Insured & Uninsured Income Streams: Combination to ensure security for retirement

[AdventuresAddict]

A lot of discussion and historical research have been done to ascertain a Safe Withdrawal Rate. Many experts even recommend that retirees should keep their nest egg in a balanced portfolio of stocks and bonds, and withdraw around 4% pa. This rate is called the swr. I beg to differ. I argue that retirees should have two streams of income: insured stream and uninsured stream.

The insured stream consists of a few annuities. The combined annuity income provided should cover the survival needs. The reason why a few annuities is chosen over just one is to reduce the insurer risk and the currency risk. For example, the few annuities may be bought from a AAA US insurer paying in US$, a AA British insurer paying in Euro, and a Swiss insurer paying in Franc. If a retiree can expect to derive US$3,000 assuming a 4% pa withdrawal rate from his nest egg, but needs just US$1,000 to survive, then he should buy a few annuities that pays at least US$1,000 + cushion of 10-20% =US$1,200/m.

The rest can then be left in an uninsured stream consisting of a balanced portfolio, from which he withdraws at a swr.

What do you think?

 

[REWahoo]

... he should buy a few annuities that pays at least US$1,000 + cushion of 10-20% =US$1,200/m.

What do you think?

I think you need to be sure you're wearing your Kevlar vest....

 

[Notmuchlonger]

Ah good old annuities. Been awhile since this has been discussed.

God Bless

 

[Alan]

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
US Company pension starts age 55
UK Company pension paid in GBP, collecting now.
2nd UK pension paid in GBP, starts age 65
UK Gov. Pension starts age 67

I definitely feel much better with so many irons in the fire (pun intended)

I can't honestly say if I would buy annuities if SS was my only source of income. I would think not.

 

[CuppaJoe]

I have more than enough in "annuities" with SS and a small (really small) pension annuity off in the future. I can implement my own idea of "annuity" from my nest egg.

edited to remove nasty name calling of OP, sorry, I believe I agreed not to do that when I signed on here.

 

[AdventuresAddict]

I am a financial planner by training. I think it's important to have at least an insured stream of income. Leaving everything into a portfolio of just stocks and bonds and assuming a swr of 4% is quite dangerous, because, as the fine prints on the prospectuses always say, "Past performance is no guarantee of future performance." For most individuals, our nest egg is too small to self-insure the risk of the underpeformance (of a balanced portfolio), so I think it'd be logical to transfer this risk to stronger institutions, which are the insurance companies. And, if you argue that your nest egg is too small to allow an allocation to purchase annuities to insure a stream of survival income, then I'd think you really need to accumulate more savings before going for full retirement. Retiring with an insured stream of survival income is as good as not having an insurance for other areas of risk such as medical expenses, mortgage, disability, etc.

 

[OAG]

I am a financial planner by training. I think it's important to have at least an insured stream of income. Leaving everything into a portfolio of just stocks and bonds and assuming a swr of 4% is quite dangerous, because, as the fine prints on the prospectuses always say, "Past performance is no guarantee of future performance." For most individuals, our nest egg is too small to self-insure the risk of the underpeformance (of a balanced portfolio), so I think it'd be logical to transfer this risk to stronger institutions, which are the insurance companies. And, if you argue that your nest egg is too small to allow an allocation to purchase annuities to insure a stream of survival income, then I'd think you really need to accumulate more savings before going for full retirement. Retiring with an insured stream of survival income is as good as not having an insurance for other areas of risk such as medical expenses, mortgage, disability, etc.

Would you recommend an annuity for someone who:

Has a US fully COLA'd Payment of 110% of all living expenses.
Has another US fully COLA'd Payment (SS) that would, if necessary, cover another approximately 66% of all living expenses.

Those two cover current living expenses to the tune of close to 175%.

Additionally, a taxable CD LADDER that equals interest income that would cover about another 60% of living expenses.

Another CD LADDER in IRA's both Traditional and Roth that would pay about 35% of living expenses.

Both of the above CD ladders are phased over the next 7 years at a rate of 5.8%.

Now the total payout of all of the above is roughly 300% of living expenses.

Medical Expenses are covered 100% no copay or any other costs, home is paid for, 3 year old car is paid for, no other debt.

If your would recommend any annuity for this couple? If so, what type, size and nationality of one would you recommend, hypothetically speaking?

 

[REWahoo]

AAddict, you registered as a new member today, posted 5 times within four hours, mentioning in the first four of them you are a financial planner (located in Singapore) and/or touting the need for ER's to purchase annuities.

By any chance you wouldn't be winding up for a sales pitch would you? If so, you can save yourself further time and effort since the mods here won't tolerate spam.

 

[M Paquette]

I am a financial planner by training. I think it's important to have at least an insured stream of income. Leaving everything into a portfolio of just stocks and bonds and assuming a swr of 4% is quite dangerous...

Oh, my.

Gentlemen and Ladies, the Firing Range is now open.

And remember, when you see the flash, "Duck and Cover!"

"Duck and Cover!"

 

[brewer12345]

I am thinking spam.

 

[unclemick]

I'm thinking Bill William and Billy Mac debates back at the old rocket plant circa 79-early eighties. We 'Provincials' used to love to pick on the Brit's - Billy Mac being a Scot(with a GE pension from previous service) took our side.

Swiss annuities - nobody would defend the British pound/onerous taxes and Margret Thatcher was new in the trenches.The debate was couched in currency term's a lot - no Euro back then, the pound was iffy, the Brit's hung their hat on the Swiss Franc immediate annuities(currency being more trust worthy than a govt inflation adjustment) whereas we Americans (aka da Provincials) were dumb for trusting the govt(SS only no inflation bonds back then) and the company(we had defined pensions plus 401k's) let alone the American buck.

So debate aside - the long run since 'the death of equities' circa 1982 plus declining interest rate long term - was a big big help.

Dumb or lucky? And how much currency defense do I need to cover my core expenses in Kansas?

heh heh heh - Billy Mac was old enough back then(he flew Mosquito's? in the Battle of Britain) - he used to get his jollies off saying it was the free Polish pilots that saved their butt. sooo - skins and shirts?

 

[unclemick]

Rats! - pssst Wellesley - current yield 4.26% as of Friday.

So what's the current yield of your portfolio?

heh heh heh - almost forgot.

 

[AdventuresAddict]

AAddict, you registered as a new member today, posted 5 times within four hours, mentioning in the first four of them you are a financial planner (located in Singapore) and/or touting the need for ER's to purchase annuities.

By any chance you wouldn't be winding up for a sales pitch would you? If so, you can save yourself further time and effort since the mods here won't tolerate spam.

Nope. I won't sell here, and it's against the US regulations anyway for people from outside US to sell to Americans many US financial products, which are marketed in Singapore. Anyway, the reason I suggested having some annuities has been explained: it's an insured stream of income source. Whether you agree or not really depends on yourselves. And, if you are looking for some financial products like annuities, please don't ask me to recommend any company. I won't sell and I won't recommend. You've got to ask your own financial planner for advice.

 

[AdventuresAddict]

Would you recommend an annuity for someone who:

Has a US fully COLA'd Payment of 110% of all living expenses.
Has another US fully COLA'd Payment (SS) that would, if necessary, cover another approximately 66% of all living expenses.

Those two cover current living expenses to the tune of close to 175%.

Additionally, a taxable CD LADDER that equals interest income that would cover about another 60% of living expenses.

Another CD LADDER in IRA's both Traditional and Roth that would pay about 35% of living expenses.

Both of the above CD ladders are phased over the next 7 years at a rate of 5.8%.

Now the total payout of all of the above is roughly 300% of living expenses.

Medical Expenses are covered 100% no copay or any other costs, home is paid for, 3 year old car is paid for, no other debt.

If your would recommend any annuity for this couple? If so, what type, size and nationality of one would you recommend, hypothetically speaking?

As I said, for specific recommendations, please find your own financial planner and do a comprehensive assessment. My general argument is that for people who are retiring, putting everything into an uninsured portfolio may not be a good strategy from a risk management perspective.

 

[OAG]

So why are your here? Not to sell, not to recommend, not to suggest, maybe you could explain the why? I am not a FA and have no training as such, but putting all your eggs in one basket has NEVER been a good strategy IMHO.

 

[chinaco]

Thanks for enlightening us! Please share your creds.

 

[REWahoo]

You've got to ask your own financial planner for advice.

You've really not spent any time at all reading this forum have you? If so, you'd realize the typical poster here is a DIY type who views financial planners/advisers as an unnecessary expense item.

 

[FinanceDude]

Would you recommend an annuity for someone who:

Has a US fully COLA'd Payment of 110% of all living expenses.
Has another US fully COLA'd Payment (SS) that would, if necessary, cover another approximately 66% of all living expenses.

Those two cover current living expenses to the tune of close to 175%.

Additionally, a taxable CD LADDER that equals interest income that would cover about another 60% of living expenses.

Another CD LADDER in IRA's both Traditional and Roth that would pay about 35% of living expenses.

Both of the above CD ladders are phased over the next 7 years at a rate of 5.8%.

Now the total payout of all of the above is roughly 300% of living expenses.

Medical Expenses are covered 100% no copay or any other costs, home is paid for, 3 year old car is paid for, no other debt.

If your would recommend any annuity for this couple? If so, what type, size and nationality of one would you recommend, hypothetically speaking?

No annuities, you already own two, however, I would not consider SS a "fully COLA'D" annuity..........

 

[FinanceDude]

Nope. I won't sell here, and it's against the US regulations anyway for people from outside US to sell to Americans many US financial products, which are marketed in Singapore. Anyway, the reason I suggested having some annuities has been explained: it's an insured stream of income source. Whether you agree or not really depends on yourselves. And, if you are looking for some financial products like annuities, please don't ask me to recommend any company. I won't sell and I won't recommend. You've got to ask your own financial planner for advice.

Then why are you here? Besides, you need to learn how to use the "search function" on here, this topic has been discussed ad nauseum for some time..........

I am sure there are MANY THINGS available in Singapore that are not available in the USA............I'll just leave it at that.........

 

[Dawg52]

Rats! - pssst Wellesley - current yield 4.26% as of Friday.

So what's the current yield of your portfolio?

heh heh heh - almost forgot.

Just curious, why did you get out of Wellesley?

 

[REWahoo]

Just curious, why did you get out of Wellesley?

I didn't understand unclemic's post as saying he'd gotten out of Wellesley, rather that he'd forgotten to mention it in his prior post. 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...

 

[Delawaredave5]

I am a financial planner by training

Please go spam other boards.

 

[unclemick]

Just curious, why did you get out of Wellesley?

Religious conversion - I read Bogle's first book circa 1994 convinced my oldest nephew out of the Naval academy to read the book/do the TSP version of indexing. (Index 500 type fund).

Then I realized/suffered an epiphany that my 7-8 slice and dice Vanguard funds(big chunk of Wellesley) could be combined into the new LifeStrategy funds and I could dodge the emotion(that you are not supposed to have) of rebalancing. Without calculating too close - hindsight handgrenade wise said my track record going back to 1966 was less than stellar being a posterboy for every investment mistake in the book except perhaps commodities.

Thus an indexer/auto rebalancer via balanced index. Still you can't quell all the hormones - bought widow and orphan dividend stocks(many from Wellesley's top ten) on the side.

heh heh heh - so after I convinced the nephew, my sales pitch convinced myself - became a born again Boglehead with lapses into sin - a few good stocks.

Then coming up on 2006 I convinced a female friend to go Target Retirement 2015. After I convinced her - convinced myself and went even more full auto 2015 for me. I had slipped over the years 1995 - 2005, by adding in VG REIT Index, Sm Cap Value. Bernstein's pesky value premium influence again. I rebaptized myself with 2015. Let's hope all my future sin is confined to individual stocks and kept under control. .

 

[W2R]

Religious conversion - I read Bogle's first book circa 1994 convinced my oldest nephew out of the Naval academy to read the book/do the TSP version of indexing. (Index 500 type fund).

Then I realized/suffered an epiphany that my 7-8 slice and dice Vanguard funds(big chunk of Wellesley) could be combined into the new LifeStrategy funds and I could dodge the emotion(that you are not supposed to have) of rebalancing. Without calculating too close - hindsight handgrenade wise said my track record going back to 1966 was less than stellar being a posterboy for every investment mistake in the book except perhaps commodities.

Thus an indexer/auto rebalancer via balanced index. Still you can't quell all the hormones - bought widow and orphan dividend stocks(many from Wellesley's top ten) on the side.

heh heh heh - so after I convinced the nephew, my sales pitch convinced myself - became a born again Boglehead with lapses into sin - a few good stocks.

Then coming up on 2006 I convinced a female friend to go Target Retirement 2015. After I convinced her - convinced myself and went even more full auto 2015 for me. I had slipped over the years 1995 - 2005, by adding in VG REIT Index, Sm Cap Value. Bernstein's pesky value premium influence again. I rebaptized myself with 2015. Let's hope all my future sin is confined to individual stocks and kept under control. .

I'm glad to read that your reasons for selling Wellesley were (I guess?) pretty much that you wanted everything in 2015 so that you didn't have to rebalance any more, and not that your move was due to something wrong with Wellesley. I bought what to me is a huge chunk of Wellesley within the past month.

So far, so good and I like the way it doesn't move as drastically as the all equity funds. Definitely a sleep aid.

 

[Ed_The_Gypsy]

Assertion: Annuities!!!
Rebuttal: Baldwin United. Reading and Bates.