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Old 03-09-2008, 03:01 PM   #41
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I'd like to add that with the biomedical field's rate of progression, we can only expect to live longer. So, any swr for 30 years or even 40 years are no guarantee of a secure stream of retirement income, especially for ER. For example, I plan to ER at 35, in 5 years. A 30-year stream of income can only last me till age 65, and a 40-year one, age 75. This is not even going to cover the current expected lifespan of people in developed countries such as US and Singapore. But it's different in the case of an annuity. It's a contractual obligation that an insurer must deliver the income, even if I live to 100 or more. And, looking at the present research, there is a high chance we will have the technology to extend our life beyond 100, in the next few decades. Already, better-educated people are able to extend their lifespan by improving their calories intake, antioxidants intake, health screening and illness preventions, and air and water quality. If they avoid the polluted and terrorists-targeted places, the chances of them dying early is further reduced. Today, you can buy a variety of health screening devices and kits and regularly get tested at home to discover symptoms early enough to render many diseases non-life-threatening. More vaccines are coming into the market to further prevent the occurrence of diseases in the first place. So, living today, we really have to craft a retirement plan that takes into consideration all these new factors.
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Old 03-09-2008, 03:06 PM   #42
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I'm not planning on living past 80.
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Old 03-09-2008, 03:15 PM   #43
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I am reasonably interested in the idea that the insurance companies can provide (indirect) access to long term fixed income investments that I cannot otherwise purchase for myself. I am also likewise interested in the "insurance" aspect of the annuity in that payouts are based on actuarial calculations, since if I die too soon I won't need the money anyway and if I live longer I get the benefit of the pool with others and my income continues. (At least assuming I'm willing to give up this part of my estate passing to heirs.)

I am VERY resistant and indeed openly hostile to the notion that these products are good because their premium structures "force" me to save or because they lock me in with high fees and surrender charges that they "protect" me from my emotional inclinations to make bonehead moves in the market. Insulting.
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Old 03-09-2008, 03:16 PM   #44
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Heheh, I love the contradictions here. We are all idiots, so we should all buy some annuities. Yet we are apparently also smart enough to make lifestyle choices that extend our lifespans.

We should be afraid (very) because CDOs (?) and other instruments are spreading and volatility is higher than in the recent past. Yet this will mysteriously fail to affect the creditworthiness of insurance companies that will sell us annuities. Amazing.
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Old 03-09-2008, 03:20 PM   #45
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Are you less than four years old? Google for the AMP failure in Britain in 2003.


Translation for the layman: Individual investors are idiots. Only a planner can save an idiot investor.

Where do they manufacture this bumf?
Quote:

CNN.com - AMP blames UK market flaws - May. 15, 2003

Earlier this month, AMP announced a demerger in which it said it would hive off its loss-making UK operations into a separate listed business and take a writedown of Aust. $2.6 billion ($1.7 billion).

It also raised A$1.2 billion in fresh capital from institutional investors at A$5.50 -- shares that are already down about 8 percent.
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I haven't heard of any Singaporean, UK or Swiss insurance company that have gone bankrupt and are unable to meet its obligations since I was born.


If you want to show that you are older than 3yo, can you show that AMP's insurance policies do not deliver their obligations?
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Old 03-09-2008, 03:21 PM   #46
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So I give up on Kansas - move to Puerto Vallarta or Cabo - buy some immediate annuities in Euro's, Swiss Franc's, Singaphore $, - and have my American SS.

If I'm not as dumb as O.J. - I'm good to go from 64 to when I croak with not too much fear from the French problem my fellow Brit's feared in the 80's. I.E. pension/inflation adjustment in home currency while you lived in another country/another inflation rate/variable currency conversion over time.

This has better odds ? than a worldwide diversified portfolio - with a current yield of 3% (U.S. $). I'm thinking of a Swede who posts at Raddr's forum.

heh heh heh - .
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Old 03-09-2008, 03:30 PM   #47
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I plan to ER at 35, in 5 years. A 30-year stream of income can only last me till age 65, and a 40-year one, age 75.
With these kinds of timeframes, isn't inflation protection going to be important? I'm not aware of many offering inflation protected immediate annuities to 35 year olds and those that are offer payouts on the order of 3.3% which seems a lot to pay for transferring the risk. Where would I look to find such a product with better payouts.
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Old 03-09-2008, 03:30 PM   #48
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Heheh, I love the contradictions here. We are all idiots, so we should all buy some annuities. Yet we are apparently also smart enough to make lifestyle choices that extend our lifespans.

We should be afraid (very) because CDOs (?) and other instruments are spreading and volatility is higher than in the recent past. Yet this will mysteriously fail to affect the creditworthiness of insurance companies that will sell us annuities. Amazing.
Insurance companies should be affected by CDO failures, but the difference is that in the case of insurance companies, comparatively, more regulations are in place to curb such risks. There are capital requirements. The types of investments that may be done are also governed. There are reinsurers, guarantors and shareholders to share the risks. There is a constant flow of funds in the form of premium payment by policyholders. These make insurance companies safer than those other institutions (eg ordinary trading companies) that don't have these, or are not required to have these. Theoretically, the only risk-free investment is government bonds, because the government can print money. Beside this, all other investments carry some risk in different degrees. So the meaningful argument is not to find a 100%-risk-free non-government-bond investment. It's meaningful only if it's about risk management. In this case, diversifying a portion of your nest egg to high-quality annuities is a calculated risk. Putting everything into uninsured portfolio of stocks and bonds may not be a good idea from the perspective of sound risk management.
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Old 03-09-2008, 03:43 PM   #49
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Fair enough. For the risk adverse, immediate annuities may be a useful component to protect against longevity risk.

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Originally Posted by haha View Post
This is likely not true. For one, only a minority of insurance companies and possibly no life companies buy much in the way of stocks. They don't seem to share our touching faith in stocks as the antidote to inflation, and they have capital surplus rules to contend with.

Regulation is state by state but there will also be pools to at least partially protect policy holders in the event of insolvancy.

Lastly, as another poster mentioned above, longevity risk is the main risk being insured against when one buys an annuity. All allocation strategies that use stocks, and any liquidating TIPS strategy is vulnerable to being outlived.

Personally I don't worry much about living too long; my main concern is not living long enough. But I know that this is a concern to many others.

Ha
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Old 03-09-2008, 03:54 PM   #50
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With these kinds of timeframes, isn't inflation protection going to be important? I'm not aware of many offering inflation protected immediate annuities to 35 year olds and those that are offer payouts on the order of 3.3% which seems a lot to pay for transferring the risk. Where would I look to find such a product with better payouts.
Yup, in this case, from a financial planning perspective, I need to have more assets than 'necessary', and also use more advanced investment techniques like hedging.

Beside a portfolio of annuities, insurance and stocks and bonds, I will have an additional fund for hedging that are focused on certain sectors that I call the 'basics for survival'. When I retire, I know that some of the things are what I definitely need:
1) A roof--If I own it, I hedge the risk of not being able to rent it. I can even buy more to receive rental income, and if property prices soar, I gain even more. If not, these are just additional income.
2) Food-- Again, if I own it (stocks of companies in the food chain), I hedge the risk of not being able to buy it.
3) Healthcare--Again, if I own it (stocks of companies in the healthcare, pharmaceutical), I hedge the risk of not being able to buy it. If healthcare costs increases, I can either seek medication in cheaper places with high-quality services (eg Thailand), or pay the higher premium for my medical insurance. In this case, the expected rise in these stocks/funds could be used to offset the additional premium. I choose to use medical insurance to hedge against the inflation in healthcare costs, and healthcare stocks/ fund to hedge against the hyperinflation in the premium for these insurance.
4) Transport--Again, if I own it (stocks of companies in the energy), I hedge the risk of not being able to buy it.
5) Raw materials used to make the things I use--- Again, if I own it (stocks of companies in the natural resources), I hedge the risk of not being able to buy it.

With these, if someday the property, food (eg pork), healthcare, agricultural produce, oil or commodities happen to soar for a sustained period, then the above hedging portfolio should provide some hedging (not all forms of risks though). This is on top of what I have in the annuities portfolio that should provide an insured stream of multi-currency retirement income that is inflation-adjusted (at current rate) that should cover my basic expenses if---and only if!---things like inflation are not radical over time.

On top of these, the portfolio of diversified funds in stocks and bonds (without sectoral focus) are additional income sources. I can withdraw at a swr, say 4%, and use it for discretionary spending like traveling. When the economy is not performing well, I may delay or cancel my holiday plans in order to avoid depletion of this Additional Income Fund.

In a nutshell, in my plan, I have:
1) Annuities--survival income
2) Insurance-protection from major financial losses due to LTC, hospitalisation, etc
3) Balanced Portfolio-additional income
4) Basics for Survival Inflation Hedging- in a basket of funds focused on the sectors involved in the basic things I need for survival which may be affected by hyperinflation
5) Gold
6) Cash reserves for emergency

This means that if I want to have $40,000/y, I can't retire when I just have $1m. Probably I'd need more to allocate to the other parts of the plan other than a Balanced Fund.
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Old 03-09-2008, 04:28 PM   #51
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Insurance companies should be affected by CDO failures, but the difference is that in the case of insurance companies, comparatively, more regulations are in place to curb such risks. There are capital requirements. The types of investments that may be done are also governed. There are reinsurers, guarantors and shareholders to share the risks. There is a constant flow of funds in the form of premium payment by policyholders. These make insurance companies safer than those other institutions (eg ordinary trading companies) that don't have these, or are not required to have these. Theoretically, the only risk-free investment is government bonds, because the government can print money. Beside this, all other investments carry some risk in different degrees. So the meaningful argument is not to find a 100%-risk-free non-government-bond investment. It's meaningful only if it's about risk management. In this case, diversifying a portion of your nest egg to high-quality annuities is a calculated risk. Putting everything into uninsured portfolio of stocks and bonds may not be a good idea from the perspective of sound risk management.
Sweetheart, I have probably forgotten more about life insurers than you ever learned. I have definately seen enough of them from the inside to be very, very particular about which ones I would take exposure to and very skeptical about the value of many insurance products. While there are a lot of safeguards set up, things are not as cut and dry as you suggest.
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Old 03-09-2008, 05:03 PM   #52
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I am very fortunate to be in such a situation without having to actually buy any annuities as by my reckoning I am age 53 and have 5 annuities in the pipeline:

Soc Security (self & DW) starts any age after 62

...
I would only count social security as an annuity if you like buying them from B rated insurers. The US Government's promise of payment is suspect at best for those currently under 55.
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Old 03-09-2008, 05:15 PM   #53
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I would only count social security as an annuity if you like buying them from B rated insurers. The US Government's promise of payment is suspect at best for those currently under 55.
There is no way the US is going to default and stop paying SS. It may well get smaller but if you truly believe that SS is going to stop altogether , then you must have trouble sleeping at night.

I have a question for OP - since you are planning to retire at 35 and have annuities as an insured source of a significant slice of your needs, how much are you planning to spend on buying these annuities?
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Old 03-09-2008, 05:24 PM   #54
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No trouble sleeping at night. My retirement plans have never assumed a dime from social security. If I get any at all, it will just be extra drinking money.
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Old 03-09-2008, 05:27 PM   #55
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What do you think?
I think you might even survive the Welcome Wagon! Congrats!

I like the idea of longevity insurance, but I'm not crazy about the costs, and I'm not sure I should buy it until it's clear I'll need it.

For example, you say you want to retire at 35. Are you planning to buy an SPIA at age 35? If so, would you be happy with a 3.5% inflation-adjusted income?
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Old 03-09-2008, 05:42 PM   #56
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My retirement plans have never assumed a dime from social security. If I get any at all, it will just be extra drinking money.
Since you are eligible to receive SS in a mere 13 years you can I fully expect you will have plenty of drinking money.
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Old 03-09-2008, 06:10 PM   #57
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I am VERY resistant and indeed openly hostile to the notion that these products are good because their premium structures "force" me to save or because they lock me in with high fees and surrender charges that they "protect" me from my emotional inclinations to make bonehead moves in the market. Insulting.
Although this does not apply to you, it is established fact that it does apply to a great many people. So for the population at large this is a relevant issue.

Ha
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Old 03-09-2008, 06:14 PM   #58
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So I give up on Kansas - move to Puerto Vallarta or Cabo - buy some immediate annuities in Euro's, Swiss Franc's, Singaphore $, - and have my American SS.

If I'm not as dumb as O.J. - I'm good to go from 64 to when I croak with not too much fear from the French problem my fellow Brit's feared in the 80's. I.E. pension/inflation adjustment in home currency while you lived in another country/another inflation rate/variable currency conversion over time.

This has better odds ? than a worldwide diversified portfolio - with a current yield of 3% (U.S. $). I'm thinking of a Swede who posts at Raddr's forum.

heh heh heh - .
Uncle Mick, I know there is important information buried in this post. But it seems that you have used a cypher, and I don't have the key.

Could you help?
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Old 03-09-2008, 06:42 PM   #59
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Uncle Mick, I know there is important information buried in this post. But it seems that you have used a cypher, and I don't have the key.

Could you help?
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Of course my Sony Greenspan Translation Tricorder is only a 2005 model and isn't always 100% accurate in decoding unclemic, but it's better than nothing...
Psst. Wanna buy a slightly used Sony?
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Old 03-09-2008, 06:49 PM   #60
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You guys have been around for how many years now? And you still can't translate UM-speak?

The "Swede" refers to that Ben guy (whom I thought was a Dane). Ben likes a 10x10 allocation. UM likes the idea of living off your investment yield. Translation: diversify and live off the yield instead of buying an annuity.
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