Immediate Annuity as part of your Retirement Portfolio

[freddyw]

I was curious as to how many of our retired members use an Intermediate Annuity as part of their portfolio. I am considering purchasing one and would appreciate anyone's feedback on their experience researching and purchasing an IA.

If you do have a Immediate Annuity, did you purchase one with inflation protection based on CPI-U or go with a standard fixed payment.

Lastly, what % of total portfolio is the IA?

Thanks in advance.

[travelover]

Quote:

Originally Posted by freddyw .......... I am considering purchasing one ..........

If we were fishing, I would say you are chumming.

[Gumby]

Immediate annuities are an oft-discussed subject here. Use the search function to find any number of threads.

Here's one from just last week:

http://www.early-retirement.org/foru...ity-54477.html

and another one from last month:

http://www.early-retirement.org/foru...lly-54462.html

There are many more. Read some of them first. Then ask your question. I'll bet it won't be the same question.

[rescueme]

Since you asked nice, I'll answer nice.

Yes, I/DW have one, purchased upon my retirement at age 59. It is not inflation adjusted, since it was purchased as a "pension replacement" (since I didn't have one) to primarily cover the gap from age 59 till age 70, when I will claim SS (that's another subject, completely).

Without going into details, I'll just say that an annuity - that is more specifically a Single Premium Immediate Annuity (SPIA) may have a place in your retirement income plan. Not all folks need one, and there are alternatives, based upon your risk assessment and desire to actively manage your income sources. For others, an SPIA may be the answer - as it was in our case.

Almost four years later, we have no regrets and we still have 90% of our original portfolio to manage without worrying about having sufficient ER income sources. The SPIA fits that niche quite well.

[dgoldenz]

If I were in the position to buy a SPIA, I would hold off for now. The rates are so ridiculously low that unless you have a 95+ year life expectancy, you are locking yourself into a pretty weak contract IMO. If you don't need the immediate income, I would look into an indexed annuity with a guaranteed income rider. Others on the board here will trash the idea, but it gives you the flexibility to increase cash value in the present while guaranteeing an income in the future. You can always walk away with the cash and buy a SPIA after the surrender period if interest rates rise. Just my opinion, don't want to turn this into a 5-page ELIA thread.

[freddyw]

Quote:

Originally Posted by travelover If we were fishing, I would say you are chumming.

Geez, I'm not sure how to take your response?

I'm just trying to get quality feedback from a membership that I respect and realize has alot of useful information and experience to contribute to other members of this forum.

I am researching annuities and searched this forum for related topics however, sometimes there are others out there who have not posted to a particular thread topic and could provide useful information to my questions. Sorry I asked.

[freddyw]

Quote:

Originally Posted by Gumby Immediate annuities are an oft-discussed subject here. Use the search function to find any number of threads. Here's one from just last week: http://www.early-retirement.org/foru...ity-54477.html and another one from last month: http://www.early-retirement.org/foru...lly-54462.html There are many more. Read some of them first. Then ask your question. I'll bet it won't be the same question.

Gumby
Thanks for the reply. I had read the previous posts as well as many other posts based on searching "immediate annuities" in this forum. There are alot of opinions both pro and con for a SPIA for sure. However, I am attempting to get feedback from those retired forum members who do have an IA as to the type they choose and what % it is of their total portfolio. Right now I am in the "gray zone" based on Otar's book, and considering ways to offset risk such as using a SPIA.

[travelover]

Quote:

Originally Posted by freddyw Geez, I'm not sure how to take your response? I'm just trying to get quality feedback from a membership that I respect and realize has alot of useful information and experience to contribute to other members of this forum. I am researching annuities and searched this forum for related topics however, sometimes there are others out there who have not posted to a particular thread topic and could provide useful information to my questions. Sorry I asked.

Sorry, no offense intended. It is somewhat of an inside joke here, but because annuities tend to be very profitable for the selling agent, we are constantly besieged by salesmen. Anyone posting that they want an annuity is somewhat akin to tossing blood into the water to watch the sharks work up a froth.

[Independent]

We're currently buying CPI-adjusted life annuities from the federal government. Each month that we defer SS benefits we're buying another little annuity. Our current plans are that we won't start SS until 70, but that could change with a change in health.

I think an SPIA is a fine idea, but at current prices the government's deal is better than the private annuities I've found. If the gov't didn't give us this option, I'd probably be in the private SPIA market.

If we wait till 70, our combined SS benefits will easily cover all our regular spending, and that seems like "enough" annuity to me. I wouldn't target a particular percent of my portfolio for an annuity. Instead, I put enough in to provide a particular income.

Note that if you're serious about buying a private SPIA, be sure to consider deferring to an "older" age. Unlike life insurance, you don't risk losing insurability with an SPIA

[easysurfer]

I like the idea of having a SPIA annuity. Though maybe not the best investment, it offers peace of mind.

It's kind of like having one's mortgage paid off. The certainty offers comort.

In certain times, one can get a better return having a mortgage and investing the money somewhere else. However, with a paid off mortgage, as long as you pay your taxes, no one can kick you out of your own place. As for the SPIA, when the market tanks, it sure is nice to have a constant amount of cash coming in like clockwork every month.

That said, I wouldn't get one in this climate as the interest rate is so low.

[W2R]

I am thinking of getting a fixed immediate lifetime annuity with inflation adjustment, but I will wait until I am older (80-85, maybe?) in order to take advantage of a better pay-out at that age. Interest rates might be better by that time, too.

By age 80-85, I will have a better idea of what my expenses in old age might be, too, so I'd have a better idea of what size annuity I might want.

[73ss454]

W2R, if you have a pension and it covers your expenses and you still haven't taken SS why would you want an annuity? Do you plan to spend more money at the age of 85? Annuities confuse me but I think that's the way the ins companies want it.

[W2R]

Quote:

Originally Posted by 73ss454 W2R, if you have a pension and it covers your expenses and you still haven't taken SS why would you want an annuity? Do you plan to spend more money at the age of 85? Annuities confuse me but I think that's the way the ins companies want it.

Well, maybe my expenses would be higher at that age than they are now, due to the rising cost of medical expenses and the rising proportion of those expenses that the individual is supposed to be paying. And who knows what Medicare will pay if it even exists in 20 years. I'll have a better idea when I am older.

My partially COLA'd tiny pension is in the mid 3 figures per month (gross) at present. It doesn't pay my expenses (sorry if I was misleading about that!). Once I claim SS I will be doing pretty well in that regard, relative to my present expenses, but with inflation, and cutbacks on SS cost of living increases, again we are facing the unknown 20 years from now. My objective will be to have SS+pension+annuity = expenses in old age.

[ziggy29]

Quote:

Originally Posted by 73ss454 W2R, if you have a pension and it covers your expenses and you still haven't taken SS why would you want an annuity? Do you plan to spend more money at the age of 85? Annuities confuse me but I think that's the way the ins companies want it.

All she needs to do is say "wheee!" about the market and then go immediately short. Who needs an annuity?

[Free To Canoe]

It is amazing how that Wheeeeeeeeeeeeeee! thing works!

I really wish I had more warning of the market collapse.



Free to canoe

[W2R]

Quote:

Originally Posted by Free To Canoe It is amazing how that Wheeeeeeeeeeeeeee! thing works! I really wish I had more warning of the market collapse. Free to canoe

Oh, OK, I'll work on that....

[2B]

In regards to the original post, no age was stated. In addition to the pathetic payouts at current interest rates, it always makes sense to first delay SS to 70 for the cheapest COLA'd annuity available -- if you trust the future of SS -- not a political statement but some people don't -- I personally do.

I personally recommend deferring annuity decisions until after age 70. First, death or a serious medical conditions usually says that it's a bad decision. Second, the payout after age 70 actually starts to look decent although they still don't quite match the mortality tables.

If you would like to bring up any version of variable or indexed annuities, I will assume you are a troll and suggest you put all of you free cash into them because my index funds hold stocks that fake a fortune off of people that buy them. Based on my father's and FIL's behavior, they are only bought by those with limited financial understanding or diminished mental capabilities.

[73ss454]

2B, I love the last line.

[chinaco]

I will FIRE this year. We are planning on a SPIA purchase... but will wait till the Fed is done with QE and see what happens to interest rates. We may purchase it in several smaller purchases.

I am not considering an inflation rider at this time. I am not sure it is worth the money.... but it obviously depends on future inflation which is hard to predict.

I would rather have more of the money at a younger age (in early FIRE) to reduce the WR% on our portfolio in the early years. Since most of our net worth will be in our portfolio, we will use it to deal with inflation.

[Dawg52]

Quote:

Originally Posted by W2R I am thinking of getting a fixed immediate lifetime annuity with inflation adjustment, but I will wait until I am older (80-85, maybe?) in order to take advantage of a better pay-out at that age. Interest rates might be better by that time, too. By age 80-85, I will have a better idea of what my expenses in old age might be, too, so I'd have a better idea of what size annuity I might want.

85? I hope I'm still alive at that point.