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Old 05-31-2014, 04:50 PM   #101
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Also a great way to look at it....Damn, I can't decide whether to sell or keep mine....
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Old 05-31-2014, 04:50 PM   #102
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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.
+1 for my Dad's residential rental real estate - and he owned a self-service car wash as well so he knew the difference!! He quickly got tired of the drama and sold them but kept a piece of commercial real estate that is net leased to a long-term tenant that has been the cornerstone of his retirement and my Mom's retirement now that he is gone.
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Old 05-31-2014, 05:15 PM   #103
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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.
Hey Sam, a very good friend of mine retired and bought a laundromat in Pasadena, Ca. You have no idea the things that can go wrong in that kind of business. After 5 years and lots of money spent repairing machines, fighting with the city on water issues, and having a coin changer ripped off the wall with $5,000 in it, he sold it (at a loss) and went and bought a soft drink vending machine business. That was more work than the laundromat!
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Old 05-31-2014, 06:28 PM   #104
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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)
The part I don't understand about this concept is this: If in fact the assets backing up Wellington fall to zero, that basically means that the whole US and perhaps world economies have totally collapsed since Wellington holds stocks and bonds from a good cross section of the US (and some world) economies. If this unthinkable happens, where and how would one insurance company be able to fund its obligations? Print money?

Although I think there are some worthwhile uses of annuities, insurance against US world and economic collapse is not one I believe this product would deliver.
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Old 05-31-2014, 06:30 PM   #105
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I agree with you...whenever I say that I usually say the same thing, something along the lines that if that ever happened we would have far more to worry about........just didn't say it this time
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Old 05-31-2014, 06:34 PM   #106
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I own a one bedroom rental apartment and it's easy to manage and has been continually occupied for 17 years. It has doubled in value and I get $1200 a month in rent. It's very little work to manage and I have a great tenant.
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Old 05-31-2014, 06:36 PM   #107
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"and I have a great tenant" ........That is SO much the key!
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Old 05-31-2014, 11:33 PM   #108
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The part I don't understand about this concept is this: If in fact the assets backing up Wellington fall to zero, that basically means that the whole US and perhaps world economies have totally collapsed since Wellington holds stocks and bonds from a good cross section of the US (and some world) economies. If this unthinkable happens, where and how would one insurance company be able to fund its obligations? Print money?

Although I think there are some worthwhile uses of annuities, insurance against US world and economic collapse is not one I believe this product would deliver.
It might not be that Wellington's share value falls to zero, but much milder situations where it just doesn't grow enough to support the 4.5% withdrawal guarantee.

If there is some sort of extreme, cataclysmic event and Wellington went to zero (much worse than 2008 BTW) then insurers would be stressed as their assets decline in value and they might blow through their surplus and go into receivership. State guaranty funds would be a further backstop, but in that situation other insurers that provide funding for state guaranty funds would be stressed as well so the backstop might not be worth much.

In such a situation though, pensions and SS would be in peril as well so there is only so much you can do short of having a boatload of money in FDIC insured bank accounts in whcih case you would never be able to retire.
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Old 06-03-2014, 12:04 AM   #109
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Another decision that would have to be made, once the decision to purchase VG's variable annuity was made, would be the age at which to start withdrawals.

From 59-64 the maximum is 3.5%, at 65 it jumps to 4.5%. Is there a benefit in waiting?
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Old 06-03-2014, 12:12 AM   #110
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They have changed that from when I bought it. I purchased the annuities when I was 61 and had the payout start immediately which was 4.5%. Looking at what you just wrote, I would probably keep the money in other Vanguard funds and wait until 65 and then buy the annuity and have the payouts start at the same time. I just didn't see a reason to buy them until I wanted the guaranteed return. Of course, this is all my opinion and it worked out well for me.
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Old 06-03-2014, 08:05 AM   #111
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Wasn't the 2009 bailout of the insurance companies part of this? Do I remember wrong? Didn't some insurance companies get a big float and break to avoid just this kind of thing -- annuity default?

...

I've said it before: "Friends don't let friends sell annuities." I have a friend who ER'd and then took a retirement job as an FA. I basically lost his friendship. He was obsessed with selling these things. Before his ER, he was a gentle, modest person. Once he got the taste of the annuity commission, he became a ruthless money grubbing jerk. Over wine one night, he admitted that his commissions are obscene. That's all I had to hear about ever wanting to buy an annuity.

Even so, I guess he blacked out and forgot he told me about the commissions because the next day he was trying to sell me an annuity again. I haven't seen him in over a year now. Sad.
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Old 06-03-2014, 09:34 AM   #112
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Wasn't the 2009 bailout of the insurance companies part of this? Do I remember wrong? Didn't some insurance companies get a big float and break to avoid just this kind of thing -- annuity default?
With the notable exception of AIG, the insurance industry was actually left to sink or swim on its own while the banks got gubmint carte blanche. A few insurers hastily acquired tiny thrifts and applied for TARP to get some capital, but a number were rejected flat out (Genworth, most notably). As someone with a painfully close view of things at that time, I believe that the treatment of the insurers was due to A) the belief that they were in better shape than the banks and B) the nasty, catty attitude of the federal regulators dispensing ARP that the insurers are regulated by the states so let them deal with the problem.
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Old 06-03-2014, 11:15 AM   #113
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Ah, I thought it was more than AIG. Although AIG is a pretty big piece of the pie.

Thanks for the insight.
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Old 06-03-2014, 11:44 AM   #114
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Over wine one night, he admitted that his commissions are obscene. That's all I had to hear about ever wanting to buy an annuity.

Even so, I guess he blacked out and forgot he told me about the commissions because the next day he was trying to sell me an annuity again.
I've had wine like that.
Maybe he just never made (or thought you wouldn't make) the connection between the commissions and the possible final value of the product to his marks consumers. Well, the wine is a more likely cause . . .

When I left the USAF, like many folks I was offered opportunities to sell services to the government--obviously, the idea is that you go back to your old buddies and push the products/services of a particular contractor. I'm no paragon of virtue, but there's not enough money in the world to convince me to do that (especially after having been the target of similar efforts).
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Old 06-03-2014, 11:58 AM   #115
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When I left the USAF, like many folks I was offered opportunities to sell services to the government--obviously, the idea is that you go back to your old buddies and push the products/services of a particular contractor. I'm no paragon of virtue, but there's not enough money in the world to convince me to do that (especially after having been the target of similar efforts).
When I was at a business meeting in San Diego, I picked up a copy of Stars and Stripes and was saddened to see the ads- used cars, diamond engagement rings, etc. obviously aimed towards people who already had their housing and 3 squares a day covered so had some disposable income. An article on personal finance was included and it was written in VERY simple language. Apparently you can buy something on a payment plan that lets the merchant get their payment directly from your military pay and they cautioned against that. Sad that there's a large population of financially na´ve people who are serving our country (some because it's the best way out of poverty) and the hustlers spring up around them like weeds.

So, yes, I could see where the military would be easy pickings and can also see why you avoided that business.
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Old 06-03-2014, 12:37 PM   #116
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Wasn't the 2009 bailout of the insurance companies part of this? Do I remember wrong? Didn't some insurance companies get a big float and break to avoid just this kind of thing -- annuity default?

...

I've said it before: "Friends don't let friends sell annuities." I have a friend who ER'd and then took a retirement job as an FA. I basically lost his friendship. He was obsessed with selling these things. Before his ER, he was a gentle, modest person. Once he got the taste of the annuity commission, he became a ruthless money grubbing jerk. Over wine one night, he admitted that his commissions are obscene. That's all I had to hear about ever wanting to buy an annuity.

Even so, I guess he blacked out and forgot he told me about the commissions because the next day he was trying to sell me an annuity again. I haven't seen him in over a year now. Sad.
But the difference is I am not buying an annuity through a salesperson, I never would. Every dime of my investment go's into the Wellington clone that I hold in my Vanguard account. The differences are so large they might as well not both be called annuities. The sales people give the ones I buy a very bad taste in your mouth.........
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Old 06-03-2014, 02:53 PM   #117
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Ah, I thought it was more than AIG. Although AIG is a pretty big piece of the pie.

Thanks for the insight.

IMO, the only reason an exception was made for AIG is that the failure of AIG Financial Products (the holding company, not an insurance operating company) would have take down most or all of the baking system.
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Old 06-03-2014, 03:11 PM   #118
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IMO, the only reason an exception was made for AIG is that the failure of AIG Financial Products (the holding company, not an insurance operating company) would have take down most or all of the baking system.
Oh no! No more bread, cake or pie! Hey, just having a laugh.
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Old 06-03-2014, 03:15 PM   #119
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Oh no! No more break, cake or pie! Hey, just having a laugh.
Yes, the N key on the piece of crap tablet I am using gets sticky sometimes.
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Old 06-03-2014, 04:47 PM   #120
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Ah, I thought it was more than AIG. Although AIG is a pretty big piece of the pie.

Thanks for the insight.
It is important to note that AIG's insurance companies were its salvation rather than the problem. The problem was at a corporate division that thought they were the smartest guys in the room and issued derivatives that in retrospect they didn't really understand.

The insurers were the salvation because AIG was later able to sell many of them to other insurers and use the proceeds from those sales to pay back the assistance it received. According to this Forbes article the government provided $182.3 billion in assistance and ultimately received $205 billion.
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