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Old 12-20-2015, 01:25 PM   #61
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So like you I'm trying to set us up to use our money to produce cash flow for retirement years and just now starting to looking into annuities. It's like I'm trying to learn a foreign language. Maybe I'll pick up a annuities for dummies book to start. I need an aha moment because I'm feeling overwhelmed.

So when does that relaxing part come lol
You need to be really careful with annuities. There are many that are an enormous rip off and should be avoided at all costs. The only annuities you should consider are probably fixed interest rate single premium immediate annuities (SPIAs) and QLACs if you are worried about longevity insurance. All other annuities come with fees and complicated contracts that make them expensive ways to fund retirement.

Whether an annuity might be appropriate for you depends on you need for income, available assets and your personal preference, but remember SS is the best annuity you'll ever have, so you need to decide if you really need more annuity income and for many people the answer will be "no".
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Old 12-20-2015, 02:33 PM   #62
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The mass migration from DBP to DCP will result in more and more folks going with annuities vs diy. I may even be one myself for a small fraction of nest egg. The annuity industry must be thrilled! DCPs should include an inexpensive annuity option for distribution like the Govt TSP has.


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Old 12-20-2015, 02:41 PM   #63
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The mass migration from DBP to DCP will result in more and more folks going with annuities vs diy. I may even be one myself for a small fraction of nest egg. The annuity industry must be thrilled! DCPs should include an inexpensive annuity option for distribution like the Govt TSP has.


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That's not a bad idea if you think you need a bit more conservative and safe income to supplement SS. The difficulty would come if it was used too much because people were afraid of the stock market and they ended up with insufficient income growth. Personally I planned to use TIAA-Traditional deferred annuity as my safe income source, but I've ended up just reinvesting the 4% annual interest.
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Old 12-20-2015, 03:09 PM   #64
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I realize that I'm not considering the purchase of an inflation-adjusted annuity! However, the Federal Reserve likes to maintain a 2% core inflation rate, so I like having a big chunk of my retirement income tied to the core inflation rate! This addresses the feedback that I've received about not having enough income later in life.
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Old 12-20-2015, 08:21 PM   #65
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I realize that I'm not considering the purchase of an inflation-adjusted annuity! However, the Federal Reserve likes to maintain a 2% core inflation rate, so I like having a big chunk of my retirement income tied to the core inflation rate! This addresses the feedback that I've received about not having enough income later in life.
I think you might be mis-interpreting your deferred annuity. That 2% annual increase just drops out of taking the income later in life. If you took the annuity now and calculated the interest rate based on your actuarial lifespan you'd probably come out with ~2% interest rate too. Once you start taking income you imply that there will be no inflation adjustment, this is one big criticism of fixed annuities because their buying power declines with time. You must understand that a 2% interest rate will be required to keep your annuity payments constant and that your income will not be tied to inflation and if the rate goes to 3%, 4%, 5% etc you will find your constant income buying less and less. Over 10, 20 or 30 years this can lead to large shortfalls.
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Old 12-20-2015, 09:43 PM   #66
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John, nun hit on a critical point that it is important that you understand.

Let's say if you buy an annuity today, your benefit start in 3 years and are $1,000/month when you are 60. If inflation is 2%, when you are 80 those $1,000/month payments will only buy $672 worth of goods. At age 80, can you afford to live on 67% of what your income is at age 60?
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Old 12-21-2015, 05:23 AM   #67
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pb4uski Now that just wrong. If i have SS of 2000 a month my income doesn't
drop to 67% of income at 80. Just the annuity drops to 67%. The annuity is just 33% of starting retirement income.
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Old 12-21-2015, 06:59 AM   #68
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alaska55, I don't understand what you think is wrong. The SS doesn't drop because it is inflation adjusted. The annuity drops because it is NOT inflation adjusted.

The discussion is only about the annuity.
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Old 12-21-2015, 07:47 AM   #69
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Go back and read what you posted, you stated income would drop. What I'm saying with the annuity only being 33% of of income your not taking that big of a hit from inflation, because SS is inflation protected! Now if you want to go back and edit so it says the annuity I would agree with you 100%. I would say over 50% of Defined pension plans are not cola. So looking at buying a annuity with about 25%of investments is something to look at for a base retirement amount for people with no DPP or in my case a small one. I did contract work the last 15 years of my employment. which included higher pay instead of benefits. So I'm most likely going to buy a small spia, along with my small pension will be about the same as a pension i would have earned if I had stayed full time.
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Old 12-21-2015, 08:38 AM   #70
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alaska, we were talking about the annuity... we were NOT at all talking about SS. For all I know JohnS might be one of those people who do not have SS. In fact, John has not mentioned SS at all in any of his posts, just annuities.

I see your point that IF someone had SS and a fixed annuity that their total income would only be partially impacted by inflation since SS is inflation adjusted and a fixed annuity is not, but that isn't what we were talking about!

I guess to be more clear for you I should have been more specific and stated "annuity income" rather than "income" in the last sentence of the post you responded to but in context it should have been evident.
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Old 12-21-2015, 11:19 AM   #71
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This is a very informative thread for people like me who are looking into investing in an Annuity.
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I'm satisfied with my annuities
Old 12-21-2015, 12:00 PM   #72
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I'm satisfied with my annuities

I worked for a non-profit and TIAA-CREF handled our retirement funds. In this case it is easy to use annuities as part of one's retirement funds. I annuitized about 40 percent of my retirement assets (some at age 66 and the rest at age 70). This, together with my SS covers my basic needs. I invest the rest of my funds fairly aggressively because my basic needs are safely met.

This has worked out well for me. The alternative was to buy something safe like bonds and I don't like to have too many bonds in today's environment.

If you are under age 70 you might consider waiting to buy an annuity. This takes away some of the inflation risk as you are no longer planning for such a long period.
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Old 12-21-2015, 12:51 PM   #73
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Just another guy who doesn't have one but seriously considered getting one years ago. I didn't, and now regret it.


Using one of those "Immediate Annuity Quotes" websites:
At age 60 (2005), $100k would have gotten DW and I $563/month for as long as one of us was alive.
Now, at age 70, $100k would only get us $514/month.


The hit from reduced bond rates has far overcome our older age advantage of today.
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Old 12-21-2015, 01:12 PM   #74
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But... what has that $100k that you didn't spend on a SPIA at age 60 grown to be today?

$100k invested in Vanguard Wellesley Admiral 10 years ago would be worth $196,796 today, and would give you a monthly benefit of $1,012 (almost twice as much) if you sold and used the proceeds to buy a SPIA, ignoring taxes like in a tax-deferred or tax-free account. If it was in a taxable account then it would be $937 a month after paying 15% capital gains tax on the $96k gain.

Of course, YMMV depending on what the money was invested in, your tax situation, etc. Feel better now?
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Old 12-21-2015, 04:10 PM   #75
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This is a very informative thread for people like me who are looking into investing in an Annuity.
I take a bit of issue applying the term "investing" to an annuity. Annuities are really insurance.....as investments they pretty much su@k. You'll only get 2% annual return as a single male age 65 living to age 83. There are far better investments out there, but they obviously carry more risk.
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Old 12-21-2015, 04:21 PM   #76
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I worked for a non-profit and TIAA-CREF handled our retirement funds. In this case it is easy to use annuities as part of one's retirement funds. I annuitized about 40 percent of my retirement assets (some at age 66 and the rest at age 70). This, together with my SS covers my basic needs. I invest the rest of my funds fairly aggressively because my basic needs are safely met.

This has worked out well for me. The alternative was to buy something safe like bonds and I don't like to have too many bonds in today's environment.

If you are under age 70 you might consider waiting to buy an annuity. This takes away some of the inflation risk as you are no longer planning for such a long period.
I worked in academia and have TIAA-CREF and use TIAA-Traditional. I have considered using some of it to buy a life time annuity as the rates they offer are substantially better that the open market. However, I like keeping control of my principal and just take the 4% interest and use TIAA-Traditional in place of a bond allocation. I definitely don't see bond funds as "safe" anymore.
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I rolled-over my 401K today and I'm thinking about a fixed annuity now!
Old 12-23-2015, 06:41 PM   #77
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I rolled-over my 401K today and I'm thinking about a fixed annuity now!

Since I've been hyper-focused on retirement planning this year, I won't be able to sleep until I've got this solved to my satisfaction! Today I performed a partial rollover of my Fidelity Investments 401K into my Vanguard IRA! I started by logging-into my Vanguard account because this is how I initiated 2 IRA rollovers earlier this year. However, I didn't see a way to initiate a partial rollover online so I called Vanguard and, ahem, was directed to their high net worth department. The rep got a Fidelity rollover agent on the call who was very helpful and offered no resistance to my departure! Since Fidelity is unable to perform a trustee-to-trustee electronic exchange, I'll be receiving a check, made out to Vanguard, early next week! I've left enough money in my 401K to live-on until I'm 60.

At first blush, it sounds like an annuity with a 2% annual increase is a good idea, because a 2% increase covers the core inflation rate. In addition, it takes only a little over a year longer for the 2% increase to repay the purchase price than a fixed annuity does. However, there's something else to consider because the total payout of the 2% increase annuity won't catch-up with the fixed annuity until I'm 84! In other words, although the 2% annuity payments are higher later in life, the odds are against the annuitant being around to take advantage of them!

Another reason that I like the fixed annuity is the higher initial payment. My car will be 10 years old in May and I'm going to need a new one sooner, rather than later! The extra income from the fixed annuity will let me make a car payment and travel the planet!

I realize that many of you disagree with what I'm doing, but I disagree with what you're doing, so there!

Good luck with your retirement planning!
John Swanson
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Old 12-23-2015, 07:06 PM   #78
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Another reason that I like the fixed annuity is the higher initial payment. My car will be 10 years old in May and I'm going to need a new one sooner, rather than later! The extra income from the fixed annuity will let me make a car payment and travel the planet!
So you are going to pay an insurance company to dole your money back to you so you can take out a loan and pay interest to buy you a new car?

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I realize that many of you disagree with what I'm doing...
Ya think?

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Good luck with your retirement planning!
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Old 12-23-2015, 07:48 PM   #79
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How about putting the 100k into a 50/50 blend of long term care treasuries and total stock market index funds + buy a long life annuity that pays out only if you live beyond 85. Then sell the stock and bond investments gradually to get the same 6% return you would have gotten from your fixed annuity.

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Old 12-23-2015, 07:49 PM   #80
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Or, even better, skip the long life annuity and just do the stock and bond investments. ☺

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