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Old 06-11-2008, 08:33 AM   #41
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Article comparing annuities to "payout funds."

Mutual Funds Pitch Alternative to Annuities - MarketWatch

Some sample payments between SPIA and payout funds in the chart at the bottom.
Not apples to apples, one is guaranteed by an insurance company, the other is just wishful thinking.
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Old 06-11-2008, 12:03 PM   #42
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I know that VG doesn't offer the living benefit annuities through AIG, but AIG is still giving VG the normal 4-5% commissions on the product, so I guess "someone" at VG is getting the commisions?? :confused::confused::confused:
I think "someone" is us, the Vanguard share owners. Just like various fees (frequent trading, etc) they should go back into Vanguard's pockets and benefit all the investors in the form of lower expense. Seems to be working...
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Old 06-15-2008, 11:00 AM   #43
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WSJ had a couple of features on annuities including this general article:

How to Bulletproof Your Nest Egg: Financial News - Yahoo! Finance

Also had a podcast in which they interview an annuities advisor (you can get it for free from iTunes). The advisor comes from incomesolutions.com.

She suggested that income-protected annuities should return about 6% in payments versus around 7% for single-life with no options. Income-protection is the only worthwhile option, the rest reduce payments, in which case you're better off just keeping some cash out of the annuity purchase to retain financial flexibility.
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Old 06-15-2008, 10:13 PM   #44
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She suggested that income-protected annuities should return about 6% in payments versus around 7% for single-life with no options. Income-protection is the only worthwhile option, the rest reduce payments, in which case you're better off just keeping some cash out of the annuity purchase to retain financial flexibility.
I'm not following that, can you explain that more clearly. Are you (she) just saying inflation adjusted annuities are the way to go?

Good article.
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Old 06-15-2008, 10:31 PM   #45
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That is what I recall her saying in the podcast.

If you can get 6% in payouts with inflation adjustments.
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Old 06-15-2008, 10:59 PM   #46
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This is definitely an interesting article. I think we will see a lot more of this type of article, particularly if markets stay volatile. People will come to realize that the portfolio liquidation model is a piece of academic bull-market spawned BS, and not a real world all season plan.

I have one quibble.

Strategy No. 1, relying solely on income from dividends and/or interest, simply "makes no sense," Mr. Evensky says. Such a nest egg requires a hefty percentage (typically 50% or more) of bonds or bond funds to generate needed cash, and, thus, limits one's stock holdings. Stocks, of course, have historically provided the growth needed in a portfolio to guard against the loss of purchasing power.

This is false. It is quite easy today to set up a high-equity allocation, reasonably diversified portfolio that yields in the neighborhood of 4%. Case closed. The only thing that can damage this portfolio seriously would be extreme business stress that caused multiple dividend cuts among the portfolio stocks.

This approach requires some knowledge, and some effort, but no meaningful load or sales charges or ongoing expenses. One could easily get all the information needed to handle say a $1.5 portfolio for less than $1000, and maybe much less. At the max level of $1000, that amounts to a .07% expense ratio.

Ha
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Old 06-16-2008, 09:38 AM   #47
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This is false. It is quite easy today to set up a high-equity allocation, reasonably diversified portfolio that yields in the neighborhood of 4%. Case closed. The only thing that can damage this portfolio seriously would be extreme business stress that caused multiple dividend cuts among the portfolio stocks.
I beleive this has already happened to a number of companies..........

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This approach requires some knowledge, and some effort, but no meaningful load or sales charges or ongoing expenses. One could easily get all the information needed to handle say a $1.5 portfolio for less than $1000, and maybe much less. At the max level of $1000, that amounts to a .07% expense ratio.
You could do it with ETFs for cheap.............

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Old 06-16-2008, 10:26 PM   #48
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Ha,
You might have your system spelled out elsewhere, but could you give us a sampler of how you'd go about it? Are there funds/ETFs that could get you most of the way there or does it rely on individual issues? What is the ultimate % split between stocks and bonds? Thx.
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Old 06-17-2008, 05:39 PM   #49
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Ha,
You might have your system spelled out elsewhere, but could you give us a sampler of how you'd go about it? Are there funds/ETFs that could get you most of the way there or does it rely on individual issues? What is the ultimate % split between stocks and bonds? Thx.
Bob, I don't consider it a system, just an approach. There may well be funds and or ETFs that could be used. Those are part of an alternate universe that I rarefy venture into. I think Finance Dude and others may be expert in this area.

I have been as much as 95+% in equities. Not sure what my low limit is, but maybe 20%. I depend mostly on stocks and to some extent inflation indexed bonds, unless everything is just too expensive. Then I might just sit it out, except I almost never sell out a position that is only overpriced and not troubled, if I stand to pay a big tax. I consider a high cash position a sort of "time arbitrage", as nothing in markets in permanent.

I own some MLP GPs, at times REITs, and at times such as now mostly high yielding blue chip stocks. These high yields may be because there are low expectations for future earnings and dividend increases. I pay almost no attention to these sorts of predictions, for example as are now being applied to mega-pharma. This to me appears to be an almost random marketplace where expectations are only one clinical trial away from being either smashed or inflated.

When I buy a high yielding stock which has come down significantly in price, I want to see good financials and perhaps more importantly heavy and recent insider buying by CEO, CFO, etc. A buy of a few thousand shares does not count.

In my taxable account I have a few issues that have been there close to 25 years. I turn over more rapidly in IRA.

As for yield, I want the overall portfolio to yield around 4% or so under today’s conditions. There may be a few stocks with no dividend, but mostly they will be between 3 and 5%.

In traditional "income stock" areas, I do not reach for yield, as I think that is what many investors in this space are likely doing. I prefer an equity with a middling yield but demonstrated consistent growth in yield, sales, and earnings.

No high yield bonds, except funds or ETFs occasionally as specs on spread-to-treasuries. IMO these issues are usually overpriced by yield hunters and asset allocators.

If I had a greater lifestyle/income cushion, I would go up the quality ladder. Quality as defined by business strengths and market position. But as I said, I never buy dogs, except as defined by residence in the doghouse.

Cheap is important, at least going in.

Now Bob, I'd like to ask a favor of you. If people post to this thread to tell me how risky, stupid, or impossible this approach is, would you please remind them that you asked for this explication? I make no warranties, claims, or anything else remotely positive for this way of investing. In fact, it is probably completely idiotic and especially when coupled with my low IQ and rotten personality will eventually see me into the poorhouse.

Ha
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Old 07-08-2008, 05:29 PM   #50
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Interesting point made about annuities in a podcast interview with a policy professor discussing 401k plans and retirement plans in general:

Preserving Your Pension In Tough Times : NPR

About 20-25 minutes in, she makes the point that people who buy annuities have a good idea that they will have a long lifespan, because they know their family history or the lifestyle choices they've made.

Insurance companies, knowing this, will not offer the best payouts to this self-selected group of annuity buyers in the individual annuities market. So they don't offer as good a payout as they would over a larger pool, where actuaries can spread the risk.

So the better way for annuities to work for retirees is if everyone was pooled into the annuity market. She's an advocate of the govt. taking over retirement plans and providing a defined benefit (she cited reasons such as lower costs, professional management and studies showing people who were too actively managing 401k accounts tended to fare worse).
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Old 07-08-2008, 05:49 PM   #51
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So the better way for annuities to work for retirees is if everyone was pooled into the annuity market. She's an advocate of the govt. taking over retirement plans and providing a defined benefit (she cited reasons such as lower costs, professional management and studies showing people who were too actively managing 401k accounts tended to fare worse).
oh goodie! i just can't wait to have gov't take over my financial affairs -- it does such a good job with everything else.
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Old 07-08-2008, 06:02 PM   #52
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oh goodie! i just can't wait to have gov't take over my financial affairs -- it does such a good job with everything else.
Yep - clearly the government can do a much job than any/all the ding dongs in private industry - with the possible exception of Vanguard provided they stay 'mutual' or at least put up the front.

Still - my pessimistic side says that Congress may ignore academic data or Civil Service may try to feed to heavily at the trough of pay and benefits. But all in all government is the only way to do it right.

I am not as gloom and doomy as Wm Bernstein nor do I wish to Google up his look at the 401k situation and depress myself.

As a group we Americans have totally screwed the pouch. However those on this forum can give ourselves an 'Atta Boy.'

This forum is 'The Few, The Proud, The Cheap - er frugal.'

Right!

heh heh heh - .
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Old 07-08-2008, 06:17 PM   #53
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She's not suggesting all personal investments get managed by the govt. Just 401ks, which have pretty much displaced pensions.

And isn't offered by all companies. Nor is the participation high enough even in those companies which offer 401ks.

But the key point is, annuities purchased with much higher participation should yield better payouts than individuals buying directly from insurers.
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Old 07-08-2008, 06:37 PM   #54
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... annuities purchased with much higher participation should yield better payouts than individuals buying directly from insurers.
yes, so to improve the payout for the few we should required all to suffer?
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Old 07-08-2008, 07:04 PM   #55
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How do you know you would?

You're sure you can do better managing your 401k than having professionals who manage big pension funds manage your retirement accounts?

Again, we're not talking about ALL your personal investments, just the portion which now comes from 401k accounts.
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Old 07-08-2008, 07:08 PM   #56
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yes, so to improve the payout for the few we should required all to suffer?
Don't think you won't suffer plenty when your taxes get Obamified.

Ha
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Old 07-08-2008, 07:11 PM   #57
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what i'm sure of it that i don't want the gov't 1) requiring it, and 2)doing it.
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Old 07-08-2008, 09:14 PM   #58
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Hi new here.

I really liked this strategy.

Harold Evensky and Deena Katz, who run their own advisory firm in Coral Gables, Fla., are authors of several books about investing and are among the most prominent figures in the financial-planning industry. The couple (they're married) have used their "cash-flow-reserve strategy" to create regular paychecks for retirees since the 1980s, and they've successfully weathered difficult markets in 1987 and 2000-2002.
The approach was born out of the pair's dissatisfaction with two commonly used strategies for generating cash from a nest egg. Strategy No. 1, relying solely on income from dividends and/or interest, simply "makes no sense," Mr. Evensky says. Such a nest egg requires a hefty percentage (typically 50% or more) of bonds or bond funds to generate needed cash, and, thus, limits one's stock holdings. Stocks, of course, have historically provided the growth needed in a portfolio to guard against the loss of purchasing power.
Strategy No. 2 -- steady withdrawals from a nest egg regardless of market conditions -- can result in "reverse" dollar-cost averaging. With traditional dollar-cost averaging, a fixed schedule of purchases can spread out (theoretically) the cost of an investment over several years, providing protection against market fluctuations. But if you're following a fixed schedule of withdrawals from your savings, and if markets are falling, that money is gone for good. It won't be there when markets begin to rise, and any growth in your nest egg will be based on a smaller starting figure. That's "reverse" dollar-cost averaging.
Initially, Mr. Evensky and Ms. Katz came up with a "five-year" plan for their clients. Let's say a retiree has $1 million in savings and needs $40,000 a year to supplement other income (like Social Security). With that in mind, $200,000 (five years x $40,000) would be set aside in say, a money-market account. The remaining $800,000 would be invested in a well-diversified portfolio. The money-market account would be used to pay monthly bills, and the account would be "refilled" (periodically) from gains in the investment portfolio.
The thinking: The "real risk" with a nest egg, according to Mr. Evensky, is having to sell holdings when markets are falling in order to meet spending needs. (Remember: reverse-dollar-cost averaging.) Carving out five years of living expenses would all but eliminate that risk; if markets were falling, the five-year cushion would provide funds to buy groceries, etc., and the client could wait until markets rebounded before refilling the money-market account. The problem: Setting aside a full five years of cash in a vehicle with relatively low returns (like a money-market account) put a significant damper on the nest egg as a whole.
So, the couple tinkered with their formula, and today provide clients with three accounts. The first is a simple checking account. The second is a "cash-flow reserve portfolio" with approximately two years of spending money. Half of that money (or one year of spending) is placed in money-market funds; the other half is invested in a low-cost bond fund, with high-quality short-term (meaning one-year duration) municipal bonds. Once a month, the client transfers a "paycheck" from the reserve account to his or her checking account.
The rest of the nest egg goes into the third account: a long-term investment portfolio. Here, about 70% of the money is invested in stocks and 30% in bonds -- typically divided among those with one- to three-year maturities, three to five years, and five to 10 years. When it's possible to sell stocks without significant losses, a client moves money from the investment portfolio into the cash-flow reserve to bring the balance back up to two years of spending power.
What happens if there's more than a year with significant losses in stocks? At that point, Mr. Evensky explains, the client turns to the bonds in the investment portfolio, which function as "second-tier emergency reserves." No matter how bad the markets get, bond investments are unlikely to have significant losses; thus, you could refill the cash-flow reserve by liquidating some bonds, and buy time to defer the sale of stocks in a bear market.
In practice, a client with a $1 million nest egg -- where that client needs income of $50,000 a year -- would have about $100,000 in a cash-flow-reserve account (two years of spending) and about $900,000 in a long-term portfolio. Again, about 30% of that $900,000, or about $270,000, would be invested in bonds of varying maturities. The rest would be invested in stocks. In all, the client would have more than five years of spending money in relatively safe vehicles (money-market funds and bonds) -- enough to ride out the worst kinds of storms the stock market has seen during the past century.
Starting retirement in this fashion helps head off panic when markets fall, Mr. Evensky says. "You need to design a portfolio to weather all kinds of economic environments," he says, "since we don't know which one is coming next.

Problem is Im only 39 and Im gonna have to use 72 t to avoid paying the 10% penalty when I start taking the $$$.

Im not sure how one would go about doing this

The one guy I have talked to recommended setting up an annuity through an insurance company for the 72 T

Are there any good books or links y'all can recommend that deal with 72T?

Im gonna talk to at least 5 more $$$ guys before I do anything. I just wanna be as informed as possible before I start talkin to em
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Old 07-08-2008, 09:21 PM   #59
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That's easy, start looking at :

Welcome to 72t on the Net

They are the experts, ask any question, they will help you.

As far as the plan, looks like the bucket strategy to me.
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Old 07-09-2008, 07:13 AM   #60
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Ha - (belated) thx for the explanation of your investing approach, and while it looks like a lot of work (is this your ER hobby?) I know some very smart retired wall st types who follow basically the same approach. In fact, I hope the portfolio managers I 'hire' in some of the actively managed funds are doing the same thing!

The Evensky approach (thx Steve O) is interesting and one I've heard before. But holding up a 50% fixed income strategy as some sort of hopelessly retro inferior solution is a little much coming from him, since if you do the math, his approach gives you 37% fixed income with a lot of that in money markets. While 37% is less than 50%, of course, it isn't so different as to be drawing such a bright line about how heavily invested in equities their approach is.

I happen to think 40% fixed income (37%-43% - whatever) is a good number, too. But rather than have all the rest of the 60% in equities, I say spread it around. Thus 40% is in equities of all stripes (big, small, US, foreign) and 20% is in that slicer-dicer's dream "Other" category, which lets me pick up everything from foreign REITS to Oil and Gas wells to commodities, and investing in the local dry cleaner (or medical office building) along with a flier with market neutral hedge funds or similarly over-priced magic ways of making money in any market (just a few percent!)
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