25
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I am a little surprised by some reactions to my "annuitize some" post...

I'm going to be able to retire this year because of being able to buy a SPIA with about 1/4 of my savings. Doing so will allow me to reduce my withdrawal rate of my portfolio from over 4% to more like 3%. There's no mutual fund that will pay me 6.2% annually, guaranteed, for the rest of my life.

I will take this opportunity to solicit ideas for how to achieve my aim, without buying an immediate annuity.
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Old 01-14-2018, 02:10 AM   #26
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I am a little surprised by some reactions to my "annuitize some" post...

I'm going to be able to retire this year because of being able to buy a SPIA with about 1/4 of my savings. Doing so will allow me to reduce my withdrawal rate of my portfolio from over 4% to more like 3%. There's no mutual fund that will pay me 6.2% annually, guaranteed, for the rest of my life.

I will take this opportunity to solicit ideas for how to achieve my aim, without buying an immediate annuity.
There is nothing wrong with a simple SPIA, but read Otar' The Zone Strategy. The longer you can wait to annuitize the the better.


http://retirementoptimizer.com/articles/Article105.pdf
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Old 01-14-2018, 02:29 AM   #27
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There is nothing wrong with a simple SPIA, but read Otar' The Zone Strategy. The longer you can wait to annuitize the the better.


http://retirementoptimizer.com/articles/Article105.pdf
Wow, that's an interesting-looking article, thank you. Not sure I understood it upon first perusal, but will read at leisure tomorrow. I may be in the 'grey zone'.
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Old 01-14-2018, 06:27 AM   #28
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There is nothing wrong with a simple SPIA, but read Otar' The Zone Strategy. The longer you can wait to annuitize the the better.


http://retirementoptimizer.com/articles/Article105.pdf
Very interesting. Thanks
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Old 01-14-2018, 08:15 AM   #29
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There is nothing wrong with a simple SPIA, but read Otar' The Zone Strategy. The longer you can wait to annuitize the the better.


http://retirementoptimizer.com/articles/Article105.pdf
The other thing to keep in mind is that most Americans already have an inflation-adjusted annuity in Social Security. So for example, if you use Otar's X-times capital zone definitions you need to include the NPV of your SS benefit (with whatever 2034 haircut you expect applied) as capital. Otherwise you are using only your portfolio value to determine if you need an SPIA, when you already have an SPIA-equivalent.
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Old 01-14-2018, 08:39 AM   #30
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Wow, that's an interesting-looking article, thank you. Not sure I understood it upon first perusal, but will read at leisure tomorrow. I may be in the 'grey zone'.
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Very interesting. Thanks
That’s an excellent summary of Otar’s Zone Concept; for more detail, read his book “Unveiling the Retirement Myth.”

Another annuity strategy, if that’s something you’re considering, is Fullmer’s ‘Annuity hurdle’ concept; see link below.

http://www.schulmerichandassoc.com/M...cumulation.pdf
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Old 01-14-2018, 11:32 AM   #31
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My beef with annuities at this point in time is the low payout ratio, especially for inflation-adjusted annuities. While flat payouts may seem like a reasonable choice after a decade of low inflation, I think we ignore their risks at our peril. Look at how leveraged the US is now. It will become increasingly tempting to run the economy hot and inflate the country out of its debt load. If we get into another inflationary era, SPIAs will be painful to own.






I


I have a tiny pension with a former employer that will not kick in until at least age 50 (at a big haircut). I don't particularly care about that payout, but the employer also allows retirees to buy additional pension credit using 401k money and they offer a COLAd flavor of payout (joint with spouse, which is particularly attractive). I am a long way away from even considering annuitizing, but this is an attractive option so I left my full 401k balance in the plan when I left rather than rolling it into my IRA as I have done in the past. If I ever go back to work there I would roll my IRA into the 401k because it is very low cost and it would be good to have the option to annuitize as much as I like.
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Old 01-15-2018, 04:02 AM   #32
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It's pretty hard to mess up a 4% SWR, but it can be done. Even at today's stretched valuations it is difficult. Most are best served with some sort of 60/40 or 50/50 fund.
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Old 01-15-2018, 05:06 AM   #33
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My beef with annuities at this point in time is the low payout ratio, especially for inflation-adjusted annuities.
I don't follow annuities, but the estimated monthly payment for my pension is inching up. I expect annuity payouts will also increase a fair amount in about 1-2 years, as inflation creeps up slowly but surely.
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Old 01-15-2018, 07:19 AM   #34
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The other thing to keep in mind is that most Americans already have an inflation-adjusted annuity in Social Security. So for example, if you use Otar's X-times capital zone definitions you need to include the NPV of your SS benefit (with whatever 2034 haircut you expect applied) as capital. Otherwise you are using only your portfolio value to determine if you need an SPIA, when you already have an SPIA-equivalent.
I agree with you, although a recent poster in another thread was blasted for comparing Soc. Sec. to an annuity.
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Old 01-15-2018, 12:27 PM   #35
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It is always useful and reassuring to see that the basic research holds up.

Yea I agree. And, it's always helpful for someone else (Wade) to do all of the work that I am incapable of doing.
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Old 01-15-2018, 12:38 PM   #36
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Originally Posted by Lawrence of Suburbia View Post
I am a little surprised by some reactions to my "annuitize some" post...

I'm going to be able to retire this year because of being able to buy a SPIA with about 1/4 of my savings. Doing so will allow me to reduce my withdrawal rate of my portfolio from over 4% to more like 3%. There's no mutual fund that will pay me 6.2% annually, guaranteed, for the rest of my life.

I will take this opportunity to solicit ideas for how to achieve my aim, without buying an immediate annuity.
Can you link the details of this 6.2% annuity? Does the 6.2% include the principal being returned?
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Old 01-15-2018, 12:48 PM   #37
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I just watched Pfau's webinar. It was interesting - I took away a couple of new tidbits.

1. He showed some longevity data that he suggests more accurately reflects the type of folks that "log into a retirement webinar on MLK day". Instead of using Social Security longevity, he used some Society of Actuaries data for people that buy annuities. He argues that folks who plan for retirement (by buying annuities, watching retirement finance webinars, belonging to ER-org) are likely a healthier cohort than the broad population.

The cohort he showed, for a 65 year old couple, had an 18% chance of one survival to age 100. This compares to say 5% on Vanguard's longevity calculator. I've always used age 95 in FIRECalc, perhaps I'll switch to 100.

2. He showed that mathematically a real return of only 1.3% was needed for the 4% rule to succeed, but then went on to say that Sequence of Returns could break that. He was using this to show that linear projections (like lots of old-school financial planners did) don't work.

3. I liked how he bucketed retirement risks into 4 macro categories:
  • Longevity
  • Market
  • Inflation
  • Spending

Overall worth listening too while I browsed the web.
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Old 01-15-2018, 01:12 PM   #38
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Originally Posted by Lawrence of Suburbia View Post
I am a little surprised by some reactions to my "annuitize some" post...

I'm going to be able to retire this year because of being able to buy a SPIA with about 1/4 of my savings. Doing so will allow me to reduce my withdrawal rate of my portfolio from over 4% to more like 3%. There's no mutual fund that will pay me 6.2% annually, guaranteed, for the rest of my life.

I will take this opportunity to solicit ideas for how to achieve my aim, without buying an immediate annuity.
I think you might be confusing payout with return. 6.2% might be in the range of a payout rate for a SPIA but it is not the return because a portion of the payout is simply a return of your premium.... the return on a SPIA is likely 2% +./-... you can get a pretty good idea of the return by looking at IRRs for long period certain annuities.

An easy peasy way to increase your withdrawal rate if you are in good health is by deferring SS.... it is essentially buying a COLAed annuity in monthly installments. If you are going to buy an annuity, this one is the one to buy.

Quote:
Here is a pretty simple calculation for those that wish to spend more money in retirement and do not care about leaving an estate. For those that have a Big enough Portfolio and can afford to wait until 70 to take SS, you'll have more to spend every year of retirement.

Let's Say you retire this year at age 62 with the $1 Million Portfolio and decide to take a 4% SWR. You get Social Security of $19,476 per year at age 62 and delaying to age 70 would get you $34,092 per year. Let's assume no inflation for ease of calculations.

Scenario age 62. Your SWR is $40K per year and Social Security of $19,476 gets you a Spending total of $59,476 for each year of your retirement period.

Scenario age 70. You stash 8 years of $34,092 from your portfolio into a savings account for a total of $272,736. Your portfolio is now down to $727,264. Your 4% SWR is now $29,090 per year and you remove $34,092 from your savings account giving you a total of $63,182 to spend each year for the rest of your 30 year retirement period.

The Delay to age 70 gives you $3,706 more every year starting at age 62 with no more increased risk. ...
Also, I hope you are factoring into you thinking that fixed annuity payments do not increase with inflation... so that $x/month annuity benefit that you get in 2018 has the buying power of 0.78x in 2028 and 0.61x in 2038 assuming 2.5% annual inflation.
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Old 01-15-2018, 01:47 PM   #39
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Originally Posted by Lawrence of Suburbia View Post
I am a little surprised by some reactions to my "annuitize some" post...

I'm going to be able to retire this year because of being able to buy a SPIA with about 1/4 of my savings. Doing so will allow me to reduce my withdrawal rate of my portfolio from over 4% to more like 3%. There's no mutual fund that will pay me 6.2% annually, guaranteed, for the rest of my life.

I will take this opportunity to solicit ideas for how to achieve my aim, without buying an immediate annuity.
Annuities have their place. The key benefit they have is you do not know when you will kick it. They do, in an actuarial sense across their universe. Accordingly, they can generate a high recurring return.

Of course, if you pass early, you "lose". But in a sense you "win" if having that annuity made it possible or you to retire earlier than otherwise and enjoy retirement.

Some folks are dead-set against annuities of all types, financial advisors, etc. Analysis is your friend in ferreting out actual answers, IMHO.

Full disclosure: No FA here, no annuities, but I believe straight annuities can make sense for some peoples' situations.
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Old 01-15-2018, 02:36 PM   #40
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Can you link the details of this 6.2% annuity? Does the 6.2% include the principal being returned?
Yes of course that includes return of principal. The reason Lawrence of Suburbia says he can’t get that from a mutual fund is the fund could run out if money at that payout rate and then no more payments while an SPIA won’t stop paying.

Of course it’s not accurate or useful to compare the return or yield of a mutual fund to the payout rate of an SPIA. SPIAs will always pay more as they do return principal. But they don’t increase with inflation - or if you look for an inflation adjusted SPIA the payout rate drops too much to be worth the protection.

But you can say a portfolio can “safely” support X% over a given number of years. And that is inflation adjusted. And chances are even pretty good you’ll end up with more than you originally invested, inflation adjusted. Although the worst case scenarios do return principal and run out of funds.

I can see using a hybrid approach as one gets old enough to get a higher payout rate.
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