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M* article on some of the problems with SPIAs
Old 03-08-2013, 09:53 AM   #1
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M* article on some of the problems with SPIAs

This was a nice article covering why SPIAs aren't as appealing in the real world as academics model.

Reasons Retirees Avoid Annuities

"There are a lots of reasons that people will give you why they're not interested. So, I've talked about this before; it's sort of death by 1,000 cuts because while in the framework that I articulated, annuities are so great, once you start looking at several aspects of the real world, they lose their attractiveness."

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Old 03-09-2013, 10:59 AM   #2
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Good article. Thanks for posting.

Vanguard's John Ameriks covers the following very concisely.
- cost due to adverse selection
- Irreversibility of the annuity
- Loss of flexibility to meet unexpected large expenses like health & long term care.
- Bequests
- Solvency of insurers
- Tax consequences of longevity insurance.

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Old 03-11-2013, 09:38 PM   #3
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I was impressed that adverse selection played such a large role!

I also thought it was a really informative article, and most of the "obstacles" rang very true for me.
Well, I thought I was retired. But it seems that now I'm working as a travel agent instead!
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Old 03-12-2013, 01:43 AM   #4
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I'd say that is the best short article on the real life issues with purchasing annuities I've read. As much as like Wade Pfau's work, I think if he actually went out to purchase an annuity (and I looked into them fairly seriously circa 2005) the 1,000 cuts as Ameriks describes makes them less interesting in the real world.
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Old 03-19-2013, 05:28 AM   #5
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Good article. Thanks for posting. However, SPIAs are still part of my retirement planning, but at much later stages in my life. I will buy smaller deferred annuities up to my mid 50s I guess.
Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.
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Old 03-19-2013, 07:12 AM   #6
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I wish they'd talked more about how deferred annuities and SPIAs can be used as a complement to other asset classes. There's no need to annuitize everything so what might be a good AA for a retiree ie what's the ratio of stocks/bonds/SPIA/SS/cash etc. Of course you'd get a different emphasis form a TIAA-CREF representative.

It's interesting to note that in the UK, where healthcare costs are not yet part of a retirees planning, the default retirement asset is the SPIA.

“So we beat on, boats against the current, borne back ceaselessly into the past.”

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