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Re: immediate annuity (again)
Old 09-21-2006, 02:20 PM   #81
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Re: immediate annuity (again)

Quote:
Originally Posted by unclemick2
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.
Yup, your right. I could put all my taxable funds in Wellesley and it would yield more than enough for me to live on. Put my 401k/IRA in growth funds for future use. Take social security at 62 which reduces what I need from my investments. Hmmmm........sounds like a plan. That would put my overall mix at roughly 55/45 which is what most 'experts' recommend anyway. *

Post your address UM so I can send you a check for the investment advice.*
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Re: immediate annuity (again)
Old 09-21-2006, 02:35 PM   #82
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Re: immediate annuity (again)

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Originally Posted by REWahoo!
Yeah, Unclemick.* You just came up with that fund out of the blue, didn't you.*

Now now - the old timers know I stole that one from CFB.

Alas it's only been around since 1970 so at 35 years it suffers from recency and requires an act of faith to believe(like De Gaul) not silly numbers.

Have I got em all in yet Or should I toss in Buffett's 1984 Columbia speech on the Superinvestor's of Graham and Doddsville in the appendix of the 4th edition of Ben Graham's Intelligent Investor.

heh heh heh heh - mowing wet grass may not be that hard after all.

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Re: immediate annuity (again)
Old 09-21-2006, 03:10 PM   #83
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Re: immediate annuity (again)

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Originally Posted by donheff
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).
Ok.........I'll bite:

Since I have no friends on this board anyway, I'm not taking the risk of pissing anyone off................

I understand John's reasoning about why it sounds good to go the immediate annuity route. *"Guaranteed payments regardless of market conditions" sounds great these days.........as a matter off fact, annuity sales of all types are up. *But, times and things change. *

Today, you don't have to give up control to in effect have the same benefits as SPIA without giving up control. *I'll illustrate a couple points:

1)The prevalent thnking on this board is to invest in low-cost index funds through Vanguard and take a fixed withdrawal rate of 4% or less for the rest of your life. *It all sounds good, if we're looking at the same average returns every year, something most software will do. *Run Monte Carlo simulations on various periods in the market, and it may surprise you. *Today, more than ever, people like "guarantees". *Ask anyone getting a federal pension or Social Security if they would like that monthly amount to swing a lot up and down, and I'll bet the answer is a resounding NO!!!

2)In the "olden days" we all read about the 80 year old "little old lady" that gave her life savings to "mean and heartless insurance company A", and then died suddenly after annuitizing and getting ONE payment. *Then her beneficiaries found out the insurance company got to keep all the money! *I guess that's about when "period certain" became all the rage, and people have been hating on annuities ever since. *Of course, to be fair, the LOVE for CD's from banks is so far beyond my understanding it's crazy......but I digress..............

3)It is true that annuities that allow market participation have high expenses called M&E that go to pay for the agent's commissions. etc. *And I agree that they are sold, not bought for the most part. *I have seen a number of egregious behavior in the scenarios they were sold in, and also where they have helped. *I am not an annuity fanatic but they have their place in the marketplace. *

4)Today's Variable Annuities, from reputable companies, allow you to control your money, while giving downside risk protection, and use portfolio models designed to mitigate risk. *The biggest use of VA's is for rollover IRA's. *The feds are looking hard at this because the haters keep saying that advisors are greedy SOB's because they know you can't "double dip" on tax deferral. *So why do it at all? *Well, in a *growing way, pensions are dying, so the worker has to take responsibility for saving enough money to last them through retirement. *So, after working for 40 years, and switching jobs a few times, now they have $300,000 to last them, along with Social Security of $20 K a year. *And you know what? *They want that $300,000 to give them a GUARANTEED return. *They don't care AS MUCH about the percentage point return they want the SECURITY of the guaranteed return. *When I worked in a bank, I saw millions and millions of dollars invest in IRA CD's...............that's the real world, folks................ as sad as it appears...........

5)My control issue is just that, control. *Everyone that's read this thread knows the insurance company takes the lump sum, throws it in their general fund, overlays an actuarial table, and voila! *You're good to go. *If you do the math, you'll find it takes 13-15 years of "not dying" to get your money back. *A GREAT deal for the insurance folks who have your money, no so good for you.

6)For John's dilemna: *Do what you want, because it's YOUR MONEY. *If an SPIA lets you sleep well at night, then so be it. *What I was articulating above is in my experience, I have never seen immediate annuities as a "must-have" for anyone. *I have never seen a scenario where other options that keep the investor in control could not be used.

If you have enough safety net, it could be an option. *However, if it were my money, I woudl want the flexibility to get a chunk of "my money" when and if I needed it due to unforeseen events.

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Re: immediate annuity (again)
Old 09-21-2006, 03:25 PM   #84
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Re: immediate annuity (again)

Quote:
Originally Posted by FinanceDude
4)Today's Variable Annuities, from reputable companies, allow you to control your money, while giving downside risk protection, and use portfolio models designed to mitigate risk. *The biggest use of VA's is for rollover IRA's. *The feds are looking hard at this because the haters keep saying that advisors are greedy SOB's because they know you can't "double dip" on tax deferral. *So why do it at all? *Well, in a *growing way, pensions are dying, so the worker has to take responsibility for saving enough money to last them through retirement. *So, after working for 40 years, and switching jobs a few times, now they have $300,000 to last them, along with Social Security of $20 K a year. *And you know what? *They want that $300,000 to give them a GUARANTEED return. *They don't care AS MUCH about the percentage point return they want the SECURITY of the guaranteed return. *When I worked in a bank, I saw millions and millions of dollars invest in IRA CD's...............that's the real world, folks................ as sad as it appears...........
I am curious about how you think about this. Since most of the VAs with secondary guarantees have truly horrific fees when fully loaded (300+BP not uncommon/out of the question), I could just about never recommend one of these piggies in good conscience. How do you square the outsized expense ratio with doing what is right for your clients? This isn't meant as an attack; I am genuinely curious.
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Re: immediate annuity (again)
Old 09-21-2006, 04:12 PM   #85
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Re: immediate annuity (again)

I agree with that. The expenses are high, between 2.50 and 3.00 percent on average. Most of the models are designed to return 6-7% net of the M&E, so it's not great. I've had many thoughts, out loud and otherwise, about it.

Basically, it's about 1% a year more than managed accounts, and taking Vanguard out of the picture, and about 1.50% more than mutual funds. And what you get for that is:

1)Guarantee of principal, albeit based upon the strength of the creditor.

2)A guaranteed income stream you can't outlive, that has the potential to let you take more money in the future

3)Automomatically rebalanced portfolios that step-up in good years, and create a floor regardless of market conditions.

4)Some have riders you can put on that pay the taxes on distributions, etc.

I think the big thing is the guaranteed income streams. For instance, Hartford just came out with a 6% withdrawal rate for life at age 65. So, in effect, you get to take 6% a year without affecting principal for life............although if you like after-tax, it is of course less............

I guess peace of mind is never free....................
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Re: immediate annuity (again)
Old 09-21-2006, 04:35 PM   #86
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Re: immediate annuity (again)

Quote:
Originally Posted by FinanceDude
I agree with that.* The expenses are high, between 2.50 and 3.00 percent on average.* Most of the models are designed to return 6-7% net of the M&E, so it's not great.* I've had many thoughts, out loud and otherwise, about it.

Basically, it's about 1% a year more than managed accounts, and taking Vanguard out of the picture, and about 1.50% more than mutual funds.* And what you get for that is:

1)Guarantee of principal, albeit based upon the strength of the creditor.

2)A guaranteed income stream you can't outlive, that has the potential to let you take more money in the future

3)Automomatically rebalanced portfolios that step-up in good years, and create a floor regardless of market conditions.

4)Some have riders you can put on that pay the taxes on distributions, etc.

I think the big thing is the guaranteed income streams.* For instance, Hartford just came out with a 6% withdrawal rate for life at age 65.* So, in effect, you get to take 6% a year without affecting principal for life............although if you like after-tax, it is of course less............

I guess peace of mind is never free....................
Forget about buying these- tell me how I can get in on selling them!

You got me drooling here in cyberspace; imagine what I could do in person to Joe Millionaire.*

Yahoo! Forget SWR, I'm gonna get me a Boxter and some young chicks!

Ha
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Re: immediate annuity (again)
Old 09-21-2006, 04:46 PM   #87
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Re: immediate annuity (again)

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But maybe you shouldn't admit to being a "financial advisor" around here. It's a bit like saying you are an astrologer.
now you're giving astrologers a bad name!
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Re: immediate annuity (again)
Old 09-21-2006, 06:10 PM   #88
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Re: immediate annuity (again)

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Originally Posted by FinanceDude
I guess peace of mind is never free....................
My fundamental objection is insurance being sold as an investment, without emphasizing the fact that it may be neither.
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Re: immediate annuity (again)
Old 09-22-2006, 12:51 AM   #89
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Re: immediate annuity (again)

Quote:
Originally Posted by brewer12345
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.
Hmm, so the idea is that the NAV will keep up with inflation even in income
funds (and without DRIP'ing), so if you can live off dividend+interest you
are cool ? And if those are 4+%, presto !

Most of my taxable account investments are less income-producing, but much
is cash too. Should I gradually start spending the cash in the near-term, until
I can start tapping tax-advantaged money too, and also gradually sell those
growth type stocks and stock funds to the extent I can stay in the ultra-low
cap-gains brackets, and use the proceeds to move into balanced income
funds like Wellesley ?
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Re: immediate annuity (again)
Old 09-22-2006, 05:41 AM   #90
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Re: immediate annuity (again)

We tossed this discussion around many times in other topics. The
bottom line was that you need to have a need for an immeadiate annuity and most of us here don't so they are shunned overall.

The bottom line for the people who would benefit was it would allow them a higher yearly income for life than they can do laddering bonds and cd's on their own.

The insurance companies dont make much money investing your money over and above what your getting if you live. . They are making their money and paying you more based on those that have died. Thats why you cant compete with doing it on your own. You dont have those big bucks coming in from the dead pool.

These immeadiate annuties are the opposite of life insurance. Life insurance is a bet by you* that you will die. Immeadiate annuties are a bet by you that you will live.

So bottom line is if you care more about having a higher withdrawl rate than heirs and if you think you will live than an immeadiate annuity will benefit you. Just do your homework, you need a good secure company and watch the rate and fees.
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Re: immediate annuity (again)
Old 09-22-2006, 06:36 AM   #91
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Re: immediate annuity (again)

Quote:
Originally Posted by FinanceDude

4)Today's Variable Annuities, from reputable companies, allow you to control your money, while giving downside risk protection, and use portfolio models designed to mitigate risk. The biggest use of VA's is for rollover IRA's. The feds are looking hard at this because the haters keep saying that advisors are greedy SOB's because they know you can't "double dip" on tax deferral. So why do it at all? Well, in a growing way, pensions are dying, so the worker has to take responsibility for saving enough money to last them through retirement. So, after working for 40 years, and switching jobs a few times, now they have $300,000 to last them, along with Social Security of $20 K a year. And you know what? They want that $300,000 to give them a GUARANTEED return. They don't care AS MUCH about the percentage point return they want the SECURITY of the guaranteed return. When I worked in a bank, I saw millions and millions of dollars invest in IRA CD's...............that's the real world, folks................ as sad as it appears...........
I will bite on your post also... and I do not know what kind of FinanceDude you are, but I bet a salesman....

Why buy an annuity (variable or not) if you do not want an income stream NOW in your example, you have a tax deferred account in a tax deferred account with a HUGH fee... just roll the dang IRA into a standard IRA account... if you WANT that guarantee... when you are ready to get your income stream started THEN buy an annuity with the bigger hunk of cash you have.. there is NO good reason to buy an annuity with IRA, 401 or 403 money... NONE.... EVER...

As for the OP... an annuity is not the best.. but HE has another need that has nothing to do with the calculated return.. he wants to sleep at night and an annuity will allow him to do so... that is enough in my book to buy one.. For some reason, some people need a check every month to tell them what they can spend... that is fine.. arrange for that check and sleep well... but you can not rationalize that it is the 'better investment' from a money point of view..
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Re: immediate annuity (again)
Old 09-22-2006, 09:32 AM   #92
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Re: immediate annuity (again)

I don't recall EVER saying to buy an annuity of ANY kind if YOU DON'T NEED IT................

All I was trying to get across was that SOME people want peace of mind so much they are willing to pay a lot for it, and that is THEIR emotional issue, NOT mine.* MOST people (outside of the folks on this board) will need to draw money from their IRA's immediately after retirement...........which is reality for the 95% of Americans not doing LBYM...............

As brewster has pointed out many times, most folks on here will never hire someone like me to manage their money, and that's fine.* As far as the Porsche Boxter and hot chicks thing, I have yet to see that come true.............
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Re: immediate annuity (again)
Old 09-22-2006, 10:37 AM   #93
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Re: immediate annuity (again)

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Originally Posted by mathjak107
So bottom line is if you care more about having a higher withdrawl rate than heirs and if you think you will live than an immeadiate annuity will benefit you. Just do your homework, you need a good secure company and watch the rate and fees.
Nice summary, mathjak.

Ha
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Re: immediate annuity (again)
Old 09-22-2006, 11:05 AM   #94
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Re: immediate annuity (again)

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Originally Posted by JohnEyles
Hmm, so the idea is that the NAV will keep up with inflation even in income funds (and without DRIP'ing), so if you can live off dividend+interest you are cool ? And if those are 4+%, presto !
I'm not UM, but my impression from his posts is... no.

He's advocating living off the dividend/interest income without having to touch the principal. His investments (many of them DRIPs, most of the recent ones in Vanguard Target funds & Wellesley) throw off enough income and raise their dividends at least as fast as inflation for his strategy to succeed. So for his situation, NAV is irrelevant. Of course he also lives a pretty low-maintenance lifestyle.

Some financial analysts claim that an income-only don't-touch-the-principal policy requires an ER portfolio of 33x spending (3.3% SWR) instead of the more commonly touted 25x (4% SWR). When the range of SWR numbers varies from 3-5% it's hard to get excited about the second decimal place.

Quote:
Originally Posted by JohnEyles
Most of my taxable account investments are less income-producing, but much is cash too. Should I gradually start spending the cash in the near-term, until I can start tapping tax-advantaged money too, and also gradually sell those growth type stocks and stock funds to the extent I can stay in the ultra-low cap-gains brackets, and use the proceeds to move into balanced income funds like Wellesley ?
I think that you should choose an asset allocation, invest your money in it, and come up with a spending plan that preserves your desired allocation. You need to make choices that help you sleep at night, so those choices may be made at least as much on an emotional basis as on a financial one. If a SPIA makes you sleep better at night, then buy one along with whatever else you deem appropriate.

The reason that this somewhat unhelpful answer is given out is because many posters ask for advice, eagerly implement it, and then abandon it at the first hint of adversity. They understand how to implement the advice but they don't understand why or how that advice is appropriate for their situation. Many posters also don't lay bare all the details of their financial situation, and something seemingly irrelevant (or private) to them may have an impact on the advice that should have been given.

If you educate yourself and determine the asset allocation that works for you then you won't feel like you're being buffetted by the contrary opinions of a bunch of Internet strangers or an uncaring market. Educating yourself, choosing that plan, and implementing it is more important than making your investment decisions for tax strategies.

If your portfolio is far away from your desired end state then you should get it done and not delay for tax concerns. If your portfolio isn't too far away from your goal then you could take a little more time. However if you stick with whatever system you choose for the next couple decades, then delaying its implementation for tax concerns won't make a significant difference.
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Re: immediate annuity (again)
Old 09-22-2006, 11:32 AM   #95
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Re: immediate annuity (again)

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Nice summary, mathjak.

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Re: immediate annuity (again)
Old 09-22-2006, 12:20 PM   #96
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Re: immediate annuity (again)

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Originally Posted by Texas Proud
I will bite on your post also... and I do not know what kind of FinanceDude you are, but I bet a salesman....
And you need to understand, as I am sure you do, that there is a world of reality OUTSIDE of this forum, with real folks and real lives.......... : :
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Re: immediate annuity (again)
Old 09-22-2006, 12:28 PM   #97
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Re: immediate annuity (again)

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And you need to understand, as I am sure you do, that there is a world of reality OUTSIDE of this forum, with real folks and real lives.......... : :
I invest, therefore I am
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Re: immediate annuity (again)
Old 09-22-2006, 12:32 PM   #98
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Re: immediate annuity (again)

My ex is a great example of a prime example of *someone an immeadiate annuity would be perfect for. Shes a spender and blew thru quite a bit of the dough from our divorce. She will need every bit of income she can muster when she retires. For her she could take a portion of her money and use an immeadiate annuity to increase her wihdrawl rate. Heirs isnt a factor as my current wife and i will leave the kids in great shape. Her concern is making ends meet.
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Re: immediate annuity (again)
Old 09-22-2006, 12:44 PM   #99
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Re: immediate annuity (again)

Quote:
Originally Posted by mathjak107
My ex is a great example of a prime example of *someone an immeadiate annuity would be perfect for. Shes a spender and blew thru quite a bit of the dough from our divorce. She will need every bit of income she can muster when she retires. For her she could take a portion of her money and use an immeadiate annuity to increase her wihdrawl rate. Heirs isnt a factor as my current wife and i will leave the kids in great shape. Her concern is making ends meet.
Sounds like her and you had different ideas on retirement.............

On another sad note, Primerica struck one of my client's mom, taking her entire settlement check from a malpractice suit, and putting it into a 9 year surrender annuity................and she's 50, and needs money to help make ends meet............

I talked to the lady............nothing I can do to help her without big penalties........
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Re: immediate annuity (again)
Old 09-22-2006, 01:53 PM   #100
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Re: immediate annuity (again)

For a time in the 80s I sold immediate annuities. My clients came from p. i. attorneys and were people who were for the most part getting settlement of severe injury judgments.

These guys got a great deal- income taxes got cut out, since the monthly payments were injury payments. The annuities were bought at great prices, since interest rates were quite high. No markets that I had access to would write a CPI linked annuity, but some would price in a specified inflation rate of increase.

These clients made out like bandits, especially since no one could steal or seduce it away from them. Neither could they drink it up or shoot it up their veins.

They all kept some out to buy a little snuggle with; but their attorneys understood them pretty well and counseled them mainly to choose the monthly payments.

Ha
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