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Re: immediate annuity (again)
Old 09-21-2006, 11:13 AM   #61
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Re: immediate annuity (again)

Quote:
Originally Posted by FinanceDude
Why are we talking immediate annuities at all?
Why are we talking any particular kind of investment, from private REITs to pssst Wellesley? Because there are some among us who are considering them! Best to thoroughly air the pro's and con's through occasional threads on the subject.
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Re: immediate annuity (again)
Old 09-21-2006, 11:19 AM   #62
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Re: immediate annuity (again)

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Originally Posted by FinanceDude
Why are we talking immediate annuities at all?* Annuitization, period certain or not, it 99.99% of the time a horrible proposition.* I personally would NEVER give up CONTROL of my money to an insurance company..........
Another shoot from the hip post on annuities. Did you read the linked Money article?

I also would not get an annuity, but not because I think it might not be a good idea. I am just genetically a gambler and I know myself.

Mostly we make our decisions emotionally, even if we think otherwise.

Ha
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Re: immediate annuity (again)
Old 09-21-2006, 11:24 AM   #63
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Re: immediate annuity (again)

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Originally Posted by HaHa
Did you read the linked Money article?
I did, and it contradicts large volumes of scholarly research while at the same time telling us virtually nothing about the littel graph that they use to push annuities. I don't find it particularly convincing, and maybe I read it too fast, but I didn't see anything about the risks of putting a large wad into an annuity of a potentially shaky insurer.
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Re: immediate annuity (again)
Old 09-21-2006, 11:28 AM   #64
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Re: immediate annuity (again)

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Originally Posted by HaHa
Another shoot from the hip post on annuities. Did you read the linked Money article?

I also would not get an annuity, but not because I think it might not be a good idea. I am just genetically a gambler and I know myself.

Mostly we make our decisions emotionally, even if we think otherwise.

Ha
I find your post funny...............since I have been a financial advisor for a long time. Perhaps you should know your audience better

Money Magazine is a crock of BS for the most part..............."Top 10 Funds to Buy NOW" and those other headlines make me ill.................
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Re: immediate annuity (again)
Old 09-21-2006, 11:34 AM   #65
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Re: immediate annuity (again)

I hope you do find my post funny; I try to please.

But maybe you shouldn't admit to being a "financial advisor" around here. It's a bit like saying you are an astrologer.

Ha
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Re: immediate annuity (again)
Old 09-21-2006, 11:39 AM   #66
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Re: immediate annuity (again)

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Originally Posted by HaHa
I hope you do find my post funny; I try to please.

But maybe you shouldn't admit to being a "financial advisor" around here. It's a bit like saying you are an astrologer.

Ha
Astrologer?* Nah, its more like a dmitting that you have more than a passing fancy for farm animals.

If you admit to being an annuity salesman, you pretty much just told us that it is hard to get you out of the barn and away from the vaseline...

edit: note that the above is intended as humor and not to impugn/slight any individual.
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Re: immediate annuity (again)
Old 09-21-2006, 11:50 AM   #67
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Re: immediate annuity (again)

That's ba-a-a-a-d...
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Re: immediate annuity (again)
Old 09-21-2006, 11:50 AM   #68
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Re: immediate annuity (again)

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Originally Posted by HaHa
I hope you do find my post funny; I try to please.

But maybe you shouldn't admit to being a "financial advisor" around here. It's a bit like saying you are an astrologer.

Ha
I think everyone on here knows that..........it's not like I'm hiding with my screen name............

BTW, what's your sign, I'd like to give you a reading..............
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Re: immediate annuity (again)
Old 09-21-2006, 11:53 AM   #69
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Re: immediate annuity (again)

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Originally Posted by brewer12345
Astrologer?* Nah, its more like a dmitting that you have more than a passing fancy for farm animals.

If you admit to being an annuity salesman, you pretty much just told us that it is hard to get you out of the barn and away from the vaseline...
Who said I am an annuity salesman? I'm much, much WORSE than that............a GASP fee-based advisor.............the horror, the horror!!!

I knew this board would be fun..................
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Re: immediate annuity (again)
Old 09-21-2006, 01:01 PM   #70
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Re: immediate annuity (again)

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Originally Posted by brewer12345

Finally, it is worth revisiting how insurers design and manage SPIAs. . .So out of this portfolio, they expect to be able to pay you in full and make a 15% ROE on the capital they put up against the SPIA.* What does that tell you?* It tells me that a well managed bond portfolio is more than adequate to pay out the SPIA cash flows.* Now inagine how much better it would be if you could invest in higher return assets, didn't have to put up any expensive equity capital, and got to keep the insurer's profits.
I mostly agree with what you are saying Brewer, but I think you are leaving out the benefit of (other's) mortality, which partially flows to you and partially to the insurance company. If you invest in bonds yourself you don't get the pooled money of everyone who "drops out." The questions then become: 1. how much do you value money left over after you die? 2. are the expenses of the insurance company high or low compared to the assumed mortality of your cohort?

One way to get around the low asset returns problem that you mention is to invest in the "variable payout" immediate annuity. I haven't looked into it closely, but it looks like a 55 yr old can get something like a 5.7% payout with a 3.5% (+0.5% expenses) return assumption. That looks to me like you're getting 1.7% of spending to give up your remaining assets on death (and still keep all the investment risk and reward). Has anyone purchased or thought carefully about this option?

Finally agree that the older you are the more an annuity will make sense. The mortality on a 55 yr old is something like 0.7% (and assumed to be a lot lower for annuity purchasers), while the expenses appear to be about 0.5%, so you aren't gaining much at all. Ten years older mortality will be quite a bit higher, and rapidly rising to be well over the 0.5% expenses, so you are going to get a much larger benefit from the annuity.
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Re: immediate annuity (again)
Old 09-21-2006, 01:04 PM   #71
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Re: immediate annuity (again)

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Originally Posted by bongo2
I mostly agree with what you are saying Brewer, but I think you are leaving out the benefit of (other's) mortality, which partially flows to you and partially to the insurance company.* If you invest in bonds yourself you don't get the pooled money of everyone who "drops out."* The questions then become: 1. how much do you value money left over after you die?* 2. are the expenses of the insurance company high or low compared to the assumed mortality of your cohort?
You forgot #3: How much do you value to flexibility of retaining the wad of assets that you can do what you please with?
And #4: How much do you value to potential upside on your assets?
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Re: immediate annuity (again)
Old 09-21-2006, 01:22 PM   #72
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Re: immediate annuity (again)

Quote:
Originally Posted by HaHa
Another shoot from the hip post on annuities.

Mostly we make our decisions emotionally, even if we think otherwise.
Most (ok, many) of the responses in this thread on annuities have been
shoot from the hip and emotional:

-gut dislike and mistrust of insurance companies, and a fear of
"giving up control" (wiithout considring that insurance CAN be a
good thing, a way of sharing risk, in this case the risk of "outliving
one's money")

-a well-founded consideration of the possibility of insurance company
insolvency, but without an analytical consideration of the likelihood
of this versus other types of failure (the % of failure that FIRECalc
SAYS to expect, the possibility that the historical dataset FIRECalc
uses is actually optimistic going forward, the possbility of mutual
fund company and/or brokerage insolvency)

-an insistence that the 4.4% WR I'd get in a SPIA is "not that good"
and that I can do a lot better investing myself, if I just tried a little
(without taking into consideration that the insurance company needs
to invest only to meet my median life expectancy, because of risk
pooling, whereas I need to do a bit better than that, preferring not to
assume I'll drop dead when I reach my median expectancy thank you)

-or, simply calling me "dumber than dog dung" for even considering a SPIA !

I am taking a more analytical approach. *(I think being analytical makes a
lot of sense with money). *For example, if I run FIRECalc with and without
putting 25% of my money into a SPIA, the SPIA option gives me more income
(at the 95% probability of success). *Not a lot more, BUT ... if I hit the 5%
chance of failure (or if FIRECalc is wrong), the SPIA option still leaves me with
that income (and SS). *I am using the vanilla portfolio, but I am switching
from 60% stock to 70% stock for the SPIA case (I'd need only, 3/4 as much
money in fixed-income, 30% vs 40%, since 1/4 of my income is from the
SPIA). *And I'm also assuming $16K/yr of SS starting at 62yo.


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Re: immediate annuity (again)
Old 09-21-2006, 01:29 PM   #73
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Re: immediate annuity (again)

John, you ultimately have to do what lets you sleep at night. If you are happy with your decision and can live with it, that is all that really matters. I think that is what Ha was getting at. For all the analysis we might do, you cannot escape emotion and psychological factors in these matters.

Dunno if I have said as much in the past, but if you want an educated opinion on any insurer you are considering, just ask and I will spew away.
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Re: immediate annuity (again)
Old 09-21-2006, 01:36 PM   #74
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Re: immediate annuity (again)

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Originally Posted by brewer12345
if you want an educated opinion on any insurer you are considering, just ask and I will spew away.
Thanks !
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Re: immediate annuity (again)
Old 09-21-2006, 01:37 PM   #75
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Re: immediate annuity (again)

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Originally Posted by FinanceDude
Why are we talking immediate annuities at all? Annuitization, period certain or not, it 99.99% of the time a horrible proposition. I personally would NEVER give up CONTROL of my money to an insurance company..........
Waddaya mean I promised not to get into the annnuity discussion anymore? OK, OK, I won't jump into the discussion but I want to trash the advisor for blasting his guns without adding some analysis. That is what you charge fo right?

So talk to John and explain why he is wrong about being able to safely withdraw a slightly larger yearly amount with an annuity than he can with only a self directed portfolio. By safely I am open to all the dangers and downsides that Brewer and 2B bring up. But it would be nice to hear it all articulated by a professional.

If you impress us enough with your reasoning we might be encouraged to pay for your services (no sarcastic icon implied here).
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Re: immediate annuity (again)
Old 09-21-2006, 01:46 PM   #76
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Re: immediate annuity (again)

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Originally Posted by Rich_in_Tampa
If I had 50% in an IA (which I won't), I would not have any bonds in my portfolio. How much volatility protection would your really need in that situation?
Add in a COLA, and you've described why we don't have bonds in our retirement portfolio either.
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Re: immediate annuity (again)
Old 09-21-2006, 01:56 PM   #77
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Re: immediate annuity (again)

Aaaaaah Crap - it's raining outside(so long yard work).

You sucked me in - 4.38% (dat's 4.4 handgrenade wise ) current yield FOR: !!!! Psst Wellesley!

There I said it! Is everyone happy

Don't even axe about the Norwegian widow!

Heh heh heh heh heh heh - now I'll go back to my er ah faux annuities - der pension and SS.
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Re: immediate annuity (again)
Old 09-21-2006, 02:07 PM   #78
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Re: immediate annuity (again)

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Originally Posted by unclemick2
4.38% (dat's 4.4 handgrenade wise ) current yield FOR: !!!! Psst Wellesley!
You named one fund that currently has a yield of 4.4% and THAT'S your
argument that a 4.4% SWR is easily achievable in the portfolio of a 53yo ?

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Re: immediate annuity (again)
Old 09-21-2006, 02:11 PM   #79
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Re: immediate annuity (again)

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Originally Posted by JohnEyles
You named one fund that currently has a yield of 4.4% and THAT'S your
argument that a 4.4% SWR is easily achievable in the portfolio of a 53yo ?
Yeah, Unclemick. You just came up with that fund out of the blue, didn't you.

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Re: immediate annuity (again)
Old 09-21-2006, 02:12 PM   #80
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Re: immediate annuity (again)

Quote:
Originally Posted by JohnEyles
You named one fund that currently has a yield of 4.4% and THAT'S your
argument that a 4.4% SWR is easily achievable in the portfolio of a 53yo ?
A bit touchy, are we?

UM was pointing out in his inimitable way that if you an restrict yourself to just spending dividend and interest income, you have a just about bulletproof portfolio.
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