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Old 11-21-2012, 02:36 PM   #21
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Permanent income

Hi, welcome to the forum. I just recently did an exercise similar to your own. I ran the numbers for immediate annuities, deferred annuities, keeping my own investments and a number of scenarios. I am 45 and decided against the immediate annuity because I didn't want to pay taxes on the income every year when I didn't need the income right now.

I decided to go with a 20% portion in deferred annuities. The ones I picked will only accumulate value for up to 20 years but I can turn the income on at any time should I need it. Until then they gain an average 'virtual value' of around 7%. I spread my money across 4 different insurance companies to guard against one of them going belly up but after all the research I did I'm more confident in the annuities then just about anything else. I bought them to be my pension so that I would always have an income source since I have no pension.

Just for grins I tested the extreme scenarios. I tested putting all my money into the deferred annuities. If I did that I would have $460K per year for life starting at 65. Even with inflation I'm pretty confident that would be a comfortable income in 20 yrs.

The scenario I decided on provides me with $110K for life with bumps for home health care or nursing home. If I can manage 5.35% on the rest of my money (EVERY YEAR) and I do a 4% withdrawal rate I should be able to take out $294,461 per year in 20 yrs. As a result I'm sort of building in a expected lower income to my plan but I'm diversifying my efforts and I have access to the principal if I need it. With the annuities the money is pretty much locked up.

Will I look back and wish I'd put more in the annuities? Hard to say. Will I be able to manage more than the 5.35% average over the 20 yrs. I'm not too optimistic.

However I must say that if a fifth annuity crosses my desk that looks as good as the four I bought I would likely buy it.
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Old 11-21-2012, 02:55 PM   #22
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Originally Posted by Sun456 View Post
Hi, welcome to the forum. I just recently did an exercise similar to your own. I ran the numbers for immediate annuities, deferred annuities, keeping my own investments and a number of scenarios. I am 45 and decided against the immediate annuity because I didn't want to pay taxes on the income every year when I didn't need the income right now.

I decided to go with a 20% portion in deferred annuities. The ones I picked will only accumulate value for up to 20 years but I can turn the income on at any time should I need it. Until then they gain an average 'virtual value' of around 7%. I spread my money across 4 different insurance companies to guard against one of them going belly up but after all the research I did I'm more confident in the annuities then just about anything else. I bought them to be my pension so that I would always have an income source since I have no pension.

Just for grins I tested the extreme scenarios. I tested putting all my money into the deferred annuities. If I did that I would have $460K per year for life starting at 65. Even with inflation I'm pretty confident that would be a comfortable income in 20 yrs.

The scenario I decided on provides me with $110K for life with bumps for home health care or nursing home. If I can manage 5.35% on the rest of my money (EVERY YEAR) and I do a 4% withdrawal rate I should be able to take out $294,461 per year in 20 yrs. As a result I'm sort of building in a expected lower income to my plan but I'm diversifying my efforts and I have access to the principal if I need it. With the annuities the money is pretty much locked up.

Will I look back and wish I'd put more in the annuities? Hard to say. Will I be able to manage more than the 5.35% average over the 20 yrs. I'm not too optimistic.

However I must say that if a fifth annuity crosses my desk that looks as good as the four I bought I would likely buy it.
Where are you getting such high deferred annuity returns today? I can see that as being the pay out rate at 65, but that would include a lot of principal too.
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Old 11-21-2012, 03:02 PM   #23
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Where are you getting such high deferred annuity returns today? I can see that as being the pay out rate at 65, but that would include a lot of principal too.
I bought (in order of best payer to worst payer) Equitrust MarketTwelve Bonus Index with Income for life, Midland National MNL Capstone 14 with Retire X-Cell Rider, (the next best one was North American Charter Series 14 yr option with Income Pay option 2 but it has the same parent company as Midland so I skipped over it), Aviva Income Preferred Bonus with Income Edge Plus and Prudential X Series with Highest Daily (HD) Lifetime Income. All have the rates have been lowered since I bought earlier in the year. If I had bought at this time last year the rates were higher then so I didn't get the top rates but rather bought as they started to slide down.
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Old 11-21-2012, 03:25 PM   #24
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I bought (in order of best payer to worst payer) Equitrust MarketTwelve Bonus Index with Income for life, Midland National MNL Capstone 14 with Retire X-Cell Rider, (the next best one was North American Charter Series 14 yr option with Income Pay option 2 but it has the same parent company as Midland so I skipped over it), Aviva Income Preferred Bonus with Income Edge Plus and Prudential X Series with Highest Daily (HD) Lifetime Income. All have the rates have been lowered since I bought earlier in the year. If I had bought at this time last year the rates were higher then so I didn't get the top rates but rather bought as they started to slide down.
Ahh. My TIAA-Traditional is a lot simpler and I think has far lower fees. I can get stock market gains from my mutual funds and the TIAA-Traditional provides me with a low cost way to guarantee at least 3% growth a year
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Old 11-22-2012, 09:35 AM   #25
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I don't think its a bad idea. If you put the majority in stock or bond funds and we have another major correction, you will be spending the next decade trying to recoup your investment. Protect the principal and take more risk with the returns. Sounds like a mature and sound plan. Good luck.
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Old 11-22-2012, 07:45 PM   #26
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Regarding your choice to purchase annuities, I'd say wait and think it through. Times of historical low interest rates might not be the best time to lock into an annuity.

Regarding some of the replies to your post, I'd say "oy vey".
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Old 11-23-2012, 09:19 AM   #27
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Thanks for a lively discussion and Happy Thanksgiving to all.
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