Immediate Annuities

[ziggy29]

Aside from guarding against longevity risk, are there any other advantages to a spia? For example: Will the money be legally shielded from negative events... bankruptcy court, law suit against you, etc.

Depends on the state. In Texas, Florida and Oklahoma, for example, annuities are generally shielded from creditors and lawsuits so an immediate annuity can be part of an asset protection plan once all the other more attractive alternatives (IRAs, 401Ks, et cetera) have been maxed out.

In other states, protection of annuities is limited, if at all.

 

[smjsl]

As a generally rule the laws of the state that you reside in when the insurance company become insolvent are the ones that are followed. In particular in the company isn't licensed to sell insurance in the state that you reside in you are out of luck, so obviously leaving the country hoses you. .

Hmm.. looking at FAQ of the site posted by Brewer (thanks), seems like above is half true... i.e. looks like originating state picks up the tab - or am I misreading the following? Also, I guess this does not answer move-out-of-country case directly, but might have the same rules... more reading required.

"Coverage will be provided by the guaranty association in your state of residence, even if the policy was purchased in another state. Policyholders who reside in states where the insolvent insurer was not licensed are covered, in most cases, by the guaranty association of the company’s domiciliary state."

Now, I am still unclear on what's covered. From reading the site, I get the impression that either (a) policy can be transferred to another insurance company, or (b) it will be paid out up to the 100k/300k limits. Now, in case of SPIA policy where the single premium was already paid and presumably used up by the failed insurance company, I can't imagine why another company would take on the obligation to pay out the rest of SPIA. What benefit would they get from this? So, I don't understand why (a) would ever happen for SPIA. For case (b), those limits seem to suggest to me that the income stream will not be protected - only the inflation-reduced "cash-value" of annuity. What is "cash value" of SPIA? Original premium? In any case, whatever it is, I assume 100k check will not buy nearly as much of an income stream in 30 years.

P.S. Found this (scary?) statistic on that website: Since their creation, state guaranty associations have:
- Provided protection to more than 2.3 million policyholders
- Guaranteed more than $21.2 billion in coverage benefits
- Contributed more than $5.2 billion to ensure that policyholders received their benefits

 

[brewer12345]

snjsl, I think the best place to get the info would be to call your state insurance department or guarantee fund. But as I said, pick your insurer carefully and it is academic. If you look at the ratings history of insurers in bad times, the companies that have generally been stable through thick and thin are the largest, well capitalized mutual companies. They do not have to answer to shareholders and they generally have very conservative cultures. This is all good for policyholders.

 

[Independent]

Well, not exactly. You have anecdotal evidence based on your current and historical circumstances that suggests that you "don't need to save the money for later." But, since you don't know the future, this can never be certain until it comes to pass. The vast majority of us will pass either having gone broke and on the dole or with assets "left over." Few will get it right on the nose.

Sure. I should have sail stuff like "less likely".

 

[explanade]

Depends on the state. In Texas, Florida and Oklahoma, for example, annuities are generally shielded from creditors and lawsuits so an immediate annuity can be part of an asset protection plan once all the other more attractive alternatives (IRAs, 401Ks, et cetera) have been maxed out.

In other states, protection of annuities is limited, if at all.

Seem to recall that OJ Simpson was able to avoid paying the judgement to the Goldmans because his retirement income came from annuities.

He was able to play a lot of golf with that retirement money.

Of course, whatever his retirement income source, it didn't protect him from stupidity.

 

[haha]

Seem to recall that OJ Simpson was able to avoid paying the judgement to the Goldmans because his retirement income came from annuities.

He was able to play a lot of golf with that retirement money.

Of course, whatever his retirement income source, it didn't protect him from stupidity.

I think his failings go well beyond stupidity.

Ha

 

[Manji]

Create your own Annuity concept

How to create your own Annuity concept using 2 mutual funds.

This concept may interest you. See links for Morningstar forum.

For $1/Month Income you need $250 to $300 invested in following funds.
Using Vanguard Wellington VWELX & Vanguard Wellesley Income VWINX

Annuity Factor Examples - Morningstar

Thanks.

 

[Marc]

This is a lot lower payout than purchasing an immediate annuity even at today's puny interest rates. On $1M for two life annuity both 58 I think I can get over $5k/month. As interest rates will rise before I retire, I think I should be able to get $6k/month. True, using the funds leaves principal intact; but that doesn't matter as much with no heirs.

Marc

 

[Gumby]

How to create your own Annuity concept using 2 mutual funds.

This concept may interest you. See links for Morningstar forum.

For $1/Month Income you need $250 to $300 invested in following funds.
Using Vanguard Wellington VWELX & Vanguard Wellesley Income VWINX

Annuity Factor Examples - Morningstar

Thanks.

I interpreted the linked post as merely validating the 4% SWR rule of thumb.

 

[chinaco]

IMO - longevity risk is the main reason to buy a SPIA. In other words, you think you may outlive your resources. If you believe that and can afford to do so... delaying SS should be done before buying a non-cola or cola SPIA. If you do not believe your chances are very high that you will outlive your resources... I can see no reason to buy one.

I have considered using a SPIA. But for DW and I... I believe delaying one of our SS is the better approach. (assuming SS does not change significantly for people approaching retirement).

 

[Marc]

IMO - longevity risk is the main reason to buy a SPIA. In other words, you think you may outlive your resources. If you believe that and can afford to do so... delaying SS should be done before buying a non-cola or cola SPIA. If you do not believe your chances are very high that you will outlive your resources... I can see no reason to buy one.

I have considered using a SPIA. But for DW and I... I believe delaying one of our SS is the better approach. (assuming SS does not change significantly for people approaching retirement).

I can think of at least two other reasons for SPIA. First is to have the ability to safely increase your SWR above 4%. Not only is the SPIA payout above 4% (well above if interest rates return to normal) but you can play riskier on your non SPIA funds. Second, is to use it as assured ability to pay for some level of long term care without the high expense of LTC insurance.

Marc

 

[chinaco]

I can think of at least two other reasons for SPIA. First is to have the ability to safely increase your SWR above 4%. Not only is the SPIA payout above 4% (well above if interest rates return to normal) but you can play riskier on your non SPIA funds. Second, is to use it as assured ability to pay for some level of long term care without the high expense of LTC insurance.

Marc

I think SPIAs can good for certain situations.

[no offense] But the ones you cited are not two of them. Or at least... not reasons that would cause me to buy one.