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Old 05-29-2014, 11:34 AM   #81
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Not and get the option of increasing your monthly income with no downside risk. And I do have CD's. This is a small part of the total portfolio...
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Old 05-29-2014, 11:34 AM   #82
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Originally Posted by Kimo View Post
Actually, it makes me sleep easier....Okay, deep breath, here goes... When I decided to retire I wanted a failsafe in place so that no matter what the bond, stock and real estate market did, I would have something guaranteed. After looking around I found that SS (I know, nothing guaranteed but go with me for the sake of the conversation) and the Annuity would provide me enough income to live and not eat dog food. Why does it makes me sleep easier? If the markets fall 50% my income stays the same. I will not be up at night thinking, should I sell now...should I wait to see if it comes back....I no longer need to have the thought in the back of my head, what am I going to do if there is another 08-09 because this time I will not be working to replenish the portfolio. I do know what I give up by holding Wellington this way, it is why I also hold it in my taxable account. It doesn't matter, the peace of mind having my failsafe is worth it.
I think there is nothing wrong with your approach. For getting what you wanted it seems to be to be sensible. I wanted a feeling of failsafe too when I paid off my house with money that was likely (and would have) earned more in my after tax portfolio. If I were younger and not going into retirement, I would have kept the money potentially and probably earning more than my mortgage payment. But going into retirement I wanted to know that at the very least, if I only had my SS, I would not be sleeping under the proverbial bridge. As in your case, I effectively changed my AA, giving up some potential returns for some safety. You sound like you went in with eyes open and based on facts made a reasonable decision for yourself.
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Old 05-29-2014, 11:35 AM   #83
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That is good you also have Wellington outside of the annuity. At least you can see clearly what the difference is.

I'm still confused how it is safer to permanently give up almost 50% of return (with the annuity) to guard against temporarily losing 50% (in a market decline).

I'm not trying to pick a fight but this stuff rattles me.
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Old 05-29-2014, 11:39 AM   #84
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As the moderator said...this seems to go on forever. Also, thanks CaliforniaMan. (I too paid off the house before I retired with all the same expectations as you)

Retireage50: It is such a small portion of my total picture to give up for the sake of peace of mind.
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Old 05-29-2014, 12:07 PM   #85
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Everyone is wired a little differently. As long as you understand the full costs, there is nothing wrong with giving up some returns and paying a third party for income insurance if that's what it takes to help you sleep. As we discuss ad nauseam on this forum, it is that underlined part that usually creates the problem with annuities.
I fall in with Kimo (as I have mentioned before) that for a portion of my bucket that has no heirs, it is the insurance, not investment, of the annuity (for me it will likely be a SPIA) that will give me some peace of mind.
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Old 05-30-2014, 10:03 PM   #86
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I can't see how getting a 4.5% payout on a fund that averages 8% is a good deal. That is unsettling to me and would cause me to lose sleep. You are giving away not only almost half the return but also your original investment.

I hope I'm wrong on this for your sake.

As far as I can make out, the money in the Wellington fund is yours to keep or withdraw (subject to surrender fees?) so if it's growing at 8% and ur taking out 4.5% then your asset base is growing, again subject to fees.

Wade Pfau had an article on them and determined that historically they serve us well if we need that assurance to sleep at night as the OP wished, but that historically with respect to the US market, a regular systematic withdrawal would be better financially. However, as he states, if the US started to act like the rest if the world in the past, where 4% withdrawals just didn't work at all, then it's also a good deal financially.


http://www.advisorperspectives.com/n...y_Illusion.pdf
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Old 05-30-2014, 10:06 PM   #87
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I fall in with Kimo (as I have mentioned before) that for a portion of my bucket that has no heirs, it is the insurance, not investment, of the annuity (for me it will likely be a SPIA) that will give me some peace of mind.

I always look at it as if I'm buying the market but paying the fees to buy a put option. Not an accurate analogy, because you're not actually protecting the assets, but it's along those lines.
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Old 05-30-2014, 10:07 PM   #88
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You are correct, I have been taking 4.5% and it has been growing and there are no surrender fees.
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Old 05-31-2014, 06:19 AM   #89
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The 4.5% is the guaranteed minimum withdrawal rate. IOW, if things went to hell in a handbasket and stocks tanked and did not come back and these 4.5% withdrawals depleted the account then Monumental Life would be on the hook to continue making Kimo's 4.5% annuity benefit payments. Kimo pays 0.95% on top of the typical Wellington expense ratio for this guarantee from Monumental Life.

OTOH, if Wellington continues to clip along at 8% or more then the account grows.

So at the end of the day, Kimo has made an informed decision that the guarantee is worth giving up .95% a year. Nothing wrong with that IMO even though it isn't something I plan to do.
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Old 05-31-2014, 09:25 AM   #90
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The 4.5% is the guaranteed minimum withdrawal rate. IOW, if things went to hell in a handbasket and stocks tanked and did not come back and these 4.5% withdrawals depleted the account then Monumental Life would be on the hook to continue making Kimo's 4.5% annuity benefit payments. Kimo pays 0.95% on top of the typical Wellington expense ratio for this guarantee from Monumental Life.
When I see withdrawal rates of 4.5% on variable annuities it makes me realize what a good deal TIAA-Traditional is. I got a quote for a single life annuity starting at age 55 that has a fixed payout rate of 7%......of course there's still the issue of lack of inflation adjustment, but TIAA also offers a "graded payout" that starts at a lower percentage and goes up over time. Also there are no fees with TIAA-Traditional, well they are baked into the quote and the declared annual interest rate. If I decided against buying a fixed annuity with my TIAA-Traditional I could just take systematic withdrawals from it and be guaranteed a minimum interest rate of 3% with the probability of a higher rate...right now I'm getting 4.723%, that seems like a nice way to fund retirement.
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Old 05-31-2014, 10:36 AM   #91
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Ok thanks for the additional information. Giving up .95% for the guarantee is at least more reasonable (at least at the beginning). The account should grow so at some point you may consider dropping the insurance coverage (since the 4.5% guarantee is probably based on the original balance and the fee is based on the current balance).
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Old 05-31-2014, 10:39 AM   #92
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The 4.5% is the guaranteed minimum withdrawal rate. IOW, if things went to hell in a handbasket and stocks tanked and did not come back and these 4.5% withdrawals depleted the account then Monumental Life would be on the hook to continue making Kimo's 4.5% annuity benefit payments. Kimo pays 0.95% on top of the typical Wellington expense ratio for this guarantee from Monumental Life.

OTOH, if Wellington continues to clip along at 8% or more then the account grows.

So at the end of the day, Kimo has made an informed decision that the guarantee is worth giving up .95% a year. Nothing wrong with that IMO even though it isn't something I plan to do.
pb4uski, you explained it better than I did, thanks! Also, an additional benefit that I never want to use is should the annuity value fall to zero, I continue to receive my 4.5% payout but the .95% fee is eliminated because of the zero account value. (Like I said, I hope to never use this benefit)
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Old 05-31-2014, 10:47 AM   #93
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Ok thanks for the additional information. Giving up .95% for the guarantee is at least more reasonable (at least at the beginning). The account should grow so at some point you may consider dropping the insurance coverage (since the 4.5% guarantee is probably based on the original balance and the fee is based on the current balance).
Actually, both the fee and the 4.5% are based on the current balance. My monthly payment has risen since I purchased these and of course so has the fee, dollar wise, not percentage wise, bottom line, I am now receiving a larger monthly check and the value in my account has continued to grow.
Mahalo!
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Old 05-31-2014, 11:20 AM   #94
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So does the 4.5% (and the 0.95% cost) increase as long as the balance increases and then lock in if the balance decreases? Sort of a high-water mark concept? Are these measurements done on the policy anniversary or more frequently?
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Old 05-31-2014, 11:27 AM   #95
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So does the 4.5% (and the 0.95% cost) increase as long as the balance increases and then lock in if the balance decreases? Sort of a high-water mark concept? Are these measurements done on the policy anniversary or more frequently?
You are correct, high water mark is a great example...every year on the anniversary date a "snapshot" is taken to determine both amounts. That is also the reason I bought three separate annuities in three different months. (I didn't want the bad luck of having a 250 point drop on the day all my annuities had its "snapshot")

In the long term it probably didn't matter but it also gives me the opportunity to close one down and keep the others if I so desire....
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Old 05-31-2014, 04:29 PM   #96
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We see our rental real estate as a variable annuity...
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Old 05-31-2014, 04:37 PM   #97
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We see our rental real estate as a variable annuity...
LOL....I never thought of my rental like that but I see your point....
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Old 05-31-2014, 04:39 PM   #98
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Except if things go to hell in a handbasket and their vacancy skyrockets there is no insurance company stepping into the void to make benefit payments.
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Old 05-31-2014, 04:41 PM   #99
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All very true also.....
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Old 05-31-2014, 04:46 PM   #100
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We see our rental real estate as a variable annuity...
When I owned some, I saw it as a self-employed business. Might as well buy a laundromat or a self-serve car wash--less interpersonal drama, less potential legal hassles, no potential for a big rent check not coming in, and just one easily-accessible location to fret about. I don't know if DW would appreciate it if I bought her a laundromat, car wash, or rental unit in lieu of another, more "passive" source of income for her old-age.
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