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Old 12-07-2017, 03:12 PM   #41
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What do you think you need to know other than the target AA(s) for the account for those years, the XIRR based on cash flows for each year and the return for a relevant benchmark consistent with the target AA for each year.
I'm just trying to determine performance per year. 2015 made x%, etc. I have no idea what index the portfolio is supposed to be tracking, we don't seem to be matching any of them.
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Old 12-07-2017, 03:28 PM   #42
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Huston, while I am familiar with the concepts you mention, my motivation in considering a SPIA is your item #1 - covering our essential expenses with guaranteed income. Purchasing this annuity would effectively accomplish that goal - which is the only reason I am tempted to go over to the dark side and cast my lot with the great unwashed.

I am very appreciative of all the input from you and everyone else who has commented. It is really tough for me to fork over a substantial chunk of change to an insurance company and I'm still thinking about it. While I dally, the market will probably tank and I'll be saying, "Oops, too late."
It's my plan exactly when i get to 70. Get a SPIA to complete coverage of necessary expenses. It's more of a sleep at night issue for me.

Huston, one problem with the hurdle method is that a 2008/9 scenario, or any swift downdraft might trigger the hurdle and you're really stuck with the decision of converting when the market has just tanked and you're selling at the bottom. Tough decision time. Except for those situations I like it.
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Old 12-07-2017, 03:35 PM   #43
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It's my plan exactly ... Get a SPIA to complete coverage of necessary expenses. ...
So you guys that say this: Are you buying an inflation-adjusted annuity? That would seem mandatory given your goal.
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Old 12-07-2017, 03:42 PM   #44
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So you guys that say this: Are you buying an inflation-adjusted annuity? That would seem mandatory given your goal.
No.. Probably not for me. I'm just less concerned about inflation at 70 than I would be at 60. Not saying it's perfect by any means. I'm just ok with the uncertainty. If inflation does get bad I can always buy another smaller SPIA after 5 yrs or whatever to cover that decrease. And repeat every 5 years as necessary.
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Old 12-07-2017, 04:05 PM   #45
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So you guys that say this: Are you buying an inflation-adjusted annuity? That would seem mandatory given your goal.
No, I am not for the following reasons:
1. Inflation adjusted annuities are typically not priced well.*
2. In our situation (currently 62) - @70 yo, with SSx2 and 2xsmall pensions, all COLA adjusted, they would cover most of our essential expenses; so, we could tolerate losing some SPIA buying power.


*In general, it takes an amount of time equal to half the number of years remaining in your life expectancy, for the monthly income level of an annuity with a COLA to reach the monthly income level of the same annuity without a COLA. Assuming your life expectancy is twenty years and you selected a single life annuity. It would take ten years (half of your remaining life expectancy) for the annuity with the COLA rider to reach the monthly income level of that same annuity without a COLA option. Even after ten years, it takes the annuity with the COLA option another ten years (the remaining number of years in your original life expectancy when you bought the annuity) to make you whole with the same total dollar amount you would have received from the annuity without the COLA option.
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Old 12-07-2017, 04:33 PM   #46
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....It is really tough for me to fork over a substantial chunk of change to an insurance company and I'm still thinking about it. While I dally, the market will probably tank and I'll be saying, "Oops, too late."
That would be my hang up with a SPIA, but it is a separate and distinct decision from taking money off the table because of market concerns. You can always take money off the table and then later decide how to deploy it.

If I were to buy a SPIA I would at least select one with certain minimum guaranteed payments... the discount in the monthly benefit isn't too severe and at least my DW and/or heirs would be assured of "getting their money back" if I get hit by a beer truck the day after buying it.

For a 71 yo couple, the discount between a 100% joint life annuity and a 100% joint life with 20 years guaranteed is only 5%.
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Old 12-07-2017, 04:51 PM   #47
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Originally Posted by REWahoo View Post
I am very appreciative of all the input from you and everyone else who has commented. It is really tough for me to fork over a substantial chunk of change to an insurance company and I'm still thinking about it. While I dally, the market will probably tank and I'll be saying, "Oops, too late."
If it were me, and I had these thoughts, I'd probably liquidate what I plan to now, and decide later when to commit to the SPIA. It doesn't have to be done in one step. Perhaps, as I think was suggested, 2 SPIAs at different times--one now, one later.

Another thought about rates, I don't know that they are going to go up that significantly any time soon so delaying on the SPIA may not do much.
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Old 12-07-2017, 04:58 PM   #48
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It's my plan exactly when i get to 70. Get a SPIA to complete coverage of necessary expenses. It's more of a sleep at night issue for me.

Huston, one problem with the hurdle method is that a 2008/9 scenario, or any swift downdraft might trigger the hurdle and you're really stuck with the decision of converting when the market has just tanked and you're selling at the bottom. Tough decision time. Except for those situations I like it.
I think we addressed this scenario in a previous thread. The hurdle or zone concept would work in a 2008/9 style downturn.

Wade Pfau- How are annuities better (different) from bonds?
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Old 12-07-2017, 05:33 PM   #49
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That would be my hang up with a SPIA, but it is a separate and distinct decision from taking money off the table because of market concerns. You can always take money off the table and then later decide how to deploy it.

If I were to buy a SPIA I would at least select one with certain minimum guaranteed payments... the discount in the monthly benefit isn't too severe and at least my DW and/or heirs would be assured of "getting their money back" if I get hit by a beer truck the day after buying it.

For a 71 yo couple, the discount between a 100% joint life annuity and a 100% joint life with 20 years guaranteed is only 5%.
Personally I'm continuing to invest in my CD ladder and let excess funds reinvest in equities. Contrary to popular opinion with a workable WR you can derive adequate income. My kids went nuts when I mentioned a SPIA, just to get their attention.
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Old 12-07-2017, 05:37 PM   #50
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If it were me, and I had these thoughts, I'd probably liquidate what I plan to now, and decide later when to commit to the SPIA. It doesn't have to be done in one step. Perhaps, as I think was suggested, 2 SPIAs at different times--one now, one later.

Another thought about rates, I don't know that they are going to go up that significantly any time soon so delaying on the SPIA may not do much.
Exactly what I was thinking. Take it out of the market now (sounds like that would help you sleep better), stick it in an ultra-safe place, and decide what to do with it as time goes by.

Really, it's all about helping you sleep better IMHO.
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Old 12-07-2017, 05:52 PM   #51
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REWahoo, can you get enough money for "sleep at night" purposes, if you spend around 30% or less on your SPIA?

If so, I think you should go for it and buy two, as you mentioned; 15% for one, and 15% for the other.

If not, well, I hesitate to advise you, or anyone else, to spend more than 30% of their nestegg on an annuity at today's low rates.

I may buy an annuity when I get older, but I'll probably wait until I am a bit older than you are at present. Maybe? When I feel like I am on the final decline, and may soon be incapable of doing anything more with my portfolio, I'll get that annuity. I'll have all my dividends and annuity proceeds sent directly to the bank, stop rebalancing, and make sure my will is in order.
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Old 12-07-2017, 06:43 PM   #52
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Everyone has different risk tolerances and finances. We don't have the full picture so how can anyone but ReWahoo do the analysis?

For us, I run VPW and look a depression period (1929 and forward) plus an inflation period (1966 and forward). What does the spending and portfolio balance look like in those cases is the question. I'm 69 so looking at the next 10 years in those sequences is pretty important to me. Net result, I can convince myself that we will be OK. No annuities for us and DS gets his inheritance.
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Old 12-07-2017, 07:08 PM   #53
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Light bulb moment! This also allows purchase from two different insurers to spread the (hopefully slight) risk.

Thanks for the suggestion.
Another one I forgot to mention is that since you are looking at a 50% survivorship, you may be better off purchasing a single life 20 year guaranteed period for you or your wife for 1/2 (90,000) and than 20 year guaranteed single life (90,000) for the other. I think the upfront fee may be less and you will guarantee 100% payout till you are 90 years old or your heirs, and still protect the 50% survivor payout
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Old 12-08-2017, 10:08 AM   #54
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I think we addressed this scenario in a previous thread. The hurdle or zone concept would work in a 2008/9 style downturn.

Wade Pfau- How are annuities better (different) from bonds?
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Old 12-30-2017, 03:13 PM   #55
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I wanted to circle back and tie up the loose ends on this thread.

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I've always told myself that at some point, always "when I get older", I might consider (can't believe I'm actually saying this) buying a SPIA. Well, I'm older (71) and I'm considering it.
I decided to stay the course. I may revisit the idea of a SPIA at some point, but for now I think I'm going to continue to dance with the AA that brung me.

Thanks for all the input.
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Old 12-30-2017, 04:09 PM   #56
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I wanted to circle back and tie up the loose ends on this thread.



I decided to stay the course. I may revisit the idea of a SPIA at some point, but for now I think I'm going to continue to dance with the AA that brung me.

Thanks for all the input.
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Old 12-30-2017, 09:24 PM   #57
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If I recall correctly the OP has a significant portion of assets in Wellesley ( As Do I to the tune of about 34% of liquid NW). Right or wrong I look at the fund history going back to 1970 and I see that the single worst year was 2008 with a drop of 9.84%. The worst multiple year performance was 1973-1974 with a combined drop of 9.92%. Both of these bad periods were sandwiched by good years that largely erased the bad performance. https://finance.yahoo.com/quote/vwinx/performance?ltr=1

Does this guarantee future performance? No, of course not - all it shows to my mind is that a balanced fund approach has as good a chance as anything else on this earth to recover from an extreme inflationary period along with recession (1973-1974) and from what looked like Armageddon at the time (2008). Who's to say an insurance company would actually be able to make those annuity payments if the SHTF?
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