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Old 08-05-2012, 07:02 PM   #161
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Hello rkser - I may be the wrong person to ask because I am not in finance at all, and I am one of the most conservative investors here. Additionally, I am sure other participants on this board are more willing (and able) to guide you in your choices. All I can say is :

1. after a couple of years on this website, I have discovered the importance of budgeting, interest compounding, and diversification. The deferred annuity I got is close to 12% payout in 15 years' time;

2. after several discussions about annuities in different threads, I realized I needed to optimize my retirement model from a mathematical standpoint. Instead of deciding to go down one path, I decided to adopt a hybrid approach as described above (i.e. some deferred annuities until I am 62 without exceeding $250-$300k, then large SPIAs every 10 years or so);

3. this approach might not be suitable to you if you are already in your 60s or older (in which case SPIAs may make more sense), or if you wish to leave money to heirs (I don't have children) or if you have a large SS check (I don't because I have spent many years abroad), or if you have a large pension (I don't, but I sit on a lot of cash). In my case, this hybrid approach has made it possible to increase with net withdrawal to about $90k-$100k a year on average until I reach 95;

4. when doing some research, I found out there are only three companies that are worth investigating further re: deferred annuities : Metlife, Hartford, and New York Life. I found they were more or less actuarially similar but with different timelines, etc.

I hope this helps. Please let us know what you find out.

Ob

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Hi Obgyn65 and Rescue me,

This thread has been an education to me on the often ill understood subject of annuities. I am considering annuities in my ER plan and knowing which respective annuities you both have purchased will be a great help to me and other members on the Board.

You two have obviously done an exhaustive research on this subject and if you do not mind sharing the respective specific annuity product from the specific Ins. company, I will be thankful for the benefit of knowing.

Thanks and regards
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Old 08-06-2012, 12:34 PM   #162
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You two have obviously done an exhaustive research on this subject and if you do not mind sharing the respective specific annuity product from the specific Ins. company, I will be thankful for the benefit of knowing.
I'll try to give you a summary of the process DW/I went through. Remember that it's been over five years, so hopefully I don't forget something critical.

As I said in previous posts, we had been researching the subject of annuities a few years before retirement, and certainly did not know (or understand) that there were many different products under the annuity "umbrella".

To that end, once getting a little knowledge on the subject, our first action was to determine if we even wanted an annuity (yes) and what annuity to be chosen (in our case, an SPIA).

The second thing was to define the terms of the annuity in order to meet our primary goals (to act as a pension and aid in delay of filing for SS) and under what conditions (for us, it was a joint life annuity, payments to continue at 100% for the survivor, a minimum term that was guaranteed to pay at least till the end of our computed joint lifespan, and have remaining payments go to our named beneficiary if we both passed before the minimum computed year of final benefit).

Why do you need to do this first? Simply that there are a lot of SPIA's available, but not all are created equally. Why give your money for a product that did not suit your needs?

After that, we went with http://www.immediateannuities.com/ along with contacting both FIDO and Vanguard (we invest with both companies) to get a quote and state our needs.

As it is, Vanguard offered an SPIA from one provider (MetLife, if I remember), while FIDO had five different companies that they used as "suppliers", even though the SPIA would be issued under their name.

I took the results from 3-4 companies and put the results into an Excel spreadsheet, using the IRR function (not XIRR!) to compute a return rate of the paid monthly amount vs. premium paid.

While the returns were low (due to current interest rates at the time), you must remember that unlike a CD, the principal is constantly being reduced (returned to you, on a monthly basis) so there is less money to be kept in the investment pool.

BTW, all the return rates were quite close - all just under 5%. You may not think that's much, but compare it to today, some 5 years later.

As I mentioned in an earlier post, we also took the results and plugged them into various retirement income forecast tools (our primary is FIDO's RIP tool), both reducing the value of our joint investment portfolio to reflect the preimum to be paid, along with adding an entry for the SPIA income that would simulate a fixed life pension (which an SPIA normally acts as) to validate our initial findings.

As it turned out, the best (for us) was from a company that was used by Fidelity. We filled out the application and sent it back in, and received a contract for signature within a few days. The funny thing is the same day I was to send the contract back to Fidelity, they contacted me to tell me not to sign. It turned out that one of their "suppliers" had changed their payout rate by a fraction (works the same way as a note/mortgage - rates change every week) and they were able to get me a "better deal". They sent a revised contract (overnight) and we turned it around to them in the same manner (they paid all FEDEX charges).

That, in a nutshell, is what we did for our current SPIA. While any current experience will be different (based upon companies and offerings), the background "soul searching" for a product that suits your needs should remain the same.

Good luck to you, regardless of what you decide to do in the future...
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Old 08-06-2012, 01:25 PM   #163
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Thanks

Thanks rescue me for sharing the process, the logic behind the calculations and the methods to go about it. I am sure this will be of great help to me when I file for getting my annuity and also to other board members, thank you for your help.

Thank you Obgyn, for sharing your thoughts on the subject.
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Old 08-06-2012, 03:31 PM   #164
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Hello Brewer - well I have been learning a lot about modeling from this website over the last couple of years. To answer your question, as you know, it is difficult to take inflation into account over a 40+ year retirement period and quantify it with a high degree of confidence, as discussed here in many threads and at Bogleheads also. Right now I am using 1% inflation rate for four main reasons: 1) I plan to continue with part time work (maybe one or two days a week) which would mitigate a hyperinflation risk 2) I can adapt when I stop working completely and be more frugal if the cost of living increases dramatically 3) as I get (much) older, my expenses are likely to remain stable or even go down as discussed in other threads here. 4) I also believe that I won't make it to 95, so seeing a negative cash flow balance on my last spreasheet row when I enter a 3% inflation over 48 years does not bother me too much... What about you - what inflation rate do you use and how confident are you in your approach ?

ob
I don't think there is a silver bullet on this one unless maybe you could buy an inflation adjusted SPIA from a AAA rated entity.

Personally, I choose to hedge inflation in orther ways than trying to guess what the rate will be. I invest a portion of my portfolio in commodity futures and commodity producing firms, I expect to maintain some part time work when I hang up my spurs, and I have the option to purchase additional service credit from my cash balance pension plan which offers an inflation-adjusted payout option and is a very secure plan.

Since I really don't think there is an obvious silver bullet on this one, it is more important that you are thinking about the risk and working out ways to deal with it than anything else. Your solutions seem reasonable to me.
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Old 11-23-2012, 03:08 PM   #165
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Here is a quote from a recent e-mail from Dr. Pfau. I am still very wary of annuities and can't find it within myself to either buy one or recommend one to others. But, I must admit he has me thinking I should look into this at a future time:

Quote:
In all the cases, the general shape of my efficient frontier holds up, which is that retirees may be best served by combinations of stocks and fixed SPIAs. A part of the frontier I hadn't discussed also does include that particularly risk averse retirees may benefit instead from combinations of real SPIAs and fixed SPIAs.
Here is his blog entry on the subject: Retirement Researcher Blog: An Efficient Frontier for Retirement Income
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Old 11-24-2012, 04:55 AM   #166
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according to dr pfau the inflation adjusted annuities are just way to expensive compared to the standard ones to make the adjustments worth it..
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Old 03-02-2013, 11:50 AM   #167
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Just wanted to resuscitate this thread with a new article, in case some participants are interested. It seems the deferred annuity market has been taking off nicely : The next big rollover vehicle? Longevity insurance
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Old 03-02-2013, 12:48 PM   #168
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It seems the deferred annuity market has been taking off nicely :
As measured by the number of annuity salespeople paying cash for their BMW's........
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Old 03-02-2013, 12:51 PM   #169
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according to dr pfau the inflation adjusted annuities are just way to expensive compared to the standard ones to make the adjustments worth it..
Yet, without the inflation adjustment feature, an annuity is an extremely risky investment if the objective is longevity protection.

It's a bit of a catch 22.
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Old 03-02-2013, 08:19 PM   #170
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Inflation is the reason annuities work better as vehicles for smoothing out the peaks and valleys in the markets.

if you are spending down filling the drops with a pensionized income can help. The investments run with the ball and the annuities only assist.
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