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Old 06-24-2008, 05:19 PM   #21
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The expensive mistake of one using a an immediate income annuity is the loss potential for future growth. The benefit is that you're not suseptible to market corrections, especially if you have to draw down income during those corrections. If you choose the correct payout choice you, or your hiers, always get at least all your money back. If you live long enough, perhaps twice your money back. Check the accumulted payouts into age 90's. Lots of boomers will live well into their 90's.

The other portion of your capital needs to grow. Thus, the well divisified portfolio. But as evidenced by the past 9 months, even well managed diversified portfolios have tanked. So, if you were drawing down money for income from from a declining portfolio since last summer you'd be taking money at substantially less than you originally paid for it.

There's a need for both guarantees and monety at risk for growth.
By George, I think he get's it ...

(BTW, my 28-year guarantee SPIA will pay 2x my initial "purchase price" - more if I/DW live longer).

Again, we still have (at the time) 90% of our portfolio "working for us" as a long term return vehicle. However, in the "short term" (the year since we purchased the SPIA) we certainly look like we know what we were doing in this down market ). Of course, when the market returns to normal (as we all know it will) in the future, and people say that we were "dumb" to get an SPIA, I can always point to the fact that our 90% is still "beating the pants" off of other investments (including SPIA's).

No wonder the only table game I play at the casino is roulette (spit the bet - never go for the straight number, even at 35-1 odds ).

- Ron
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Old 06-24-2008, 05:41 PM   #22
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I'm just finnishing a book, fiction, about a Vet returning to Nam 40 years after.
He spent time at Tan Son Nhut, Quang Tri - 68 and 72. Good mystery, drama, espionage.
By Nelson Demille "Up Country"
I'm 62-didn't serve-lived through turmoil here-support VVA forever
thanks
Peter
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Old 06-27-2008, 09:52 AM   #23
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The problem with any SPIA is that it has a substantial financial discount over self-annuitization with laddered CDs and high quality corporates. The only way you "win" with a SPIA is to substantially outlive your mortality table. Most require about 5 to 10 years no matter how you cut it.

From my perspective, you are better waiting until you see how your health is when you are approaching 70. If you are in primo condition, an annuity might be a reasonable gamble and your payout would be much higher than if you buy one in your 50's.
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Old 06-27-2008, 03:25 PM   #24
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From my perspective, you are better waiting until you see how your health is when you are approaching 70. If you are in primo condition, an annuity might be a reasonable gamble and your payout would be much higher than if you buy one in your 50's.
That means that I would have had to wo*k longer, rather than retire at 59. Since it is a type of "insurance", in reality it made sure that my lifestyle (income) was taken care of for the period of my/DW's life that I wanted. Unlike "life insurance" (paid after you die) this is truly life insurance - taking care of us while we're still alive .

Yes, I may have probably gotten by without an annuity for the 11 year period till I drew SS (ages 59-70), but this made it much easier to plan for my "early age retirement income". Additionally, since it only "consumed" 10% of our (at that time) retirement portfolio, it left the rest of our retirement assets "in place" to take care of our "later life".

This is "real life " - not what you "could/should do in the best manner (according to the pundits)" and I can tell you, in our situation, it works well. For us, that's all that counts. It is not a "gamble" (your words) but a vehicle to provide an uninterrupted stream of income for a specific time (e.g. "gap insurance" till SS). I'm not out to "win" (your words) anything other than a current, stable income stream. Additionally, DW/I are leaving our remainder estate to charity (other than funding a SNT trust for our disabled son) so we're not looking to necessarily looking for the "big bang" to pass on to a subsequent generation.

Does it makes sense for you? Don't know - don't care. All I know that it makes sense in our life (especially in these investment "trying times"). If you have another way to "live your life", feel free to do so.

The OP's question was to how to get retirement income below the age of 59.5. My original answer was to add some "real life" information on an "early life purchase" of an SPIA. Nothing more - nothing less.

- Ron
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Old 06-27-2008, 03:40 PM   #25
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That means that I would have had to wo*k longer, rather than retire at 59.
I don't see how it would have required you to work longer than you did. You might have even been able to FIRE sooner because a self-annuitized cash stream is higher than you can get from an insurance company.

If you were only interested in an 11 year gap, then I can't see why anyone would actually purchase an annuity. I'm planning on having one in place to bridge to age 70 for SS.

The question of "income for life" is more psychological. Studies have shown (one is referenced on the Retire Early Home Page as I type) that annuities "cost" more than one would expect given the prevailing interest rates and mortality data. Of course, that's where those big insurance building come from. Many people like the feel of a monthly check in retirement. I'm going to get several myself. It's from a pension which for us non-COLA'd types is the same as a SPIA. I can start mine whenever I want but the amounts continue to increase slightly for every month I delay.

I'm not bashing you for getting an annuity. You're already committed and you can't get your money back even if you changed your mind. You also only put 10% of your net worth into one. His FA is looking at 30%.

I just want to make sure that anyone getting "sold" on a mega-sized annuity at his tender age carefully looks at the equivalent IRR.
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Old 06-27-2008, 04:09 PM   #26
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If you were only interested in an 11 year gap, then I can't see why anyone would actually purchase an annuity. I'm planning on having one in place to bridge to age 70 for SS.
I'm a bit confused - you say you are going to get an SPIA as "gap insurance" for SS at age 70. Yet that is the reason I got it? What's the difference?

That was my primary reason for the SPIA, however since I know (and planned) that the SPIA would have less purchasing period in the remaining guarantee period (for us, from age 71 to age 87) we were just looking at it as "extra fun income", not necessarily required (easy enough to plug into FIRECalc as a reduction in income at a specified plan - and we're still at a 100% sucess rate even without the annuity income after age 70).

- Ron
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Old 06-27-2008, 04:55 PM   #27
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An SPIA purpose is to produce a guaranteed stream of money for life or for life plus a period certain. Outliving you mortality table (LE) is not the issue because you can guarantee the stream for a number of years or elect a guaranteed cash refund amount. They don't go away when you die unless you choose that option.
The life expectancy (LE) for a 59 year old non smoker is 86. That's 27 years to his LE. By year ~14 the SPIA will produce slightly more than the original premium. At his LE ~ twice the original premium. At 100 ~ three times.

Use the annuity for the guarantee in part you portfolio. Address inflation and growth with the other part.

How do you ladder out CD's for 30 years?
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Old 06-28-2008, 06:06 AM   #28
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I'm a bit confused - you say you are going to get an SPIA as "gap insurance" for SS at age 70. Yet that is the reason I got it? What's the difference?

- Ron
I plan to self-annuitize with laddered CDs or corporates.

If you are really wanting to "go long" there are 30 year corporates and US bonds. After that, there are corporate preferreds that never mature. That somewhat goes against the original idea of a ladder but when you are looking out past 30 years you have fully entered the world of fortune telling.

If you have the guts, highly rated preferreds are paying around 8% which is a much higher payout than a 50-something will get as an annuity. If you ever want a pile of cash, the preferreds can be sold. The annuity can't.
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