Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
PSA: Investing for Retirement: SPIAs, TIPS, Stocks
Old 06-15-2012, 11:10 AM   #1
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,973
PSA: Investing for Retirement: SPIAs, TIPS, Stocks

While I don't agree entirely (mostly in terms of timing more than principles), it's a timely article with some thought provoking ideas - and I am all for that!

If the quote is of interest to you, the article might be as well. [Disclosure: I found this link from Wade Pfau's blog].
Quote:
Originally Posted by Joe Tomlinson's article
Relying only on stocks and bonds to fund a decumulation strategy may no longer be feasible, given today’s low interest rate environment and the prospect of muted returns from the equities market. Investors should instead consider using single-premium immediate annuities (SPIAs) to fund at least a portion of retirement needs.
Investing for Retirement: SPIAs, TIPS, Stocks and the 4% Rule or the whole 4-page article in PDF format if you prefer http://advisorperspectives.com/newsl...Retirement.pdf

And some interesting opinions on the article from Wade Pfau.
Quote:
Originally Posted by Wade Pfau's Blog
In my view, he has several important findings about the allocation between stocks, TIPS, and SPIAs:

-While partial annuitization has little impact on failure rates, it does help to dramatically reduce the magnitude of failure. Expected bequests are also reduced. The proper choice depends on how a retiree weighs the tradeoff between their ability to leave a bequest and their fear of running out of money.

-A TIPS ladder is quite exposed to longevity risk.

-SPIAs act as "turbo-charged" bonds. This suggests that there is not much room for bonds in a retirement portfolio. Instead of stocks and bonds, you may wish to instead be thinking more in terms of stocks and SPIAs.

-This final point is something I am still thinking through and don't have any clear opinion of my own yet. Conventional wisdom is that it is a bad time to annuitize when interest rates are low. Rather, wait for rates to rise. But I believe that Joe is essentially arguing that the overall case for partial annuitization (relative to the alternatives) becomes stronger precisely when interest rates are low.
__________________

__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 06-15-2012, 11:20 AM   #2
Moderator
MichaelB's Avatar
 
Join Date: Jan 2008
Location: Rocky Inlets
Posts: 24,446
I'm skeptical of Tomlinson's analysis. He tests a 4% withdrawal with an annuity instead of bonds but for the annuity uses a 4.31% inflation adjusted SPIA. That annuity return does not reflect reality for the majority of us.
__________________

__________________
MichaelB is offline   Reply With Quote
Old 06-15-2012, 11:28 AM   #3
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,973
Quote:
Originally Posted by MichaelB View Post
I'm skeptical of Tomlinson's analysis. He tests a 4% withdrawal with an annuity instead of bonds but for the annuity uses a 4.31% inflation adjusted SPIA. That annuity return does not reflect reality for the majority of us.
I agree it sounds high, I thought the prevailing rate was somewhere in the 3.0-3.5% range, but inflation adjusted SPIA quotes seem much harder to come by than fixed. I just took his word for it as he repeatedly names his source (Income Solutions) and date May 31 (presumably 2012).

And this works out to about 4.3% for female, age 65, inflation adjusted http://www.principal.com/retirement/...elm/income.htm no?

And I'm still looking forward to Wade Pfau's article...
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57

Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
Midpack is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


 

 
All times are GMT -6. The time now is 01:08 PM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.