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Old 08-16-2008, 01:53 PM   #21
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One of the things annuity boosters never seem to want to accept is that once they sign on the dotted line their principle is now zero.

I agree with your use of annuities for asset protection in certain high risk occupations. That's a separate discussion topic for a very limited group of which I'm not among. I suspect very few on this forum would be in that group.
I'm back! (based upon your last comment )...

While I certainly agree that your "principle (balance)" is reduced to nothing, your "income" (which was nothing) now has value, and should be considered.

I'm currently working with an elder law attorney to re-draw all of our estate documents (last done about 20+ years ago ). Anyway, his request to supply information related to our estate (separate documents required for my DW, me, joint holdings) came up with the question on how you "value" an annuity (for estate tax/holding/etc.) He's worked with a growing number of "elderly" (yeah, like me...) who have "annuities" (all types) and depending on their "structure" he assigns a current value. For my SPIA (non-inflation, fixed payment for 28-year certain, at 100% payments to my wife if I would die - including remaining payments to our estate if we both passed before the 28 years was up) was quite simple. He simply took our monthly payment x 336 (number of "guaranteed payments") minus the amout that was already paid to me for the last year. BTW, the total payout was calculated to be slightly over 2x my original "investment" - not much (accounting for inflation) but the vehicle still has "value" (from an estate sense).

In other words, the SPIA reduces a bit of "investment risk". That's why those with a good pension (along with SS) can take more risk in their investments. Their level of "guaranteed income need", generated by their investment portfolio is not as critical as if they did not have a pension or SS (BTW, I have neither - another reason an SPIA "fit my need".)

BTW, your second comment related to "high risk occupations" certainly pertains to "retirees" ... If being retired was not "high risk" (from an income point of view) this forum would not exist (IMHO)....

- Ron
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Old 08-16-2008, 03:05 PM   #22
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CuppaJoe,

I am also the beneficiary of a plethora of small retirement annuities due to multiple employers. Adding them all together, I'll start getting $15,000 per year (paid monthly) at age 60. They isn't any COLA so I consider this to be part of my "traveling money." By the time I'm not interested in doing much traveling, the value will have declined where I won't be able to.

There wasn't an option to take a cash value so I'm stuck with them.
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Old 08-16-2008, 03:46 PM   #23
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I'm back! (based upon your last comment )...

While I certainly agree that your "principle (balance)" is reduced to nothing, your "income" (which was nothing) now has value, and should be considered.
Obviously an annuity has a value that can be easily calculated. How else would an insurance company sell them?

ha
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Old 08-17-2008, 06:15 AM   #24
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Obviously an annuity has a value that can be easily calculated. How else would an insurance company sell them?

ha
An SPIA has a "purchase cost" but like a pair of shoes it doesn't have much of a resale value after the purchase and first use. There is "income" but that is then the only alternative.

Buying an SPIA is a non-reversible decision. Come down with a serious illness the next week and the insurance company isn't going to give you a lump sum for treatment that is not covered by insurance. Don't expect a lump sum from them to avoid a Medicaid nursing facility but the income will be taken by the Medicaid facility for your care.

I could go on but the champions of SPIAs will not be convinced.
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Old 08-17-2008, 06:35 AM   #25
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I am not opposed to using SPIAs for certain situations. However, I believe the primary advantage of a SPIA is the pooling of money and reducing longevity risk.

I would not buy a SPIA for a short-term period certain annuity. It is too easy to replicate the 15 year income pattern, reduce a variety of risks and still maintain the flexibility to spend more money in a given year if one chooses or need to do so.

The only possible situation I can think of is if someone is not able to manage the money and wants to ensure an income will be paid regularly. In that case one is really paying for money management services. For example a person that gets a lump sum distribution and is not able to manage it.

I am considering an annuity (joint life) with a portion of the portfolio (10-15%). The timing of the purchase would probably be around age 65. Combined with other source, it will form a base income for DW just incase something happens to me. This hopefully will ensure that DW will have an income that requires little management. DW does not care to learn about managing a portfolio. The rest of the portfolio will be transitioned to auto-pilot mutual funds.
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Old 08-17-2008, 07:21 AM   #26
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I could go on but the champions of SPIAs will not be convinced.
True, but we are still willing to listen ...

BTW:
Money Magazine, Retirement Guide. Income plan - Sep. 12, 2006

- Ron
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Old 08-17-2008, 11:18 AM   #27
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Obviously an annuity has a value that can be easily calculated. How else would an insurance company sell them?

ha

Dude, have you SEEN an actuary with Excel? It's either a thing of beauty or the scariest thing ever. There's no easily about it.
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Old 08-17-2008, 07:27 PM   #28
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CuppaJoe,
I am also the beneficiary of a plethora of small retirement annuities due to multiple employers. Adding them all together, I'll start getting $15,000 per year (paid monthly) at age 60. They isn't any COLA so I consider this to be part of my "traveling money." By the time I'm not interested in doing much traveling, the value will have declined where I won't be able to.

There wasn't an option to take a cash value so I'm stuck with them.
Why did the various employers ALL have TSAs?? :confused::confused::confused:

Looks like the guy who hates annuities is immersed in them..........
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Old 08-18-2008, 05:00 AM   #29
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Why did the various employers ALL have TSAs?? :confused::confused::confused:

Looks like the guy who hates annuities is immersed in them..........
This is what you get with defined benefit plans. Vesting is with a minimum of 5 years company service. You can only get "cash" if the value is below a certain minimum. I think most were $5,000 max to get cash but they said the value was above that. With the value above that there isn't an option. I become the proud owner of a deferred annuity called a "pension." I have 4 of them and as a said before they will start paying about $15,000 per year starting when I'm 60.

I am stuck with these like I'm stuck with SS. I certainly won't turn any money down but there certainly isn't any reason to go out and buy one.
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Old 08-18-2008, 08:25 AM   #30
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I am stuck with these like I'm stuck with SS. I certainly won't turn any money down but there certainly isn't any reason to go out and buy one.
So - you had a good decision (IMHO) "forced" upon you rather than make your own (as I did ).

Unfortunately, you also look at SS as a "bad decision". If you don't want it, you can always (as McCain has been asked to do) give it up ...

Sorry, I could not resist ...

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Old 08-18-2008, 09:10 AM   #31
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I am stuck with these like I'm stuck with SS. I certainly won't turn any money down but there certainly isn't any reason to go out and buy one.
Well,you "bought them" by working there. Nothing wrong with DB plans, except they are now almost as rare as Sasquatch..........
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Old 08-18-2008, 12:19 PM   #32
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Obviously an annuity has a value that can be easily calculated. How else would an insurance company sell them?

ha
I was responding to the statement that your principle is "now zero".

To every "equation" there is a corresponding "entry". My response was to just note that the comment should be "countered" with a statement that there is a corresponding "effect" for the "cause" stated - nothing more...

- Ron
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Old 08-18-2008, 06:34 PM   #33
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I was responding to the statement that your principle is "now zero".

To every "equation" there is a corresponding "entry". My response was to just note that the comment should be "countered" with a statement that there is a corresponding "effect" for the "cause" stated - nothing more...

- Ron
The income stream has a value........otherwise we wouldn't have so many underfunded pension plans in America..........
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Old 08-18-2008, 07:05 PM   #34
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The income stream has a value........otherwise we wouldn't have so many underfunded pension plans in America..........
Let's get back to the discussion of my underfunded bonus pool. Someone buy the stupid annuity already! Daddy needs a new pair of shoes.
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Old 08-18-2008, 07:41 PM   #35
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I thought there was a limit of four words you could put in quotes per post.

I wonder if he does that quotation thing with his fingers when he talks...?
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Old 08-20-2008, 12:10 PM   #36
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The income stream has a value........otherwise we wouldn't have so many underfunded pension plans in America..........
So, is a well paying job an asset or just a means to assets... hmmm, seems like the old rich emans income stream or wealth argument... and, yes, I believe that income streams do have value such that maybe by definition your "principal" is $0, but the value of it should be included when discussing wealth. This is slightly different from home equity, but similar. Since home equity isn't an income stream, I would not consider it, but I digress.
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Old 08-20-2008, 12:46 PM   #37
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So, is a well paying job an asset or just a means to assets... hmmm, seems like the old rich emans income stream or wealth argument... and, yes, I believe that income streams do have value such that maybe by definition your "principal" is $0, but the value of it should be included when discussing wealth. This is slightly different from home equity, but similar. Since home equity isn't an income stream, I would not consider it, but I digress.
If someone has a life only pension paying $1500 a month for the rest of his/her life, there's a VALUE to that. However, I think there is GREATER value to a plan that pays 50% to the surviving spouse, even though the monthly amount is smaller.

Does a $1,000,000 term policy have any value? According to a bank, no, according to an estate planner, yes..........
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Old 08-22-2008, 07:36 AM   #38
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Buying an SPIA is a non-reversible decision. Come down with a serious illness the next week and the insurance company isn't going to give you a lump sum for treatment that is not covered by insurance. Don't expect a lump sum from them to avoid a Medicaid nursing facility but the income will be taken by the Medicaid facility for your care.

I could go on but the champions of SPIAs will not be convinced.
If you need a contingency fund you should have a smaller annuity. The price you pay for extra flexibility is less income.

There will always be uninsurable potential "events" to deal with, so (despite being an annuity fan) I would agree that you should always have some resources outside an annuity. A credit card or loan is probably not the best option for converting some of your long-term income into a short-term lump sum.
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Old 08-22-2008, 10:11 AM   #39
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If you need a contingency fund you should have a smaller annuity. The price you pay for extra flexibility is less income.
You don't get less income by investing not buying a SPIA. You can beat the payout from an annuity by investing in readily available alternatives. The only way a SPIA makes true financial sense is if you live for about 10 years past your predicted mortality table lifespan. For most people that won't happen.

I've said before and I'll repeat again that it seems foolish to tie up your money in something that depends on an extended lifespan before you are well on your way to one. If you think that a SPIA is a great way to go, wait until you're 70 and still in absolutely great health. Then run the numbers again. They payout will be much higher.
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Old 08-22-2008, 10:29 AM   #40
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I've said before and I'll repeat again that it seems foolish to tie up your money in something that depends on an extended lifespan before you are well on your way to one. If you think that a SPIA is a great way to go, wait until you're 70 and still in absolutely great health. Then run the numbers again. They payout will be much higher.
With your analysis, everyone in America with a pension should be pissed, because ALL pensions are set up the same way you describe, with actuarial tables and insurance companies behind them...........

Have you done the calculation as to how long you and your spouse need to live before you get what you paid into SS? And then think of the opportunity cost of what you LOST trusting Uncle Sam to invest your money for your future benefit. SS makes GM's pension woes look like a walk in the park.........
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