Immediate Annuities

[Dawg52]

Quote:

Originally Posted by Nords Also known as the "blissful ignorance" philosophy?

The older I get, the more I see myself headed this way.

[freebird5825]

Quote:

Originally Posted by Dawg54 The older I get, the more I see myself headed this way.

Well, then, don't get old. Become chronologically experienced.
I can also see myself putting my portfolio on auto-pilot way down the road, simply cuz I'll be so FIREd I will be goofing off 100% full time.
You're only a few years ahead of me, so lead the way!

[charlie]

Some points that you might consider:

1) Immediate Annuities are sold by insurance companies that can fail,
so diversify your purchases to no more than your state will cover
on any single provider.
2) Interest rates are very low right now which means that your payout
will be less ....... thus spread out your risk by buying your annuities
over a period of time.
3) As was suggested already, use some of your funds to buy a 3 - 5
year ladder of CDs.
4) Put some of your funds in a good conservative balanced fund
like Vanguard's Wellesley or if you are more daring, Wellington or
Managed Payout Growth and Distribution. You need some hedge
against inflation.

Cheers,

charlie

[NW-Bound]

Quote:

Originally Posted by Nords I'd be delighted if my portfolio had been merely decimated instead of halved...

The original meaning of "decimation" is as described by the following entry in Wikipedia.

Decimation (Latin: decimatio; decem = "ten") was a form of military discipline used by officers in the Roman Army to punish mutinous or cowardly soldiers. The word decimation is derived from Latin meaning "removal of a tenth."

A cohort selected for punishment by decimation was divided into groups of ten; each group drew lots (Sortition), and the soldier on whom the lot fell was executed by his nine comrades, often by stoning or clubbing. The remaining soldiers were given rations of barley instead of wheat and forced to sleep outside of the Roman encampment.

Because the punishment fell by lot, all soldiers in the selected cohort were eligible for execution, regardless of rank or distinction.

However, the word has a modern usage in Digital Signal Processing. It describes the process where a digitized signal that has been previously oversampled -- for ease of filtering or processing -- is now "decimated", or significantly reduced in its sampling rate. The reduction factor is an integer, and often a power of 2. It is as low as 2 and in practice can be as high as 256.

So, when an electrical engineer talks of having a portfolio "decimated", he/she does not mean that it has lost 10% in the ancient Roman military meaning, but rather that it has been reduced to a fraction of its previous value. At the minimum, it has been reduced to 1/2! Very bleak indeed. This happened to me from March 2000 to March 2003. Yes, I have been there.

[MasterBlaster]

Your reference to decimation is exactly correct. After all the Latin prefix "deci" means tenth.

Common usage outside of Roman militaries and electrical engineering for decimate is to severely cut back.

When I say that I am going to decimate my wallet. What I mean is that I am going to spend most of the cash. In other words severly reduce the cash stored there. That usage is not strictly correct, however it would be widely understood as to its' meaning

[jazz4cash]

Quote:

Originally Posted by Want2retire Sounds like you are doing just fine. I had originally planned to get a TSP immediate fixed annuity, but decided for several reasons not to do so. One of those reasons is the low interest right now. Instead, I plan to withdraw my TSP as equal monthly payments (the amount of which can be changed once a year).

Do you have the option to start a TSP annuity at a later date (like in a yr or two if the rate increases), or is there some time limit for purchase tied to your retirement date?

[W2R]

Quote:

Originally Posted by jazz4cash Do you have the option to start a TSP annuity at a later date (like in a yr or two if the rate increases), or is there some time limit for purchase tied to your retirement date?

Maybe, maybe not, depending on factors such as your age. The rules for withdrawals are pretty specific, especially for partial withdrawals.

I would strongly recommend checking the publications at www.tsp.gov (go to "Forms and Publications" towards the bottom of the page, then "Publications", "Booklets", and there is a booklet called "Withdrawing your TSP Account After Leaving Federal Service") before making any decisions rather than relying on me or anyone else on the message board. A quote from page 1 of this booklet is,

Quote:

Withdrawal Deadlines. You are required to withdraw your account balance in a single payment, begin receiving monthly payments, or begin receiving annuity payments by April 1 of the later of: the year following the year you become age 70 ½, or the year following the year you separate from Federal service or the uniformed services. If you do not withdraw (or begin withdrawing) your account by the required withdrawal deadline, your account balance will be forfeited to the TSP. You can reclaim your account; however, you will not receive earnings on your account from the time the account was forfeited.

[donheff]

Quote:

Originally Posted by jazz4cash Do you have the option to start a TSP annuity at a later date (like in a yr or two if the rate increases), or is there some time limit for purchase tied to your retirement date?

You can leave your TSP money sitting in the funds (I do) and move some to an annuity when and if you choose.

[Manji]

May be try learn upfront with Due Diligence DD .

Read New Book "The Only guide to Alternative Investment"
By Larry Swedroe & J Kizer..Annuitity chapter first.

Immediate Annuities - Instant Annuity Quote Calculator.
www.Fidelity.com.

Just kick it around for 6 months to 1 year to become familiar yourself.
If in doubt...don't commit anything $wise.

Go Slow!
Manji

[easysurfer]

Was curious, so if one has a SPIA (no beneficiaries), how does the insurance company know that someone has died to stop making payments.

Do the insurance companies have their own "death panels" (that was a joke).

Seriously...How do they find out?

[73ss454]

I'm sure the government has some sort of list of SS# of people who have died. They have someone checking these #'s all the time, no doubt.

[Bikerdude]

Quote:

Originally Posted by easysurfer Was curious, so if one has a SPIA (no beneficiaries), how does the insurance company know that someone has died to stop making payments. Do the insurance companies have their own "death panels" (that was a joke). Seriously...How do they find out?

Are you thinking of running a scam by dying and not telling them? Let me know how you make out.

[TeeRuh]

I think the insurance companies just watch for the check to come back "return to sender".

t.r.

[TeeRuh]

Quote:

Originally Posted by Bikerdude Are you thinking of running a scam by dying and not telling them? Let me know how you make out.

By the way, who all are you supposed to tell when you die? (Don't want to get into trouble after I pass ...)
t.r.

[mathjak107]

i was just explaining to a co-worker how immeadiate annuties work. all he knew was anytime you hear the word annuity run. so i said to him picture this.

you want to guarantee your payments for life to cover certain things , you can buy a 30 year treasury and get 4-1/2 % for life . thats 4500.00 a year on on 100,000 ....... but suppose you need more to live on, well then you would have to sell some of your bonds to supplement your interest and now you will have even less interest coming in from less bonds

but suppose i said give me 100,000 and ill give you back 6700.00 a year from the money you just gave me... i wont reduce the amount either as you get more and more of your principal back.. you can just spend the whole thing and know next year you will get exactley the same amount.
and heres a kicker, once i give you back all your money that you gave me your entire 100,000; ill still continue to pay you on my dime and give you that 6700 bucks a yeear no matter how long you live.

one hitch if you die i keep the money i didnt give you back yet.

i said what do you think? he said its a great deal.. i said well thats an immeadiate annuity.... now hes looking into it.

[clifp]

Quote:

Originally Posted by TeeRuh By the way, who all are you supposed to tell when you die? (Don't want to get into trouble after I pass ...) t.r.

One of the jobs of the executor or your state, is to notify insurance companies when you pass. I believe (and hopefully somebody like Martha will correct me if I am wrong) that if you don't have an executor the state probate courts will do the job.

Still it raises an interesting question in world with automatic deposit how long could the insurance companies and SS keep sending the checks before somebody figured out that the you are gone?

[freebird5825]

Quote:

Originally Posted by clifp One of the jobs of the executor or your state, is to notify insurance companies when you pass. I believe (and hopefully somebody like Martha will correct me if I am wrong) that if you don't have an executor the state probate courts will do the job. Still it raises an interest question in world with automatic deposit how long could the insurance companies and SS keep sending the checks before somebody figured out that the you are gone?

I recall a story (posted here?) about a guy who did exactly that - kept collecting his mom's SS checks for years after she had passed.
If the death is not at home (i.e. hospital, NH, incident in which LE or rescue is involved), I believe the county coroner will then notify certain agencies, but not sure which ones.

[clifp]

Quote:

Originally Posted by Rob Back in 1972 I started an annuity with TIAA, and up until a few months ago kept adding to it (along with some CREF stocks and CREF bonds). I was not aware of the general distaste of some/many to an annuity all these years until recently, and if I had, I probably would have NOT invested that way. I'm beginnng to think it's fortunate I did not read all the negative reviews of annuities, because then I would have never had the "peace of mind" I do now knowing I will receive a lifetime income. Just to play it safe though, I've decided to live off the annuity interest (thereby keeping the principal intact), and will only annuitize as I get closer to 70. Even so, the interest gives my about $2,500/month take-home, which is still alright I'm single, have no heirs, and am a healthy guy of 62. I still like to work, but prefer not to be concerned with money. My annuity has allowed me to foster my love of animals by working at an animal shelter (at minimum wage) for fun. In August I will go off to the Meditteranean to teach physics, and while the money is alright, i'm doing it for fun. Using the annuity the way I am gives me the freedom to work or not to work and not care about salaries. Cheers, Rob

Rob I am glad that the annuity is working out for you so far.
For the new people I think is important to understand the objections the forum regulars have to annuities.

In general buying an SPIA makes sense for many people. Especially for folks who don't have heirs, and don't have a regular traditional pension payment. The 3 legs of the retirement stool are retirement savings, pensions, and SS. Annuities can provide a replacement for the pension.
Piece of mind is certainly a significant benefit of an annuity, as is using dead peoples money as others have said.

The issues that many of us have with annuity is not with the concept but with the products and the way they are sold and marketing. Most annuities in this country are sold rather than being bought. Generally, an insurance salesman, or financial "helper", invites you for a free financial consulting. At the end of that session, you are told that your best option is to purchase an annuity. More often than not this annuity isn't a straightforward SPIA, but some fancy product with a name like Variable Annuity, or Equity Indexed annuity.

The salesman who sells you that product collects a hefty commission in the range of 5-8% plus additional money each year. The insurance company takes another 2-3% each year via a bewildering assortment of account fees, expense ratios, morbidity fee etc. You are left with 200+ page document which explains your annuity in deliberately hard legalese.
Time passes and for whatever reason you need the money, you than find out that the only way to get your money is to pay a hefty surrender fee. It has been my experience from reading financial forums and helping friends and relatives that more often than not folks who have bought annuities end up cashing out of their annuities and losing a good chunk of money.

Now I don't know much about TIAA-CREF other than it is one of the largest mutual insurance companies around and it specializes in teachers. I also know that teacher's 403Bs are notorious for having some of the highest expenses. But I don't know if there is a cause and effect.

So yes annuities have a bad reputation on this forum. In particular, EIAs and Variable annuities are almost always considered to be a bad investment. Immediate annuities are generally ok especially if you go out and shop for them like you would a big ticket item like a car rather than buy them from a salesman.

Still there are risks associated with buying any annuity which are generally glossed over by the salesman.
1. It is expensive to change your mind. The surrender penalties are typical several times the cost of withdrawing money early from a CD.
2. Inflation can severely reduce the value of your annuity payment.
3. Insurance companies can and do go broke (e.g. AIG). The good news is that for the most part if your insurance company goes broke you will still get paid. The bad news is state insurance funds that protect your annuity are only sufficient to pay for a few failures a year from medium size firms if a megafirm collapses like AIG, or TIAA-CREF there isn't enough money to pay all the policy holders without government intervention.

[73ss454]

Great post Clifp.

[easysurfer]

Quote:

Originally Posted by clifp One of the jobs of the executor or your state, is to notify insurance companies when you pass. I believe (and hopefully somebody like Martha will correct me if I am wrong) that if you don't have an executor the state probate courts will do the job. Still it raises an interesting question in world with automatic deposit how long could the insurance companies and SS keep sending the checks before somebody figured out that the you are gone?

That's exactly what I was thinking about. If the deposits are on autopay, I wonder how many payments would be done before the insurance company would know the person had died.