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Old 06-03-2014, 04:49 PM   #121
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This is kind of interesting. Its a survey of something called corrodies in the 16th-18th C. They were annuity type contracts where one could pay for a retirement in a convent/monastery up front, and get room/board etc for life.

http://www.cgeh.nl/sites/default/fil...ijderduijn.pdf

Apparently the 16th Century was THE cheapest time to retire
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Old 06-03-2014, 04:56 PM   #122
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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.
Yes the us based insurance companies were solvent since they were state regulated. Just like in the case of Conseco where the parent went bk, but the insurance subsidiaries kept on keeping on. Agreed it was at the corporate level that was the problem, both in Financial Products and the securities lending business (they lent subsidiary's securities out, and invested the cash they got for the loan in more dicey home loans, reaching for max yield).
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Old 06-05-2014, 08:32 AM   #123
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This has been a balanced discussion about annuities (which I do not currently own but, which I've also not completely ruled out) and why/why not to own them.

I think this thread is just another version of the "safety first" (or not) discussion. Here are some good articles by Dirk Cotton on this subject that, in my view, focus the discussion well for one to consider which path to take.

The Retirement Cafe: When “Probably” Isn't Good Enough

The Retirement Cafe: The Chicken and the Pig

An excerpt that summarizes it well:

"Note that neither group says that you can't lose a whole lot of money. One side merely argues that you probably won't. The other side agrees but argues that “probably” isn't good enough when it comes to losing your standard of living in old age.

I lean toward the safety-first school. My tendency is to first take the unacceptable outcomes off the table and as I mentioned, I consider losing my home an unacceptable outcome."
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Old 06-05-2014, 10:28 AM   #124
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When Wade Pfau came up with is suggestion that an AA of SPIAs and stocks rather than bonds and stocks might be better in retirement I was not surprised.
Of course the payout rate and whether there's some COLA is vital. My non-rigorous approach has always been to secure my retirement income as much as possible and then I invest whatever's left without ever needing to depend on my investment returns. Right now I have the opportunity to use DC money to buy into my employer's COLA'ed DB plan. If I do that it will use 25% of my DC funds, but will generate a COLA'ed $21k/year starting at 55. Add in SS, a small company pension and rental income at 66 I should have $85k/year from guaranteed, or at least very, stable sources. Investment returns will be gravy.
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Old 06-05-2014, 11:16 AM   #125
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IMHO, annuities are going to be a product that some people are wired for and some aren't. I am referring to variable annuities because there seems to far less discussion on SPIA's.

I figured out what I needed as income and decided I wanted SS and annuities to be able to supply that for me regardless of what happened in all the markets. (House paid for, no debt, etc.) I also wanted to secure a COLA if possible and while it might be slight SS does have one and by using an annuity with a product like Wellington in my annuity I feel confident over time my monthly payments will rise which will also help. If it doesn't, oh well, I still have my two payments.

When I reach an age where I realize I have more money than life left I will cash out the annuities and just put them in the existing allocation I own.

The other side of the wired portion, IMHO, are the individuals who believe the 0.95% fee I pay is not worth it because they are confident they will be able to do exactly what I am doing without the fee. I truly wish I was in that camp but I am not, I need a guarantee that I have enough money and it can't go away and I don't mind paying the .95% for the feeling I get.

Again, IMHO, I don't see anything wrong with either opinion, like someone else posted, we fall into two camps on this. (If you have read the post I am referring to variable annuities sold by Vanguard and others like that that have no salespeople taking a commission and you are able to close the account with no cost to you at any time, whether it is a week after purchasing or 5 years, it doesn't matter, no cost to you.
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Old 06-05-2014, 11:42 AM   #126
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IMHO, annuities are going to be a product that some people are wired for and some aren't. I am referring to variable annuities because there seems to far less discussion on SPIA's.

I figured out what I needed as income and decided I wanted SS and annuities to be able to supply that for me regardless of what happened in all the markets. (House paid for, no debt, etc.) I also wanted to secure a COLA if possible and while it might be slight SS does have one and by using an annuity with a product like Wellington in my annuity I feel confident over time my monthly payments will rise which will also help. If it doesn't, oh well, I still have my two payments.
If you prioritize the stable nature of income then an annuity is a good option. Whether the annuity is good value for money is another question. I will not be buying any variable annuities because I think they are expensive. I have put my money into the social security systems of the US and the UK; the US because I had no choice and voluntarily in the case of the UK because of the good value for money....the COLAs are also excellent to have. My employer's DB plan is also excellent value for money with a 7.7% initial payout rate. Given those stable sources of retirement income I will probably not be buying a TIAA-CREF SPIA when I retire, I'll transfer the money I have in TIAA-Traditional to equity investments over 10 years.
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Old 06-05-2014, 11:52 AM   #127
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When Wade Pfau came up with is suggestion that an AA of SPIAs and stocks rather than bonds and stocks might be better in retirement I was not surprised.
Of course the payout rate and whether there's some COLA is vital.
IIRC, Dr. Pfau's research showed that the combination of SPIA and stocks was the better than stocks and bonds. Furthermore, for this to work it had to be a lower cost fixed annuity, not a variable annuity. Apparently, the higher cost of the variable annuity was a drag that could never be overcome by most people.
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Old 06-05-2014, 11:54 AM   #128
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Again, IMHO, I don't see anything wrong with either opinion, like someone else posted, we fall into two camps on this.
+1

We all need to do what works for us. It is not just a financial decision but a quality of life decision. If having a annuity or two lets one sleep well at night that's a plus.
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Old 06-05-2014, 02:07 PM   #129
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IMHO, annuities are going to be a product that some people are wired for and some aren't. I am referring to variable annuities because there seems to far less discussion on SPIA's.

I figured out what I needed as income and decided I wanted SS and annuities to be able to supply that for me regardless of what happened in all the markets. (House paid for, no debt, etc.) I also wanted to secure a COLA if possible and while it might be slight SS does have one and by using an annuity with a product like Wellington in my annuity I feel confident over time my monthly payments will rise which will also help. If it doesn't, oh well, I still have my two payments.

When I reach an age where I realize I have more money than life left I will cash out the annuities and just put them in the existing allocation I own.

The other side of the wired portion, IMHO, are the individuals who believe the 0.95% fee I pay is not worth it because they are confident they will be able to do exactly what I am doing without the fee. I truly wish I was in that camp but I am not, I need a guarantee that I have enough money and it can't go away and I don't mind paying the .95% for the feeling

Kimo

When I read about these on the vanguard site they also have the annuity cost which is approx 0.6%. Are you paying that too?
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Old 06-05-2014, 02:12 PM   #130
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I pay .95% for the GWLB of 4.5%. This is only for GWLB. I still pay the "normal" Wellington mutual fund management of .24% (The part you never see in any mutual fund)
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Old 06-05-2014, 02:14 PM   #131
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IIRC, Dr. Pfau's research showed that the combination of SPIA and stocks was the better than stocks and bonds. Furthermore, for this to work it had to be a lower cost fixed annuity, not a variable annuity. Apparently, the higher cost of the variable annuity was a drag that could never be overcome by most people.
And a follow up found that some part of the stock/SPIA benefit could be explained as a rising stock allocation. So that SPIA's didn't look all that wonderful after all.
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Old 06-05-2014, 02:18 PM   #132
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I pay .95% for the GWLB of 4.5%. This is only for GWLB. I still pay the "normal" Wellington mutual fund management of .24% (The part you never see in any mutual fund)

I'm confused then. The GWLB is an addition to a variable annuity, but you don't have an annuity or don't pay the fee?
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Old 06-05-2014, 02:26 PM   #133
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I do have the annuity through Vanguard and when I purchased it I immediately starting the GWLB which then kicked into effect the .95% fee. Other than that and the regular mutual fund fee there are no other fees, either to get in or sell it. Think of owning the Wellington mutual fund in your annuity. That is what I have.
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Old 06-05-2014, 02:43 PM   #134
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I pay .95% for the GWLB of 4.5%. This is only for GWLB. I still pay the "normal" Wellington mutual fund management of .24% (The part you never see in any mutual fund)
The fee of $0.26% (not $0.24%) for Investor Shares is disclosed up front. What do you mean you never see it?
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Old 06-05-2014, 02:47 PM   #135
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What I am referring to is any mutual fund you own, when you look at it on a statement of a daily quote or a monthly value, you never see the fee. We all know it is there, it is not shown daily or monthly etc. We know it is there because when you researched the fund before buying it, that was one of the things you looked at. If you look at any mutual fund online you can also find the fee. I am referring to day to day observations.
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Old 06-05-2014, 02:51 PM   #136
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PS. I was going from memory on the .26% fee, sorry.
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Old 06-05-2014, 03:19 PM   #137
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And a follow up found that some part of the stock/SPIA benefit could be explained as a rising stock allocation. So that SPIA's didn't look all that wonderful after all.
That's a good point, but total potential return is not the only factor in "wonderful". People who choose annuities have to realize that they are giving up potentially higher (and maybe lower) returns for guaranteed income. Of course if annuities and SS completely cover your income needs and you don't need to spend any of your stock returns or principal then a rising stock allocation is a consequence. Outside of SS and my state DB plan I intend to be almost 100% equities (I will probably have some small bond allocation through Wellesley or Wellington), reinvest dividends and probably go into the accumulation phase again post 66 years of age.
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Old 06-05-2014, 05:02 PM   #138
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I do have the annuity through Vanguard and when I purchased it I immediately starting the GWLB which then kicked into effect the .95% fee. Other than that and the regular mutual fund fee there are no other fees, either to get in or sell it. Think of owning the Wellington mutual fund in your annuity. That is what I have.

Sounds like you got a good deal. If you bought the same thing now it would cost an annuity fee of 0.6% plus 1.2% GLWB fee. I'm amazed that u aren't paying an annuity fee every year.
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Old 06-05-2014, 05:10 PM   #139
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I am surprised they have a fee now. I am not surprised they raised the GLWB fee, I knew that was coming because when I called them they actually told me it was going to be raised. I knew I was buying them anyway so I just made sure it was before that date. I just had three of my annuities renew and I went back and looked at the paperwork after reading your email and I definitely don't have a fee. I don't know if these are as good a place to hold money as they were when I bought them.....
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Old 06-05-2014, 07:37 PM   #140
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I've always thought of variable annuities as being "neither fish nor foul". They are complex and are usually expensive.

If you want guaranteed income then I'd buy an SPIA with some of your retirement money, ideally something with some inflation protection like the annuities offered by TIAA-CREF. Then I'd invest the rest in low cost index funds. Combining SPIAs and straight forward index funds keeps costs to a minimum. Of course you might look at a CD ladder instead of the annuity and ideally you might not want the annuity if you have a DB plan or a nice SS check.
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