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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-23-2006, 08:30 PM   #61
 
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Re: Is an Annuity a good way to get over a SWR of 5%?

Quote:
Originally Posted by HaHa
I have been on this board 3.5 years. Every time this discussion has come up, I have given the comparable annuity analysis that to me seemed to strongly argue for delaying, absent unusual circumstances, or a absent a strong fear that the rules would be changed to hurt the delayers.

Mostly what I had to say was ignored- the popular sentiment was always "Take it and run. You might die before you get your pound of flesh."

Now, sentiment has come almost all the way to a majority favoring delay.

What has happened to cause this change?

Ha
I think watching the 'red states' rebuff Bush Jr. last year proved to a lot on this forum that the old adage of Social Security is the 3rd leg of politics is alive, well and will be here in the future!

I think I agreed with you in principle a few years back. Although, this is the first time that I actually have made the decision to delay myself, because I have run the numbers. I used to always look at the equation as a live to 85 to break even situation. But after looking at in the 'insurance' way, it seems to be a no-brainer to me. I have got 7 years before I have to make the decision, but it looks pretty clear to me at this point. - I will delay to age 70.

Don'y worry Mikey - there is plenty that I don't agree with you on! 8) - In fact, as far as finances are concerned, this is probably the one area that I did agree with you!
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-23-2006, 08:32 PM   #62
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Re: Is an Annuity a good way to get over a SWR of 5%?

Quote:
Originally Posted by HaHa
Now, sentiment has come almost all the way to a majority favoring delay.

What has happened to cause this change?
You finally wore us down. Go ahead and say, "See, I told ya' so." and get it over with....

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Re: Jonathan Clements Article today - Contrary Advice
Old 10-23-2006, 09:21 PM   #63
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Re: Jonathan Clements Article today - Contrary Advice

Quote:
Originally Posted by Cut-Throat
I played around with FIRECalc this afternoon and for me, It favors delaying SS to age 70. Gives me $2K more per year to be 100% safe over taking SS at age 62.

I only have a 55% allocation to stocks though.
I'm on a FERS (US civil service) pension. The pension includes a SS replacement supplement. The supplement goes away when I turn 62.
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-23-2006, 10:39 PM   #64
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Re: Is an Annuity a good way to get over a SWR of 5%?

Quote:
Originally Posted by HaHa
Mostly what I had to say was ignored- the popular sentiment was always "Take it and run. You might die before you get your pound of flesh."
Now, sentiment has come almost all the way to a majority favoring delay.
What has happened to cause this change?
That's the vocal majority.

Those of us who've decided to take it & run don't bother to argue the point any longer.
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-23-2006, 10:45 PM   #65
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Re: Is an Annuity a good way to get over a SWR of 5%?

Well, let me stir the pot a bit more.

If I take 2B's numbers and assume I have foregone a 2% real rate of return on the early SS payments from 62-70, it will cost me $160,382 in delayed SS payments to create an inflation-indexed annuity that will pay me $14,136 annually until death. The life-expectancy of a 70 year-old male is 13 years. So this works out to be an IRR of 2% in real terms if I die after 13 years. The same annuity from Vanguard would cost $211,875 which is a -1.97% IRR after inflation.

I think all this proves is that delaying SS until age 70 is a cheaper way to create an annuity from age 70 on than to purchase it from Vanguard, if one wants such an annuity. You can't conclude that it is better to delay SS until age 70, in general, from this analysis. On another thread, I posted the table below comparing taking SS at 62 vs 66. Here is the same table comparing 62 vs 70. Again I am using 2B's numbers of $1542 per month at 62 and $2720 per month at 70 for the SS payments. I am assuming that all SS payments are invested at the real rates of return below, and that these returns are earned in the 62-70 period as well:

Real Return Break-even Age
0% 81
1% 82
2% 83
3% 85
4% 87
5% 91
6% 98
7% 126

Since the life-expectancy of a 70 year-old male is 13 years, I think this shows that, if you can earn better than a 2% real rate of return on the early SS payments, it is better to take SS at 62, on average. I am ignoring the tax effects that MB has pointed out before, because everyone's tax situation is different. I agree with MB that these tax effects could well tilt the argument the other way for some people.

Can I get you all to agree that in the absence of tax effects, it is optimal from a pure financial point-of-view to take SS at 62?
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-24-2006, 03:53 AM   #66
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Re: Is an Annuity a good way to get over a SWR of 5%?

i have to agree about taking it early, i dont have my exact numbers anymore but i ran about 4 or 5 different scenerios thru fidelitys retirement planner. i tried as many combo's of age of retirement, assortment of ages dying and 62 and 65 for ss. the monthly draw was slightly higher at 65 and if i didnt choose to draw the extra but bank it the difference at the end was another 50,000 in the pot for the heirs.

50,000 on a few million in 30 years was like 5,000 bucks in spending power.

since i average around 7% on my portfolios if i delayed ss id be spending that part of the porfolio as well as giving up a 7% average return.

i just didnt see delaying worth it, id rather have the dough now when im healthy enough to spend it.


im also a little fuzzy on the logic of the 70 ss /annuity. if im 62 and take ss and buy an immeadiate annuity i get the annuity money immeadiatly,

if i wait until 70 not only am i spending my portfolio down to cover the money im not getting from ss and loosing 7% average gain on that money but im also not getting the extra money from the annuity which had i purchased starts immeadiatly 8 years sooner


what am i missing here? im as confused as a blind lesbian in a fish market.
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-24-2006, 05:05 AM   #67
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Re: Is an Annuity a good way to get over a SWR of 5%?

Quote:
Originally Posted by FIRE'd@51
Well, let me stir the pot a bit more.

If I take 2B's numbers ..... The life-expectancy of a 70 year-old male is 13 years. So this works out to be an IRR of 2% in real terms if I die after 13 years. The same annuity from Vanguard would cost $211,875 which is a -1.97% IRR after inflation.

I think all this proves is that delaying SS until age 70 is a cheaper way to create an annuity from age 70 on than to purchase it from Vanguard, if one wants such an annuity.
Thank you for your detailed analysis. My whole point (since SS says they are "equal") was to give the "immortals" an opportunity to get a lower cost annuity which you demonstrated. You also showed that a commercially available annuity actually has a negative return if you die on schedule.

I haven't decided when I'm planning on taking my SS since it is still way in the future. My "gut" says to defer as long as possible. That will maximize my "fail safe" income should the wheels fall of my portfolio. I also think the SS at 70 would just about cover my expenses based on what I've seen of the spending habits of the elderly I am familiar with -- some with serious money no longer "needed."

FireCalc actually likes taking SS at 62 but I'm not sure why. Maybe I should run them for a longer period after 85 which is where I usually have mine ending.
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-24-2006, 05:17 AM   #68
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Re: Is an Annuity a good way to get over a SWR of 5%?

Quote:
Originally Posted by mathjak107

what am i missing here? im as confused as a blind lesbian in a fish market.
I never heard that one. It's a beauty!
Reminds me of a joke which I will post at "Funny Joke Thursday".

You know my position on SS. Don't wait one day past 62. Take the money and run.

JG
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-24-2006, 05:54 AM   #69
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Re: Is an Annuity a good way to get over a SWR of 5%?

Quote:
Originally Posted by Cut-Throat
I have got 7 years before I have to make the decision, but it looks pretty clear to me at this point. - I will delay to age 70.
I understand the math (numbers guy), but come on C-T. You're a
sharp guy. "Delay to age 70" I guess if you absolutely positively
can't use the $. Bottom line, I hope you make 70. I really do. But,
there is a chance you may not last until cocktail hour. Mathematics
can not supply all of your answers, although some people seem to think so.

JG
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-24-2006, 06:43 AM   #70
 
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Re: Is an Annuity a good way to get over a SWR of 5%?

Quote:
Originally Posted by 2B

FireCalc actually likes taking SS at 62 but I'm not sure why. Maybe I should run them for a longer period after 85 which is where I usually have mine ending.
Actually, I ran FIRECalc out to age 100 with 55% stocks and delaying SS to age 70 works bettter.
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-24-2006, 06:48 AM   #71
 
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Re: Is an Annuity a good way to get over a SWR of 5%?

Quote:
Originally Posted by Mr._johngalt
I understand the math (numbers guy), but come on C-T. You're a
sharp guy. "Delay to age 70" I guess if you absolutely positively
can't use the $. Bottom line, I hope you make 70. I really do. But,
there is a chance you may not last until cocktail hour. Mathematics
can not supply all of your answers, although some people seem to think so.

JG
Delaying SS to age 70 lets me spend more money than at age 62. It's nothing more than an insurance policy, to let me spend more money up front. I could care a less, if 'break even' or not. If I don't, I'm dead and won't care.

However, on the chance that I live past age 85, I'll know I have the spare $$$ coming in. So this, lets me spend a little more up front when it's still enjoyable. If you have the option, and can delay, I think it's worth it.

Also John, as these other folks pointed out - I will get to spend my money if I live (which is the real point) - While 2B and FIRE'd@51 will get to point to their 'Pile of Cash' on his deathbed and tell everyone that taking SS earlier was wise because they made more money. I on the hand, I will be spending mine early on, because the future is not as cloudy as 2B's. - If you understand this principle, it is easy to see why delaying is a smarter move. Unless of course you want to leave money to your heirs, which I have no interest in. - Ideally I'd like to die broke.
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-24-2006, 07:00 AM   #72
 
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Re: Is an Annuity a good way to get over a SWR of 5%?

Quote:
Originally Posted by FIRE'd@51
Can I get you all to agree that in the absence of tax effects, it is optimal from a pure financial point-of-view to take SS at 62?
Well OK, if you are playing the 'whoever dies with the most money wins' game.

But can you agree that you get to spend more money if you delay SS to age 70?

That is the whole point for me. - I want to spend the money, not just pile it up!
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-24-2006, 07:30 AM   #73
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Re: Is an Annuity a good way to get over a SWR of 5%?

Quote:
Originally Posted by Cut-Throat
Delaying SS to age 70 lets me spend more money than at age 62. It's nothing more than an insurance policy, to let me spend more money up front. I could care a less, if 'break even' or not. If I don't, I'm dead and won't care.

However, on the chance that I live past age 85, I'll know I have the spare $$$ coming in. So this, lets me spend a little more up front when it's still enjoyable. If you have the option, and can delay, I think it's worth it.

Also John, as these other folks pointed out - I will get to spend my money if I live (which is the real point) - While 2B and FIRE'd@51 will get to point to their 'Pile of Cash' on his deathbed and tell everyone that taking SS earlier was wise because they made more money. I on the hand, I will be spending mine early on, because the future is not as cloudy as 2B's. - If you understand this principle, it is easy to see why delaying is a smarter move. Unless of course you want to leave money to your heirs, which I have no interest in. - Ideally I'd like to die broke.
I understand your explanation. We'll just have to agree to disagree
I guess.

JG
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-24-2006, 07:40 AM   #74
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Re: Is an Annuity a good way to get over a SWR of 5%?

Maybe im missing something here:

if you take ss at 62 lets say 1542.00 a month and buy an annuity for 148,000 . lets say that pays 7%. thats 1542.00 plus 863 a month..
thats 2400 a month.

lets say you wait until 70 to collect, that would be not 1542 a month for 8 years to lay out but 2400 a month for 8 years to lay out, 230,000 vs the 148,000 you are figuring.
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-24-2006, 07:48 AM   #75
 
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Re: Is an Annuity a good way to get over a SWR of 5%?

Quote:
Originally Posted by mathjak107
Maybe im missing something here:

if you take ss at 62 lets say 1542.00 a month and buy an annuity for 148,000 . lets say that pays 7%. thats 1542.00 plus 863 a month..
thats 2400 a month.

lets say you wait until 70 to collect, that would be not 1542 a month for 8 years to lay out but 2400 a month for 8 years to lay out, 230,000 vs the 148,000 you are figuring.
? - Say what?
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-24-2006, 07:55 AM   #76
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Re: Is an Annuity a good way to get over a SWR of 5%?

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Originally Posted by rodmail
Sorry guys, but my read on this is that all the folks who are buying an annuity for the "GUARANTEE" are not getting what they're paying for. It would not take much to have a couple of Florida hurricanes, a California earthquake and a prolonged market dive over maybe 4 yrs to put a LOT of these folks under.
Unless you are buying annuities from a multi-line insurer, hurricanes and earthquakes are unlikely to make a difference. But your point is well taken: insurer creditworthiness is important. If you plan on buying a long term insurance product, be very selective about who you do business with.
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-24-2006, 08:57 AM   #77
 
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Re: Is an Annuity a good way to get over a SWR of 5%?

Quote:
Originally Posted by Nords
Those of us who've decided to take it & run don't bother to argue the point any longer.
By this statement, I am guessing that you would like to leave money to your heirs? - I am guessing that the main reason folks would not delay S.S. is that they plan on leaving money to someone rather than spend it?

Or have a large distrust in Uncle Sam?
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-24-2006, 09:11 AM   #78
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Re: Is an Annuity a good way to get over a SWR of 5%?

Quote:
Originally Posted by FIRE'd@51
Can I get you all to agree that in the absence of tax effects, it is optimal from a pure financial point-of-view to take SS at 62?
Fired@51:

I agree with you, but your decision logic is not quite valid when you ignore taxes. For those of us that expect to have other income over the SS threshold(s) the taxation issue changes the optimal decision point.

remember for each dollar of income you have over the threshold you pay income taxes on that dollar plus 50-85% of taxes on another SS dollar. The net income tax rate on that SS income is very very steep.

So the take SS at 70 (versus 62) game plan suggests that you take some of that nest-egg and spend it down. The nest-egg spend-down is then offset by the increased SS payment. As others have suggested on this and other posts your "after-tax" spendable income will be greater.
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-24-2006, 09:12 AM   #79
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Re: Is an Annuity a good way to get over a SWR of 5%?

Quote:
Originally Posted by Cut-Throat
By this statement, I am guessing that you would like to leave money to your heirs? - I am guessing that the main reason folks would not delay S.S. is that they plan on leaving money to someone rather than spend it?

Or have a large distrust in Uncle Sam?
Yes, a large distrust in Uncle Sam. But I plan to keep an open mind. Many years before I have to make a decision.
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-24-2006, 09:30 AM   #80
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Re: Is an Annuity a good way to get over a SWR of 5%?

I'm in the "take it later" camp. Still, for those of us deriving a large % of their monthly income from a govt pension, increasing the SS check each month by spending more of the nest egg in early years does increase uncompensated risk. Our Uncle Sam is gonna wake up someday and have to do some serious belt tightening to pay for the bills he's run up. There's no telling who he'll turn to for the cash.
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