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Re: immeadiate annuities
Old 04-14-2006, 04:35 PM   #21
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Re: immeadiate annuities

while the conventional swr does need 7-8% in total.only 4% of the return is avail for withdrawl..now while the convential swr is inflation adjusted and allows you to increase your withdrawl every year by 3% eventually giving you 8% to live on after 20 years the annuity is giving you that amount for a full 18 years prior.i think this is tough to figure out... 4% withdrawl increasing the withdrawl by 3% every year or a flat 8% right out of the box..preservation of principal wouldnt be a factor in this case as its strictly about generating the most amount forever to live on....maybe the annuity is the best deal if you only live another 20 years from the day you start withdrawing? after that the conventional would spin off more and you would have all your principal to boot
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Re: immeadiate annuities
Old 04-14-2006, 04:39 PM   #22
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Re: immeadiate annuities

So for an individual to feel comfortable the SWR is 4-5% (because we want to be 80-90% sure). But an insurance company (or casino), because of the volume, can operate at an 8% SWR (anything above 50% success) and still expect to make money. Is that why the insuance company can take your money and offer you an 8% annual payment?
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Re: immeadiate annuities
Old 04-14-2006, 04:41 PM   #23
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Re: immeadiate annuities

Create your own "annuity":

Continuing on the 59 year old living to 79 example. Using Firecalc, if you have 1M to start (60/40 allocation), withdrawing $70000/yr over 20 years, NOT adjusted for inflation: 96.2% success rate, avg ending balance $1,436,856.

Insurance companies aren't stupid, and they're obviously exceptional sales people.
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Re: immeadiate annuities
Old 04-14-2006, 04:51 PM   #24
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Re: immeadiate annuities

Quote:
Originally Posted by scrinch
So for an individual to feel comfortable the SWR is 4-5% (because we want to be 80-90% sure).* But an insurance company (or casino), because of the volume, can operate at an 8% SWR (anything above 50% success) and still expect to make money.* Is that why the insuance company can take your money and offer you an 8% annual payment?
thats what im thinking...a 8% allowable withdrawl dosnt happen until 20 years later indexed for inflation at 3% a year increase...that means on the annuity at least early on a person has almost 2x the money to live on........thinking about this stuff makes my hair hurt..........

there is no question that 20 yrs later on a million dollars having an 80,000 a year withdrawl and your almost 2 million principal at this point is the clear winner.but from a lifestyle issue where there is no heirs im not so sure the annuity is such a bad deal....
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Re: immeadiate annuities
Old 04-14-2006, 04:52 PM   #25
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Re: immeadiate annuities

Quote:
Originally Posted by brewer12345
Why not have her price one of the iflation indexed annuities Vanguard sells?
Check the price -- very much more than standard. I'd rather invest the balance and buy a small add'l annuity as needed to keep up with inflation, plus you get more money back since you are older when you buy.
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Re: immeadiate annuities
Old 04-14-2006, 07:44 PM   #26
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Re: immeadiate annuities

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Originally Posted by Rich_in_Tampa
Check the price -- very much more than standard. I'd rather invest the balance and buy a small add'l annuity as needed to keep up with inflation, plus you get more money back since you are older when you buy.
Personally, I would want to do an awful lot of modelling and head scratching before I was willing to do the strategy you are suggesting. I suspect you would still get walloped by inflation.

Put it this way: I know insurance companies all too well. There is a reason they are happy to sell payout annuities to all comers.
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Re: immeadiate annuities
Old 04-14-2006, 08:28 PM   #27
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Re: immeadiate annuities

Hmmm, seems to me that the comparison that should be made is between immediate annuities and fixed income investment.

For example, I have $100,000. If I put it in Treasurys yielding 5%, and am prepared to eat capital over, say, 20 years, then the amount I can withdraw each year is $8,024. This is calculated in the same way as mortgage amortization, but in reverse.

If I'm, say, 75, then I could get an immediate annunity that would pay out $859 per month, or $10,308 per year for as long as I live. If I think I might live into my 90's, then the annuity looks pretty attractive.

Inflation doesn't enter into this comparison, since it affects both cases equally.

Of course, if I only live to be 76, then the insurance company wins out big. But I'm now dead and don't care.

I agree with those who say that you shouldn't rely on annuities for your entire income, for all the reasons they state. But to dismiss the whole concept as being a 'ripoff' seems a bit extreme.

Peter
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Re: immeadiate annuities
Old 04-14-2006, 08:33 PM   #28
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Re: immeadiate annuities

Quote:
Originally Posted by Peter
Hmmm, seems to me that the comparison that should be made is between immediate annuities and fixed income investment.

For example, I have $100,000. If I put it in Treasurys yielding 5%, and am prepared to eat capital over, say, 20 years, then the amount I can withdraw each year is $8,024. This is calculated in the same way as mortgage amortization, but in reverse.

If I'm, say, 75, then I could get an immediate annunity that would pay out $859 per month, or $10,308 per year for as long as I live. If I think I might live into my 90's, then the annuity looks pretty attractive.

Inflation doesn't enter into this comparison, since it affects both cases equally.

Of course, if I only live to be 76, then the insurance company wins out big. But I'm now dead and don't care.

I agree with those who say that you shouldn't rely on annuities for your entire income, for all the reasons they state. But to dismiss the whole concept as being a 'ripoff' seems a bit extreme.

Peter
Hmmm, I think that comparing immediate annuities to FI is about right, and you gave a nice example. The problem is that your choices aren't limited to annuities or FI. There are lots of different asset classes and combinations thereof to choose from. We already know that you will get killed by inflation if you rely too heavily on FI, and the same goes for payout annuities. OP was wondering if piling into annuities would magically fix the problem of not really having enough capital, and clearly it does not.

Oh, and I'm not sure I would call payout annuites a ripoff either. They are what they are an insurers generally make a nice profit off them, but a goodly part of the profit comes from their being able to spread longevity risk across a large pool of insured lives. Now equity indexed annuities - THAT'S a ripoff.
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Re: immeadiate annuities
Old 04-15-2006, 03:26 AM   #29
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Re: immeadiate annuities

Quote:
Originally Posted by Peter
Hmmm, seems to me that the comparison that should be made is between immediate annuities and fixed income investment.

For example, I have $100,000. If I put it in Treasurys yielding 5%, and am prepared to eat capital over, say, 20 years, then the amount I can withdraw each year is $8,024. This is calculated in the same way as mortgage amortization, but in reverse.

If I'm, say, 75, then I could get an immediate annunity that would pay out $859 per month, or $10,308 per year for as long as I live. If I think I might live into my 90's, then the annuity looks pretty attractive.

Inflation doesn't enter into this comparison, since it affects both cases equally.

Of course, if I only live to be 76, then the insurance company wins out big. But I'm now dead and don't care.

I agree with those who say that you shouldn't rely on annuities for your entire income, for all the reasons they state. But to dismiss the whole concept as being a 'ripoff' seems a bit extreme.

Peter
yep this is the delema.....it isnt easy to figure out...at first most of us thought this was a no brainer.of course our own investments win out vs the annuity...but as you see when it comes to dollars and cents to live on forever without regard for the principal the annuity suddenly dosnt look so bad...problem with our own investing is its like the goose that layed the golden egg.....we cant touch the principal without diminishing our monthly withdrawl because thats our goose so the fact that theres this big pile of money and we cant spend it only counts to our heirs....
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