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View Poll Results: Do you intend to use an annuity in your retirement strategy?
No 86 77.48%
Yes - Use all of our investment portfolio to purchase a Fixed Annuity 2 1.80%
Yes - Use a portion of investment portfolio to purchase a Fixed Annuity (create a base income stream) 23 20.72%
Voters: 111. You may not vote on this poll

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Re: Poll: Annuities and retirement
Old 03-04-2007, 08:37 AM   #21
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Re: Poll: Annuities and retirement

Quote:
Originally Posted by Cute Fuzzy Bunny
Hmmm, I was pretty sure the vanguard product gave one about a 3.5% swr with cola adjustment, but I tend to struggle a bit with these complex math problems. After all, if it actually gave you 5.35% with a cola adjustment, not only would everyone on this board be talking about buying the product, I'd be fully behind it as well.
Well, we have common ground here. I agree, If you could only get 3.5% I would not be interested at all. Keep In mind, I am talking about someone that is 70 years of age. I would not buy one until I reached age 70. At this age the SWR is over 5.3% - Which would be more attractive than watching the Stock Market and wondering when it might bounch back after a down turn.
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Re: Poll: Annuities and retirement
Old 03-04-2007, 08:40 AM   #22
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Re: Poll: Annuities and retirement

CFB's right. I ran it again and at 58 (DW 54) with inflation protection and 100% survivor it is a bit over 3.5%. My earlier calculations were based on speculation about buy one at age 65.
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Re: Poll: Annuities and retirement
Old 03-04-2007, 08:46 AM   #23
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Re: Poll: Annuities and retirement

Quote:
Originally Posted by chinaco

Can you elaborate on the 3 assumptions?
A couple from memory, and my coffee hasnt set in yet:

- I will live to be 100 or 120
- Inflation will affect me exactly in time with the CPI
- I will leave a brazillion dollars to nobody if I maintain a 4% SWR
- The insurance company wont go broke or default on the annuity during the course of 40/50/60 years
- Annuities for 40+ year payout periods are "almost risk free" or "practically guaranteed"
- I wont want/need/enjoy money when i'm 80+
- I wont want/need/enjoy special care, long term care or have some other need for the principal that I'm surrendering

I could go on for quite a while.

To be sure, an income stream, even a small one, can affect ones SWR dramatically...even if the income stream isnt due until decades in the future.

However, using a bad investment to produce the income stream and assigning it attributes that it doesn't really have isnt my idea of a good solution.

THAT having been said, theres a balancing act between quality of life and safety that everyone has to make for themselves and live with. If an annuity makes you feel better about improving your quality of life (or perceptions thereof), whether its effective or not in its implied benefits...you're gonna do it no matter what the data says.

But dont BS me with overinflated return rates, fallacious assumptions and loaded scenarios.

As far as not buying the annuity until you're 70...gosh, might have been helpful to include that in the original statement...my bet is that an ER that makes it to 70 on their own investing merits and has enough of a portfolio to consider the option isnt going to be too interested at that point in an annuity.

But let us know how that works out.
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Re: Poll: Annuities and retirement
Old 03-04-2007, 08:50 AM   #24
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Re: Poll: Annuities and retirement

Quote:
Originally Posted by donheff
CFB's right. I ran it again and at 58 (DW 54) with inflation protection and 100% survivor it is a bit over 3.5%. My earlier calculations were based on speculation about buy one at age 65.
There ya go.

So put your 'income allocation' in wellesley or target retirement income, take your 4-4.5% yield, enjoy the (historic) additional 4+% aggregate capital gains that will offset average inflation, have your principal to fall back on if you meet a dire need, and if you get to 70 and want a 5.5%+ return, start taking an extra 2% from your principal.

A lot of upside, not really much downside.
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Re: Poll: Annuities and retirement
Old 03-04-2007, 09:20 AM   #25
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Re: Poll: Annuities and retirement

Quote:
Originally Posted by Cute Fuzzy Bunny


But dont BS me with overinflated return rates, fallacious assumptions and loaded scenarios.

...
Not sure if you shifted your response from me to another poster

I am in the early stages of trying to figure it out. My basic goal is to maximize my spending in early ER years and still have a reasonably high level of confidence that we can maintain an acceptable lifestyle in later years 75+.


This seems like a reasonable goal and I suspect that a good solution exists. I know from observing my parents and relatives (plus reading)... Most of us spend less when we get older (excluding chronic or catastrophic health care costs).

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Re: Poll: Annuities and retirement
Old 03-04-2007, 09:25 AM   #26
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Re: Poll: Annuities and retirement

Quote:
Originally Posted by Cute Fuzzy Bunny
There ya go.

So put your 'income allocation' in wellesley or target retirement income, take your 4-4.5% yield, enjoy the (historic) additional 4+% aggregate capital gains that will offset average inflation, have your principal to fall back on if you meet a dire need, and if you get to 70 and want a 5.5%+ return, start taking an extra 2% from your principal.

A lot of upside, not really much downside.
That is your assessment of risk, I am not saying you should not try it. But here is mine.

At age 70, I am looking at a possible 30 years of retirement and I definitely would not be comfortable with a > 5% withdrawal rate based on a rosy outlook for the stock market.

I would also not put 100% of my stash into an immediate annuity either, but it certainly would have a place in my diversified portfoilo. It has never been an all or nothing situation for me despite your attempts to twist my words or restate my position inaccurately.

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Re: Poll: Annuities and retirement
Old 03-04-2007, 09:28 AM   #27
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Re: Poll: Annuities and retirement

Quote:
Originally Posted by Cute Fuzzy Bunny
There ya go.

So put your 'income allocation' in wellesley or target retirement income, take your 4-4.5% yield, enjoy the (historic) additional 4+% aggregate capital gains that will offset average inflation, have your principal to fall back on if you meet a dire need, and if you get to 70 and want a 5.5%+ return, start taking an extra 2% from your principal.

A lot of upside, not really much downside.
When I receive the proceeds from the sale of my company stock next month, I plan to basically do this. I will ladder out a few years worth of cd's to meet my bare bones budget requirements but I plan to dump the rest in Wellesley. The balance of my investments(roughly 50/50 allocation) hopefully will grow to handle all my future needs.

I am keeping an open mind on buying a fixed annuity later in life. I think a lot of people when they get old just don't have the desire to manage a portfolio as when they were younger. A fixed annuity helps put it on auto-pilot.
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Re: Poll: Annuities and retirement
Old 03-04-2007, 09:35 AM   #28
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Re: Poll: Annuities and retirement

Quote:
Originally Posted by Cut-Throat
And what does the first 10 years of retirement have to do with an Immediate annuity where you are more concerned with the last 10 years of retirement?

Let's see your detail.
The survey does not say lifetime annuity. There are immediate annuities for a fixed period. Those of us us using a b*ck*t allocation can use them for #1

According to current rates on immediateannuity.com I am, with my 6% mean cd ladder, getting about $17K more than the best annuity payout. And this method improves my tax situation as well.

I am working on the principle that by not touching my investments for 10 years the survival of the portfolio improves.

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Re: Poll: Annuities and retirement
Old 03-04-2007, 09:38 AM   #29
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Re: Poll: Annuities and retirement

Quote:
Originally Posted by chinaco
Not sure if you shifted your response from me to another poster
No, wasnt directing that at you.

Simple answer: theres no free lunch. You can spend more now, but take on more risk later. The idea of getting the benefit and pretending the risks dont exist or apply sounds really, really nice.

There are no new products or services involved in this analysis. If it was even slightly better to increase spending now and save your bacon with an annuity later on, it'd be pretty standard stuff and well regarded.

Our last poll showed that the vast majority of annuity buyers were dissatisfied with the product...and that was before they had to live off of it for decades. Even if you get a solid insurance company, no BS from the sales people, low rates, and everything is just ducky...a 3.5% return in your younger years and a 5.5% when you're 70 both suck compared to the reasonable alternatives.

As far as your observations on lower spending in older age, I feel its true as well. What I havent quite established is the definitive cause and effect. I see a lot of older people who spend less because they have to. When the coffers are full, a lot of older people seem to find no problems spending more. Bear in mind also that the retired generation we're looking at right now is a very financially sensitive group who went through at least one major world war, the great depression and the 65-75 sideways period followed by high inflation. They're going to be very conservative as they age.

I'd like to experience that problem and learn for myself what the actual causative factors are

Quote:
Originally Posted by Cut-Throat
That is your assessment of risk, I am not saying you should not try it. But here is mine.

At age 70, I am looking at a possible 30 years of retirement and I definitely would not be comfortable with a > 5% withdrawal rate based on a rosy outlook for the stock market.

I would also not put 100% of my stash into an immediate annuity either, but it certainly would have a place in my diversified portfoilo. It has never been an all or nothing situation for me despite your attempts to twist my words or restate my position inaccurately.
Sigh. Here we go again...I must be the bad guy because I'm not letting you eat all your candy now without discourse.

Heres the issues with the strategy...again.

You probably wont live to be 100. But presuming you'll be among the small percentage of people who live that long helps handicap an SWR based calculation so it looks like you're wasting money, delivering the desired result.

Over the course of 30 years, you're all but guaranteed a positive return well in excess of 5%. But you can introduce the risk factor to make it look chancy, delivering the desired result. But lets exclude the risks of a long term annuity draw because that messes things up.

For certain, the option could be useful for diversification, if the numbers make sense.

But cant we just keep all the cards on the table, rather than loading the deck?
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Re: Poll: Annuities and retirement
Old 03-04-2007, 09:52 AM   #30
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Re: Poll: Annuities and retirement

Quote:
Originally Posted by DOG52
I am keeping an open mind on buying a fixed annuity later in life. I think a lot of people when they get old just don't have the desire to manage a portfolio as when they were younger. A fixed annuity helps put it on auto-pilot.
Ding! Ding! Ding! - We have a winna! - My thoughts exactly - ruling out something when you are 40 for your later years in life is naive.
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Re: Poll: Annuities and retirement
Old 03-04-2007, 09:57 AM   #31
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Re: Poll: Annuities and retirement

See, now you're putting words in MY mouth.

I believe I said I'd consider it if the numbers made sense, when they made sense.

But 3.5% now isnt sensible, and 5.5% when i'm 70 wouldnt be particularly advisable either, considering that with the exception of short, rare periods, you can do better with cash instruments...or if you're in one of those "dont want to leave a pile to anyone" moods, a lifetime income reverse mortgage.

But if annuities paid 5+% now, or 7%+ when I'm 70, I'd probably do it. The numbers would make sense.

As far as portfolio management, I'm not getting the complexity of leaving it in an income fund and having the dividends get deposited into my checking account. I cant imagine that being any harder at 70 or 100 than it is right now...

But I can imagine that working out the insurers bankruptcy when I'm 90, or a loss of buying power due to discrepancies between my rate of inflation and the insurers possibly capped adjustment figures to suck. A lot.

As far as waiting until you're 70 to work it out, if its something you're going to want to do, factoring the decision in to your current plan increases your SWR. Waiting to make the decision helps you not. All the calculators and formulas say thats the case.

Unless you just wanna spend all your money now, but feel you've "got a plan" for your old age. Good luck with that.
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Re: Poll: Annuities and retirement
Old 03-04-2007, 10:25 AM   #32
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Re: Poll: Annuities and retirement

Quote:
Originally Posted by Cute Fuzzy Bunny

But if annuities paid 5+% now, or 7%+ when I'm 70, I'd probably do it. The numbers would make sense.
CFB - now you are on to something. The timing of an annuity purchase can be important. The payout is based on the duration of the payout, the age of the annuitant, and current long-term bond rates (excluding other special features).

My take is: if one is considering an annuity and has some flexibility in the timing of the purchase... try to do so when LT Bond rates are high (after the insurance companies have had time to adjust). Ceteris paribus... higher bond rates yield a greater payout on annuities.

http://www.life-line.org/mm5/graphic...ws_Preview.pdf
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Re: Poll: Annuities and retirement
Old 03-04-2007, 10:51 AM   #33
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Re: Poll: Annuities and retirement

Indeed. A lot of presumption is being made as to the availability of good rates at a particular age.

Taken alone, theres a good decision point here. Taken as your original post and the origin of this heated discussion - as a fulcrum to allow higher spending earlier...well...like I said, good luck with that.

You'll be good to go if available rates from quality insurers are available when you want/need to buy, the insurer remains solvent and pays as agreed, your inflation caps (if any) dont kick in, and after purchasing you dont need a large lump sum for one of a good variety of reasons.

Rich's method of using it as a diversifier and buying smaller, no survivor, no inflation protection policies periodically seems reasonable if the numbers make sense.

These numbers dont make sense to me at this time, and I wouldnt be inclined to take a risk on increasing my current spending and presuming they'll be better later on.

The article you pointed to is a good summary, but also fails to point out some of the risks and fallacies...
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Re: Poll: Annuities and retirement
Old 03-04-2007, 11:30 AM   #34
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Re: Poll: Annuities and retirement

Quote:
Originally Posted by Cute Fuzzy Bunny
- as a fulcrum to allow higher spending earlier...well...like I said, good luck with that.
again, inserting something that was never said! - This is what you would call 'loading the deck'
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Re: Poll: Annuities and retirement
Old 03-04-2007, 12:22 PM   #35
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Re: Poll: Annuities and retirement

Quote:
I'm thinking of taking part (maybe 25%?) of my TSP as an immediate fixed lifetime annuity, maybe with inflation protection. The Metlife annuity offered to civilian TSP participants by the govt seems like a very good deal, though I'm not sure you can get it at any other time than when you retire and make your first withdrawal.
You can take all or part for an annuity anytime after retiring. If you take out part for an annuity before age 59.5 you have to also start taking out the remainder by some method.

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Re: Poll: Annuities and retirement
Old 03-04-2007, 02:28 PM   #36
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Re: Poll: Annuities and retirement

I find the mere existence of this thread incredible. I'm still waiting for my father's variable annuity to "mature." I spent a significant part of last year getting my FIL's annuities cleaned up so the money could be used for his and his wife's care.

I told myself not to respond but I can't help myself.

I have never, ever seen any numbers that make me believe any form of annuity makes good sense for anyone at any age. One possible exception may exist for an elderly individual or couple in excellent health with no one that can manage their funds for them (ie. no competent heirs). Only then, a fixed immediate annuity may have some value. Unfortunately, someone meeting my description will be fleeced by an annuity rip-off salesman and put into a high fee variable annuity.

All the scenarios discussed in this thread are just games that with any credible annuity numbers have better options then the annuity. Think about it. The annuity company takes your money and invests it in a broad portfolio of stocks and bonds. They may even put some into private equity. They take the same portfolio risk you take on by doing your own investing but then they suck out fees and commissions before giving a portion of your money back. I can only think that the use of terms like "income for life" and "longevity insurnce" blind people to the pitfalls and limitations of annuities.

I have many of the companies that sell these products in my ETF portfolio that I reallocate once a year. They all have big fancy buildings, pay their salesmen well and are very profitable. So, I must say that when you financially illiterate individuals actually buy your annuity you will be helping my portfolio growth.
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Re: Poll: Annuities and retirement
Old 03-04-2007, 02:36 PM   #37
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Re: Poll: Annuities and retirement

The annuity company takes your money and invests it in a broad portfolio of stocks and bonds. They may even put some into private equity. They take the same portfolio risk you take on by doing your own investing but then they suck out fees and commissions before giving a portion of your money back.

Bingo, give the man a cigar. I don't know why it is so hard for some people to understand this fundamental truth about an annuity.
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Re: Poll: Annuities and retirement
Old 03-04-2007, 03:00 PM   #38
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Re: Poll: Annuities and retirement

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I find the mere existence of this thread incredible.
2B - I ran the poll because I was curious how others felt about annuities and how they might use them. Criticisms are welcome.

So far I have heard a number of points of view. Some are valid forward looking considerations... Others are based on hind sight that no one could foresee. If I had a crystal ball... I would know exactly what to do. Since I do not, I am researching different approaches with an open mind.

I have been seriously considering it as part of a strategy for a % of our portfolio... We will still maintain a traditional diversified investment portfolio. I view the annuity as a tool to create a base income that runs for the remainder of our lives. However, the actual decision about (and purchase of) an immediate annuity may be 5 to 10 years off.



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Re: Poll: Annuities and retirement
Old 03-04-2007, 03:42 PM   #39
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Re: Poll: Annuities and retirement

OP
I have looked at annuities and found that the rate of return was not advantageous and therefore decide against them, even though I do believe that a set stream of income has a place in the portfolio. So yes, look at them.
Until the cost comes down they do not seem a good place to put your funds at this time, mostly for the reasons the other posters have listed above.

Tio z
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Re: Poll: Annuities and retirement
Old 03-04-2007, 04:14 PM   #40
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Re: Poll: Annuities and retirement

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Originally Posted by tio z
I have looked at annuities and found that the rate of return was not advantageous and therefore decide against them, even though I do believe that a set stream of income has a place in the portfolio. So yes, look at them.
Until the cost comes down they do not seem a good place to put your funds at this time, mostly for the reasons the other posters have listed above.
And they never will unless you assume you will live decades beyond your actuarial mortality and the annuity is backed by something better than the "full faith and credit" of a public corporation.
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