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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-25-2006, 05:25 PM   #141
 
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Re: Is an Annuity a good way to get over a SWR of 5%?

Quote:
Originally Posted by 2B
Money is money CT. The key is that if the SS is safely growing at better than your SWR (or whatever) you are better off spending you own money and letting SS grow. If you die young, your heirs lose. If you deplete your capital, SS won't be enough to cover assisted living or nursing care.

People on the edge don't have a choice. Most people on this forum do.
And money is only money if you're alive! I don't think anyone on this forum would deplete their capital by taking SS at age 70. - Heirs? - We don't need no stinkin heirs!

As a side note - the thought of going in to assisted living or nursing care is far more scary to me than not being able to afford it!
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-25-2006, 06:37 PM   #142
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Re: Is an Annuity a good way to get over a SWR of 5%?

Quote:
Originally Posted by 2B
... the idea of an immediate annuity is good concept but they don't make sense based on the poor IRR of all of the available products.
We seem to keep going in circles about this ... Can we agree on a few
things ?

If you live to your life expectancy, the ROR is pretty poor, maybe 3% or a
little more (my analysis says that for my current Vanguard quote, a 54yo
male, I get a WR of about 4.5% with 3% inflation adjustment, which
computes to a ROR of 3.6% if I live to my life expectancy of 78yo).

If you live beyond your life expectancy, the ROR goes up sharply. (For my
quote, I find the ROR is 5% if I live 5yrs longer, and 5.8% if I live an extra
10 yrs). So they're not a bad idea if you worry about outliving your money;
but who isn't (unless you know your health is bad) ?

Due to inaccessiblity of principal, it's a bad idea to commit more than
somewhere in the range of 25-50% of your portfolio to a SPIA.

It's insurance against outliving your money (there, I said it). Like any
insurance (moreso than most) it's important to pick a company that is
reliable, and probably to diversify among companies. It's important not
to pay excessive fees. I think it's interesting that the CPI-adjusted
SPIA (the only one I know of being the Vanguard/AIG one) offers another
level of insurance - insurance againsy excessive inflation; it seems to provide
payouts roughly halfway between the 3% and 4% cases.



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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-25-2006, 06:43 PM   #143
 
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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 2B
Did you read my post? I said the idea of an immediate annuity is good concept but they don't make sense based on the poor IRR of all of the available products.
Also, if you seem to be interested in a bigger pile of cash when you die vs. spending more while your alive.

This seems to be the big issue for me. I don't care how much I get to pile up. I care about how much of it I get to spend.
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-25-2006, 06:57 PM   #144
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Re: Is an Annuity a good way to get over a SWR of 5%?

Quote:
Originally Posted by Cut-Throat

And money is only money if you're alive! I don't think anyone on this forum would deplete their capital by taking SS at age 70. - Heirs? - We don't need no stinkin heirs!

As a side note - the thought of going in to assisted living or nursing care is far more scary to me than not being able to afford it!
Have you flip flopped??

I thought you were a 70 yr old SS man?

I would personally rather discuss assisted living with my good friend Mr. Ruger or even Mr. Remington before going. Unfortunately, the data I have is that the mind goes beyond recognizing the issue or the body blows out like a cheap retread leaving you without the option.

Assisted living costs bucks. You may not care about your heirs but they probably will care about coming up with the extra cash to get you in a good facility. I can assure you my in-laws would be in a different place if I didn't see their assets covering their stay for at least the next 10 years.

My goal is not to provide for my MIL and FIL's comfort while working until I'm 72 so I can retire broke.
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-25-2006, 07:00 PM   #145
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Re: Is an Annuity a good way to get over a SWR of 5%?

Quote:
Originally Posted by Cut-Throat

This seems to be the big issue for me. I don't care how much I get to pile up. I care about how much of it I get to spend.
I've noticed. Not that there's anything wrong with that.

JG
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-25-2006, 07:03 PM   #146
 
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Re: Is an Annuity a good way to get over a SWR of 5%?

Quote:
Originally Posted by 2B
Have you flip flopped??

I thought you were a 70 yr old SS man?
I am. What makes you think I flopped? - Just because somone might delay SS to age 70, that would only cost around $150K-$200K. Most of us here have well over a Million? That would hardly deplete their portfoio. In fact it would protect the last $500K from totally depleting.
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-25-2006, 07:06 PM   #147
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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 am. What makes you think I flopped? - Just because somone might delay SS to age 70, that would only cost around $150K-$200K. Most of us here have well over a Million? That would hardly deplete their portfoio. In fact it would protect the last $500K from totally depleting.
I'll bet your "way" is more than my "way" but I am trying to get my wife to go back to work. I keep telling her it will get her mind off her parents. That would be good if for no other reason I get to hear about something other than their day and menu. I'd love hearing about her office's petty politics again just for a break.
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-25-2006, 07:12 PM   #148
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Re: Is an Annuity a good way to get over a SWR of 5%?

Quote:
Originally Posted by 2B

I would personally rather discuss assisted living with my good friend Mr. Ruger or even Mr. Remington before going.
That's my plan. I now leave the key to the gun cabinet right in the lock
in order to eliminate any need to search for it.

JG
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-25-2006, 07:25 PM   #149
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Re: Is an Annuity a good way to get over a SWR of 5%?

Quote:
Originally Posted by Cut-Throat
That's far too messy! - I think I would buy a bottle of $200 Cabernet. Maybe 2 bottles. Go out to the Lexus in the Garage with some good Jazz CDs. - That way you can still have an open casket and the Mortician is not challenged beyond his abilities.
You're right. After two bottles of cabernet, I'd miss. I'd be forced to use an old Chevy Pickup.
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-26-2006, 05:40 PM   #150
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Re: Is an Annuity a good way to get over a SWR of 5%?

Quote:
Originally Posted by JohnEyles
We seem to keep going in circles about this ... Can we agree on a few
things ?

If you live to your life expectancy, the ROR is pretty poor, maybe 3% or a
little more (my analysis says that for my current Vanguard quote, a 54yo
male, I get a WR of about 4.5% with 3% inflation adjustment, which
computes to a ROR of 3.6% if I live to my life expectancy of 78yo).
I agree with your numbers, but they are nominal returns. After subtracting the 3% inflation, the real return is only 0.6%. The 30-yr TIPS has a YTM of 2.25%. The price for the insurance (1.65% per year) just seems too high (to me, anyways). I keep thinking there has to be a better way to do this.

Does anyone know if they strip TIPS into an interest-only and principal-only part, like they began doing with mortgages 20 years ago (IO's & PO's)? If they do, the interest-only part could IMHO be very useful to some of us. If that doesn't exist, is there a zero-coupon TIPS? It could be shorted against the regular TIPS to create the interest-only piece, and we would have a 30yr annuity at a fair price.

Take a 30-yr TIPS bought at auction with a 2.25% coupon for 100

PV of principal repayment for 30 yrs at 2.25% = 51.30

100 - 51.30 = 48.70 = cost of annuity

2.25/48.70 = 4.6% SWR
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-26-2006, 06:13 PM   #151
 
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Re: Is an Annuity a good way to get over a SWR of 5%?

Quote:
2.25/48.70 = 4.6% real return
No one is arguing that you might end up with a bigger pile of Cash.

What you seem to be missing, is which approach would you get to spend more?

For me, It is a slam dunk! - Wait until age 70 to collect S.S.
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-26-2006, 06:23 PM   #152
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Re: Is an Annuity a good way to get over a SWR of 5%?

Quote:
Originally Posted by Cut-Throat
No one is arguing that you might end up with a bigger pile of Cash.

What you seem to be missing, is which approach would you get to spend more?

For me, It is a slam dunk! - Wait until age 70 to collect S.S.
NO, NO, NO - This has nothing to do with SS. If this exists, or can be created, it can be used at any age. Maybe I should have started a new thread.
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-26-2006, 06:28 PM   #153
 
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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
NO, NO, NO - This has nothing to do with SS. If this exists, or can be created, it can be used at any age. Maybe I should have started a new thread.
I thought you were talking about annuities. The poster you quoted was. - And how we got to delaying S.S. is that it was like an annuity.

What were you talking about it?
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-26-2006, 07:32 PM   #154
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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 thought you were talking about annuities. The poster you quoted was. - And how we got to delaying S.S. is that it was like an annuity.

What were you talking about it?
This is also an annuity. What I am saying is that

TIPS = Coupon Stream + Maturity Payment

If you sell off the maturity payment you have just the coupon stream. So instead of paying 100 for the whole TIPS, you pay 48.70, which is the PV of the coupon stream. This raises the current real yield (i.e. SWR) to 4.6% for 30 years. So you would have the equivalent of a 30-year SWR of 4.6%, and at the end of 30 years you would have nothing. Basically, it is a 30-year guaranteed annuity. If you die early, you don't lose anything because the remaining coupon stream would go into your estate. Additionally, all the payments would be backed by the gov't, so you wouldn't have to deal with insurance company risk.
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-26-2006, 07:40 PM   #155
 
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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
This is also an annuity. What I am saying is that

TIPS = Coupon Stream + Maturity Payment

If you sell off the maturity payment you have just the coupon stream. So instead of paying 100 for the whole TIPS, you pay 48.70, which is the PV of the coupon stream. This raises the current real yield (i.e. SWR) to 4.6% for 30 years. So you would have the equivalent of a 30-year SWR of 4.6%, and at the end of 30 years you would have nothing. Basically, it is a 30-year guaranteed annuity. If you die early, you don't lose anything because the remaining coupon stream would go into your estate. Additionally, all the payments would be backed by the gov't, so you wouldn't have to deal with insurance company risk.
Don't understand all the details of what you just posted, but if you can get over 5.3% SWR on an annuity and don't give a rip about your estate, why should you get exicited about 4.6% SWR?
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-26-2006, 07:48 PM   #156
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Re: Is an Annuity a good way to get over a SWR of 5%?

Because it is considerably cheaper than the Vanguard annuity John was talking about. From John's numbers it looks like it would be at least 11% cheaper.
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-26-2006, 07:52 PM   #157
 
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Re: Is an Annuity a good way to get over a SWR of 5%?

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Because it is considerably cheaper than the Vanguard annuity John was talking about. From John's numbers it looks like it would be at least 11% cheaper.
If it is cheaper than a Vanguard annuity that basically has an inflation adjusted SWR of over 5.3%, it should have a higher SWR than 4.6%.
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-26-2006, 07:55 PM   #158
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Re: Is an Annuity a good way to get over a SWR of 5%?

Because it only goes for 30-years, it's not a life annuity. It's a 30-year payment stream with a coupon yield of 4.6% where the coupons are indexed to inflation and backed by the US government. Maybe we should call it a 30-year SWR. It has a lower SWR than Vanguard's because it has no "death penalty". Evidently, no "death penalty" is more valuable than the PV of those extra years (past 30) weighted by their probability of occuring (I'm speculating a bit here since I haven't actually calculated this).
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-26-2006, 08:12 PM   #159
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Re: Is an Annuity a good way to get over a SWR of 5%?

One of the problems with TIPS is the current yields are lower than the 4% SWR. So to use just TIPS, you would have to sell off principal each year to be able to withdraw 4%, and that exposed you to all sorts of risk if real rates were moving around. It would also be a logistical nightmare. This product would essentially do that for you. This product would give you a 4.6% SWR for the portion of the portfolio you allocated to it. It would be like doing a FIRECALC run with 100% success and 0 ending balance. No other outcome would be possible.
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Re: Is an Annuity a good way to get over a SWR of 5%?
Old 10-26-2006, 08:13 PM   #160
 
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Re: Is an Annuity a good way to get over a SWR of 5%?

My FIRECalc runs are for 45 years
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