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Fixed Income Needs
Old 05-12-2012, 08:08 AM   #1
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Fixed Income Needs

Hello everyone.
I'm new to this forum and just retired in 2011.
70 years of age.
Tired of being beat up by the stock market and looking into fixed
income options.
I have social security, a guaranteed annuity from teachers retirement and some real estate income.
Don't like giving my money to an insurance company and not being able to
ever access that money again.
Would like to find something guaranteed and safe that I can cash in if needed.
Noticed Vanguard has something like that paying 5.5%.
Any other suggestions?
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Old 05-12-2012, 08:19 AM   #2
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Quote:
Originally Posted by Stan Katz View Post
Would like to find something guaranteed and safe that I can cash in if needed.
Noticed Vanguard has something like that paying 5.5%.
They do? What is it?
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Old 05-12-2012, 08:23 AM   #3
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Quote:
Originally Posted by Stan Katz
Would like to find something guaranteed and safe that I can cash in if needed.
Noticed Vanguard has something like that paying 5.5%.
Quote:
Originally Posted by REWahoo View Post
They do? What is it?
Sign me up too!
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Old 05-12-2012, 08:33 AM   #4
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How about 10 Year sovereign bonds from Portugal and Spain?
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File Type: jpg Gov't rates May 11 2012.jpg (50.4 KB, 5 views)
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Old 05-12-2012, 08:34 AM   #5
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How about 10 Year sovereign bonds from Portugal and Spain?
You don't like Greece?
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Old 05-12-2012, 08:34 AM   #6
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Sign me up too!
+1 Who needs equities?
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Old 05-12-2012, 08:39 AM   #7
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Thought I was going to learn something here, but looks like I will need to educate you guys.
It's a rider available through the Vanguard Variable Annuity called "The Guaranteed Lifetime Withdrawal Benefit."
GLWB
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Old 05-12-2012, 08:40 AM   #8
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You don't like Greece?
I love Greece, but he said "guaranteed". Spain and Portugal are safer, aren't they?
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Old 05-12-2012, 08:50 AM   #9
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I love Greece, but he said "guaranteed". Spain and Portugal are safer, aren't they?
Indeed, you know I was kidding...
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Old 05-12-2012, 08:51 AM   #10
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Quote:
Originally Posted by Stan Katz View Post
Thought I was going to learn something here, but looks like I will need to educate you guys.
It's a rider available through the Vanguard Variable Annuity called "The Guaranteed Lifetime Withdrawal Benefit."
GLWB
Stan, I've learned that whenever I attempt to educate someone, chances are I'm the one who will be getting educated....
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Old 05-12-2012, 08:51 AM   #11
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Indeed, you know I was kidding...
And if anyone thinks I consider Spain and Portugal safe I really need to start using emoticons...
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Old 05-12-2012, 08:53 AM   #12
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We need a sar chasm emoticon to bridge the understanding gap.
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Old 05-12-2012, 08:59 AM   #13
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Quote:
Originally Posted by Stan Katz View Post
Don't like giving my money to an insurance company and not being able to
ever access that money again.
Quote:
Originally Posted by Stan Katz View Post
Thought I was going to learn something here, but looks like I will need to educate you guys.
It's a rider available through the Vanguard Variable Annuity called "The Guaranteed Lifetime Withdrawal Benefit."
GLWB
Got it...
Quote:
It is important to remember that a GLWB is not a stand-alone product but rather an optional product feature (a "rider") that one can attach to a variable annuity.

In terms of GLWB cons, think of the following high level considerations:
1) Cost - there is a meaningful cost that you will have to pay to include this product option. This cost will vary from company to company. Shop around and ask your advisor or the insurance company what the cost is. The fees associated with a GLWB will be deducted from the account value--this decreases the account value and subsequently any annual payment increases that may be tied to that account value.
2) More on cost - the costs of these products are now higher in the wake of the financial crisis. Insurance companies use hedging programs to provide these living benefits. The cost of hedging has increased so living benefits are more expensive and have features that are less rich than several years ago. Take a look at the interviews with Ryan Hinchey to understand further:
http://www.annuitydigest.com/blog/to...nuity-landscap...
3) Credit risk - the guarantee is only as good as the company providing it. Buy from a top rated variable annuity carrier such as MetLife.
4) Interest rates and benefit features - the GLWB is fixed and will be set at the time of contract issuance. Interest rates are low in the wake of the crisis. As a result and similar to all of the people buying fixed annuities over the past several months, you would possibly be locking-in the GLWB rate in a less than optimal interest rate environment.
5) Inflation - similar to the above, if inflation and interest rates increase significantly in the future then the real value of the GLWB will erode. It is difficult for the real value of GLWB payments to keep pace with inflation when fees/costs are considered. For example, consider a 5% GLWB and 2% cost. A 4% rate of inflation would mean that the real rate of return is actually negative.
6) Understanding how the benefit actually works - you need to find an advisor who can clearly explain to you what is available with a particular product/company and how it works.
7) Watch-out for "sunset provisions" which would terminate your ability to "step-up" the account value in response to market gains if/when you reach a certain age.
8) Find out how long step-ups in the benefit withdrawal base last (i.e. how many years or until what age).
9) What is the impact of taking the GLWB immediately or delaying to a later age? Generally, GLWB payments will be higher the longer you wait.
10) How does poor market performance and decreasing account value affect future step-ups in the benefit withdrawal base?
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Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
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Old 05-12-2012, 09:07 AM   #14
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midpack, I was wondering the same thing. If this is basically an annuity it seems unlikely one can have the 5.5% return and access to the entire original invested amount.
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Old 05-12-2012, 09:21 AM   #15
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midpack, I was wondering the same thing. If this is basically an annuity it seems unlikely one can have the 5.5% return and access to the entire original invested amount.
+1
The only way an insurance company can provide this kind of lifetime withdrawal benefit is if they have restrictions on the amount that can be withdrawn.

Stan, the 5.5% is simply the withdrawal benefit, not really an investment return. You're simply getting return of principal until you get your money back. You could really come out ahead if you significantly outlive the average person though.

Unfortunately, there is nothing like you're describing. In this low interest rate environment, to get return, you have to take risk.

I think the facepalm is the closest thing we have to a sarcasm emoticon.
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Old 05-12-2012, 09:36 AM   #16
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How about something like the Vanguard Target Retirement Funds? There is some risk, but one can pick a fund depending on how much risk is acceptable. Here's the Vanguard Target Retirement 2010 Fund:

https://personal.vanguard.com/us/fun...FundIntExt=INT

The SEC yield is 2.5%, but you have access to the principal as well if/when you need it. Click on the Price and Performance tab to look at returns and see more information about yield.
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Old 05-12-2012, 10:02 AM   #17
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Guaranteed and safe would be something like US Treasuries or CD's insured by the FDIC. The yields are miserable. 30 year Treasuries are about 3.3%. Most CD's under 5 years are under 2%. Can you live on that little interest?
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Old 05-12-2012, 10:27 AM   #18
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The problem is that, if it sounds too good to be true, it isn't.

I will be happy to get 3.5% (inflation adjusted) of dividends off my portfolio--forever.
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Old 05-12-2012, 10:35 AM   #19
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Thought I was going to learn something here, but looks like I will need to educate you guys.
Uh, with a VA as a choice, I don't think "we" need to be educated. I believe most of us folks on this forum don't think that a VA is an "option", at all ...

(We may look dumb, but we're smarter than you may think! )...
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Old 05-12-2012, 11:09 AM   #20
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Naw, I really am that dumb.
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