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Immediate annuity (in 5 years time) or a 5-year deferred now? (Sorry)
Old 03-24-2015, 07:01 AM   #1
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Immediate annuity (in 5 years time) or a 5-year deferred now? (Sorry)

Ive managed to save a good deal but have never been that good at handling my own investment accounts. Furthermore, I do rather desire some predictability. Eventually, Id be OK with putting about half, or more, of my worth into an annuity either an immediate annuity when I turn 62 or, in order to lock in a bit more, purchasing a 5-year deferred annuity now.
Im wondering what the thoughts here would be from those not completely adverse to annuities. Thanks.
Todays figures are these: immediate annuity ($100,000) = $954 monthly; 5-year deferred = $1,244.
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Old 03-24-2015, 07:09 AM   #2
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I'm not completely against annuities -- only 99.9% against them.

If you "have never been that good at handling (your) own investment accounts," I recommend you read Andrew Hallam's Millionaire Teacher. It will tell you everything you need to know. If you want the "advanced" version, read William Bernstein's Investors' Manifesto. Managing your own investments is not hard. Low cost index investing will work if you let it. LBYM and you'll get some actual money to invest.

Put a serious amount of your portfolio into an annuity is inviting inflation to feast on your retirement plans.
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Old 03-24-2015, 07:42 AM   #3
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Not a fan of annuities either but understand some people just don't want to manage their own investments. As far as the annuity goes all I can say is read the fine print and make sure you know what the cost is.

2B make a very salient point about inflation.
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Old 03-24-2015, 08:01 AM   #4
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My impression is that with rates so low, locking in would not be the way to go. If you must go the annuity route wait until retirement when rates will most likely be higher.
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Old 03-24-2015, 08:30 AM   #5
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Originally Posted by jfb123 View Post
Todays figures are these: immediate annuity ($100,000) = $954 monthly; 5-year deferred = $1,244.
Something seems wrong with your numbers. Is the annuity for a fixed number of years? If it were a lifetime annuity, I would expect the monthly withdrawal rate to be about half the amount your are quoting.
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Old 03-24-2015, 08:38 AM   #6
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Something seems wrong with your numbers. Is the annuity for a fixed number of years? If it were a lifetime annuity, I would expect the monthly withdrawal rate to be about half the amount your are quoting.
Agree, one would have to be about 80 years old to get that amount of income from a lifetime immediate annuity today. Someone 62 would get about $500/mo from a $100K lifetime annuity today.
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Yeah... my numbers aren't right.
Old 03-24-2015, 08:49 AM   #7
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Yeah... my numbers aren't right.

Oops, my figures above reflect a $200,000 investment (not $100,000).
Thank you for your responses. As for interest rates going up Seems like weve been praying for it so many years now.
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Old 03-24-2015, 08:53 AM   #8
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I am in the 1% that sees some benefit in SPIAs for part of my funds. I have already purchased one a few months ago and plan on laddering them annually eventually up to ~ 20 % of my funds. This represents the amount that no financial legacy is required for. Should I perish prematurely, I won't be upset.

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Old 03-24-2015, 08:54 AM   #9
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The immediate annuity ($100,000) would pay about $477 monthly whereas the deferred-for-5-year one would pay $622 or a yearly $1,740 more.
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Old 03-24-2015, 08:27 PM   #10
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I am in the 1% that sees some benefit in SPIAs for part of my funds. I have already purchased one a few months ago and plan on laddering them annually eventually up to ~ 20 % of my funds. This represents the amount that no financial legacy is required for. Should I perish prematurely, I won't be upset.

Rich
Here's another in that 1% (although I don't believe we really are 1%). I've invested about 25% of my portfolio in SPIA's and couldn't be happier. My most recent purchase is returning over 10% in distributions. It gives considerable peace of mind to have that guaranteed income coming in without regard to performance in the stock and bond markets.
Bruce
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Old 03-24-2015, 08:38 PM   #11
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Here's another in that 1% (although I don't believe we really are 1%). I've invested about 25% of my portfolio in SPIA's and couldn't be happier. My most recent purchase is returning over 10% in distributions. It gives considerable peace of mind to have that guaranteed income coming in without regard to performance in the stock and bond markets.
Bruce
Please tell us your secret on a recently purchased annuity that returns over 10%.
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Old 03-24-2015, 09:46 PM   #12
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Originally Posted by jfb123 View Post
Ive managed to save a good deal but have never been that good at handling my own investment accounts. Furthermore, I do rather desire some predictability. Eventually, Id be OK with putting about half, or more, of my worth into an annuity either an immediate annuity when I turn 62 or, in order to lock in a bit more, purchasing a 5-year deferred annuity now.
Im wondering what the thoughts here would be from those not completely adverse to annuities. Thanks.
Todays figures are these: immediate annuity ($100,000) = $954 monthly; 5-year deferred = $1,244.
I recently sat down with a Fidelity Rep and went over a similar scenario - buy a deferred annuity with IRA funds now with payments starting in 10 yrs or wait 10 yrs and buy an immediate annuity then. Assuming the actuarial tables don't change much between now and then we concluded that if I could average more than 3.9% a year on my IRA fund I would be better off waiting 10 yrs. By buying a deferred annuity today I'm guarantees an IRR of 3.9% and some peace of mind. You might want to see if you can get someone to run an analysis to see where the breakeven point is. I'm leaning towards taking my chances and investing the money myself and then buy an immediate annuity 10 yrs from now.
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Old 03-24-2015, 09:52 PM   #13
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Please tell us your secret on a recently purchased annuity that returns over 10%.
+1

I'm really curious to learn where I can get one of these.
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Old 03-24-2015, 10:02 PM   #14
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I assume you're considering FIXED annuities -vs their less up front cousin, the variable annuity.

It's a bad interest rate environment for fixed annuities... so I'd hold off. I'm not morally opposed to annuitizing a percentage of a portfolio - creating your own pension... but only with SPIAs - not variable. And even SPIAs don't make sense with our current interest rates.

I agree with the suggestion to read Millionaire Teacher as an easy read to start off your investing education. It shows how easy setting up your own investments using index funds can be.
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Old 03-24-2015, 10:11 PM   #15
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The immediate annuity ($100,000) would pay about $477 monthly whereas the deferred-for-5-year one would pay $622 or a yearly $1,740 more.
What is the question?
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Old 03-24-2015, 10:18 PM   #16
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Which is "better" (meaning, which leaves you with more money when you die) depends on what you'll earn on your other assets and how long you'll live. Both of those are unknowns. You could try a few sample calcs to see which combinations favor which product.

Annuities are generally a defensive strategy, providing an income if you have an unusually long life. They don't give the best "expected" result because the insurance company has expenses and profit goals that get buried in the pricing.

Fixed annuities get killed by inflation. So the "protection" can disappear very quickly.

There is another thread on true CPI-indexed annuities, which are the type I'd consider.

And, always, deferring SS gives you a CPI indexed annuity at a very favorable purchase price. Don't even consider a private annuity until you've committed to deferring SS.
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Old 03-25-2015, 04:03 AM   #17
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the taxing of the two are very different , deferred and immediate have different tax structure.

one thing i did find could be valuable valuable with a deferred annuity is the taxing of it in some cases.

using fidelitys retirement income planner i was able to see the taxing each year incorporated with my own rmd's at 70-1/2.

since i do have a 7 figure ira the rmds are crazy amounts.

well there is a difference in how deferred annuity's are taxed compared to immediate annuities.

deferred annuities are taxed in a way that the first withdrawals are considered the gains .

that means heavy taxes up front and less taxes each year as it is considered a pay back of principal.

what i noticed is with the deferred annuity the amount of taxable income was growing less and less as the rmds were growing more and more .

that was because we paid the bulk of the taxes on the annuity in the early years before the rmd's kicked in.

by the time the rmd's kicked in heavy that annuity was almost tax free income .

the difference in taxes really was a plus for that deferred annuity.

on the other hand an immediate annuity is taxed different . it is taxed each year as a bit of principal and a bit of interest based on a life expectancy chart the irs uses.

the rmd's when used with the immediate annuity had higher tax consequences forever once rmd's kicked in .

so here is another factor in the mix that no one can project for you unless you run the numbers yourself based on your own amounts and tax situation.
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Old 03-25-2015, 04:11 AM   #18
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the best results come from partial annuitization and equites.

looking at the prudential defined income variable annuity you see starting the annuity at 55 and deferring to 65 gives a single about 9k a year based on 100k.

it has a 5.50% guaranteed minimum growth on the money you give them up until you draw an income. it also has a variable sub account in the ast bond index.

with 2.90% in fees the bond index will likely never be higher than the minimum guaranteed growth rate.

you cannot get access to that money that is given via the growth rate. you get 1/10% a year of it for every year you delay drawing .


assuming a 50/50 mix of cash and bonds , you can see drawing 9k a year from 100k in cash and bonds would be down to zero in just a bunch of years needing refilling from stocks.

the annuity income is never reduced by the years prior spending and goes on forever requiring less equities to be sold for inflation adjusting.

that is the power in using these annuity products.

they provide higher rates of cash flow even if not a roi.

it isn't a bad deal but it really is not a variable annuity either as the name says since it is near impossible to do better in the sub account .



here is the break out of the annuity.

THIS IS FOR A SINGLE





THIS IS FOR A JOINT PLAN


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Old 03-25-2015, 05:19 AM   #19
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An annuity is just another potential tool, to be compared against or used in conjunction with other options. An annuity (generally) offers a fixed monthly payment with zero residual equity, a “risk” being the profitability of the annuity provider.



To example a comparable alternative, in 2013 we bought a small rental for $77,500, which is bringing in $805/month. After expenses it is putting in our pocket (ignoring tax write offs) a consistent $583/month. ($6996 per year.) We have the risk of no tenants, repairs, etc., but with the potential for the equity aspect of the investment increasing, available to leave to heirs.
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Old 03-25-2015, 06:37 AM   #20
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Thank you one and all for your input. The annuity would be fixed (not variable); I'm on my own, alas -- but no heirs to consider. And I'd go for the deferred, 5-year. Tax-wise, I'd never be above the 15% bracket.

I'll have very, very little coming to me in the way of SS. I've worked overseas for non-US entities most of my life.

I don't really see interest rates going up much anytime soon. But am I wrong to look at $622 on an investment of $100,000 (this would be the fixed, five-year deferred annuity) as yearly return of 7.6%?? Albeit after five years.

Thanks again everyone.

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