Please critique my retirement plan

[JohnEyles]

Quote:

Originally Posted by SecondCor521 It turns out that if one starts with $250K, earns 5.0389% on it, pulls out $11,465 in year 1 and increases the withdrawal amount by 3% per year, there will be exactly zero dollars left at the end of year 30, not $250K as I previously implied. 2Cor521

Hmm, sounds like a SPIA to me.* Except the SPIA goes away if you die, and
does better if you live more'n 30 years.

Can somebody explain the 30yr T-Bond ?

[SecondCor521]

Quote:

Originally Posted by JohnEyles Hmm, sounds like a SPIA to me. Except the SPIA goes away if you die, and does better if you live more'n 30 years. Can somebody explain the 30yr T-Bond ?

Yup, I agree with you that that is what it sounds like. Basically, I think Vanguard skims something off the top somehow, plays the averages (on average the life expectancy tables are correct), and then takes the longevity risk off your hands.

30 yr T-Bond I think is you lend the government money, they pay you interest every six months, and at the end you get your money back. I *believe* they are exempt from local and state taxes, but doublecheck for yourself. Certain bonds you can defer income taxes on the interest until maturity or when you sell, but I don't think the 30 year is like that. Certain bonds are sold at a discount to face value instead of paying interest.

You could lose on a 30-year bond if (a) you sell before maturity, (b) the government defaults (nobody thinks this will happen), or (c) rates go up and stay up after you buy -- the 30 year is at a fixed rate.

2Cor521

[ats5g]

John,

Moshe Milevsky does a nice job of explaining longevity insurance [i.e. annuities] and mortality credits in Grandma’s Longevity Insurance [see "What about 55 year olds?"].* He also goes into more detail in Annuitization: If Not Now, When?.

I think his basic point is that people in their 40's and 50's don't get a much larger payment in annuity form, versus say buying long term corporate/treasury bonds, because so many people that age are expected to live for many years.* For example, Vanguard Long-Term corporate bond fund and Long-Term bond index fund are currently yielding 5.83% and 5.47% respectively, after expenses.* This is why people like Milevsky don't think it's that beneficial to annuitize until 65+.

- Alec