Risk averse retirement investing

[Midpack]

Quote:

Originally Posted by obgyn65 But wouldn't buying deferred annuities in your 40s (starting paying at age 62 for example) and buying SPIAs after age 75 (where mortality credits are highest) have a better outcome than a modest:fixed income AA? This assumes we factor out heirs, married or single, etc.

You need only compare your approach to the chart in post #10 above to know. However don't overlook the fact that annuity payouts include return of principal, they are not "returns."

I am not criticizing a (very) conservative approach like yours, but it's (equities) not an either or decision - which you usually forget to note. The less risk you take, the larger your portfolio has to be relative to spending, substantially larger without equities - 40-60% is not trivial. Not including the caveat could mislead a novice member...

[OAG]

Much like OBGYN we are 100% CD's (in a 7 year ladder) and, more or less, mostly more, have been since about 1976. The majority of long term CD's are at PFCU (including both tIRA's and ROTH IRA's) or at NFCU. No real need to "rate chase" at other financial institutions. We do have a COLA'd pension, almost a matching combined SS benefit, and a great MEDICARE supplement for health care. Frankly at our mid-70's we like the term "won the game" as baring BOTH of us needing long term nursing care I think we have.

[daylatedollarshort]

Quote:

Originally Posted by Midpack You need only compare your approach to the chart in post #10 above to know. However don't overlook the fact that annuity payouts include return of principal, they are not "returns." I am not criticizing a (very) conservative approach like yours, but it's (equities) not an either or decision - which you usually forget to note. The less risk you take, the larger your portfolio has to be relative to spending, substantially larger without equities - 40-60% is not trivial. Not including the caveat could mislead a novice member...

There are other alternatives to having a comfortable retirement to having a huge portfolio. As you mentioned, one would be to just have low expenses in relation to the size of your portfolio. The other would be to have income streams besides stocks and fixed income products - rental income, hobbies that make money, pension and spousal/partner pensions, royalty income, two higher end SS benefits, etc.

I can control my hobby job income and expenses, but I can't control the stock market. Personally, I would rather have my income and expenses at least somewhat predictable.

I guess everyone has different goals and priorities, but I am often a bit surprised here at how many threads focus on SWR and rates of return compared to reducing expenses, finding fulfilling part time work or legally paying zero income taxes.

I have started calculating how much our laundry detergent costs per load. Just saving $100 a year on laundry detergent is $5K over the rest of our probable maximum lifespans, and we have hundreds if not thousands of little costs like that we can chip away at. In total cutting all these little expenses is really adding up to a lot of money we do not need to make up in investment returns. Finding a way to cut $20K a year without impacting quality of life means needing $1M less in nest egg draw down / retirement income money.

[bjorn2bwild]

Quote:

Originally Posted by ShokWaveRider I have been searching and searching for projected interest rate forecasts for the next 5 years and they seem to be rare as I need to make a decision by Feb 20th. If anyone has any please post a link. Thanks

I posted this link in the "how long can the bond rally continue" thread. Not exactly a forecast, more a fundamental argument for persistent low bond yields. Remember that forecasts are often wrong.

http://hoisingtonmgt.com/pdf/HIM2013Q4NP.pdf

[Huston55]

Quote:

Originally Posted by daylatedollarshort There are other alternatives to having a comfortable retirement to having a huge portfolio. One would be to just have low expenses in relation to the size of your portfolio. The other would be to have income streams besides stocks and fixed income products - rental income, hobbies that make money, pension and spousal/partner pensions, royalty income, two higher end SS benefits, etc. I can control my hobby job income and expenses, but I can't control the stock market. Personally, I would rather have my income and expenses at least somewhat predictable. I guess everyone has different goals and priorities, but I am often a bit surprised here at how many threads focus on SWR and rates of return compared to reducing expenses, finding fulfilling part time work or legally paying zero income taxes. I have started calculating how much our laundry detergent costs per load. Just saving $100 a year on laundry detergent is $5K over the rest of our probable maximum lifespans, and we have hundreds if not thousands of little costs like that we can chip away at. In total cutting all these little expenses is really adding up to a lot of money we do not need to make up in investment returns. Finding a way to cut $20K a year without impacting quality of life means needing $1M less in nest egg draw down / retirement income money.

Of course steady income beyond one's portfolio or lowering expenses changes the 'demand' on the portfolio. However, I think the (unstated) premise of the remark is that, 'all other things being equal'..."The less risk you take, the larger your portfolio has to be."

I don't view this as a judgment; I view it as a fact...one that we must all deal with in our own way based on our circumstances.

[daylatedollarshort]

Quote:

Originally Posted by Midpack That was mentioned in my earlier post, but edited above to repeat it.

Sorry, you are right. I put in your full post in my post and corrected my comment on it.

[John Galt III]

If you have a 401K, and a Stable Value fund available in it, you can get anywhere from 1 to 3 percent return per year. And the 401K is very safe from creditors.

[pb4uski]

Quote:

Originally Posted by obgyn65 But wouldn't buying deferred annuities in your 40s (starting paying at age 62 for example) and buying SPIAs after age 75 (where mortality credits are highest) have a better outcome than a modest:fixed income AA? This assumes we factor out heirs, married or single, etc.

I don't see how deferred annuities would be preferable. Annuity writers invest in the same fixed Income securities and then reduce it for expenses and profit/cost of capital in determining crediting rates vs fixed Income expense ratios.

Sent from my KFJWI using Tapatalk HD

[Midpack]

KFJWI = Kindle Fire HD 8.9 WiFi evidently, in case anyone else wonders...I didn't know.

Sent from my (old) iPad2 64GB using my index fingers

[traineeinvestor]

A portfolio that was mostly bonds, CDs and bank deposits would scare the $@### out of me.

With a potential time horizon of 50+ years, inflation in our cost of living worries me a lot more than market volatility. The bottom line for me is that there is no possible way to avoid all possible risks to a retirement portfolio - you can choose your risks (including diversifying to select exposure to different types of risk), but there is no such thing as a "no risk" portfolio.

[LOL!]

I'd like to see how to save $100 a year on laundry detergent.

I just looked at Amazon and name-brand Tide is less than 25 cents a load. So one hundred dollars of laundry detergent will let one do 400 loads of laundry a year. If one did 4 loads a week, that would be $50 of laundry detergent a year. If one used half the detergent amount, that would be $25 of laundry detergent a year. If one used an off-brand, I am sure one could save even more.

Anyways, I hope folks can see that saving $100 a year on laundry detergent was probably the wrong metaphor to use on a forum based on dryer sheets.

[Earl E Retyre]

Quote:

Originally Posted by LOL! I'd like to see how to save $100 a year on laundry detergent. I just looked at Amazon and name-brand Tide is less than 25 cents a load. So one hundred dollars of laundry detergent will let one do 400 loads of laundry a year. If one did 4 loads a week, that would be $50 of laundry detergent a year. If one used half the detergent amount, that would be $25 of laundry detergent a year. If one used an off-brand, I am sure one could save even more. Anyways, I hope folks can see that saving $100 a year on laundry detergent was probably the wrong metaphor to use on a forum based on dryer sheets.

LOL, you really lived up to your name. That post made me laugh out loud. Hilarious! I happen to agree with the daylatedollarshort's points. But agree that laundry detergent savings (LDS) was probably not the way to go.

[obgyn65]

Well with all due respect - is there something you know about the OP that I don't? Unless I am missing something from previous posts, maybe the OP has $3m or $4m, and lives on $40k or 50k a year, in which case he does NOT have to take any risk at all. He wants to take no risk and maybe has no heir. If he does not want to leave any legacy to anyone, I really don't see why a caveat is needed to my post. If a caveat is needed to my post, then a lot more caveats are needed :-)

Your graphs in post 10 do not answer my question. I would like to see concrete, verifiable evidence that those using deferred annuities their 40s and SPIAs in their 70s or later lose out compared to those investing in equities. I will try to find a couple of papers from W. Pfau on this topic. He seems to favor the use of SPIAs and even the superiority of deferred annuities over SPIAs.

Please read this : http://www.advisorperspectives.com/n...over_SPIAs.pdf

Quote:

Originally Posted by Midpack You need only compare your approach to the chart in post #10 above to know. However don't overlook the fact that annuity payouts include return of principal, they are not "returns." I am not criticizing a (very) conservative approach like yours, but it's (equities) not an either or decision - which you usually forget to note. The less risk you take, the larger your portfolio has to be relative to spending, substantially larger without equities - 40-60% is not trivial. Not including the caveat could mislead a novice member...

[obgyn65]

What are crediting rates?

Quote:

Originally Posted by pb4uski I don't see how deferred annuities would be preferable. Annuity writers invest in the same fixed Income securities and then reduce it for expenses and profit/cost of capital in determining crediting rates vs fixed Income expense ratios. Sent from my KFJWI using Tapatalk HD

[Alan]

Quote:

Originally Posted by obgyn65 Well with all due respect - is there something you know about the OP that I don't? Unless I am missing something from previous posts, maybe the OP has $3m or $4m, and lives on $40k or 50k a year, in which case he does NOT have to take any risk at all. He wants to take no risk and maybe has no heir. If he does not want to leave any legacy to anyone, I really don't see why a caveat is needed to my post. If a caveat is needed to my post, then a lot more caveats are needed :-)

I think you should also be adding the caveat that your financial planning is underpinned with pensions because in the past you have asked on threads about any ways to avoid your SS being reduced because of WEP.

I am in a similar situation with a combination of pensions, 3 of them COLA'ed, so that if my retirement investments get burned either by poor market returns or by inflation I have a secure income that I can live on. I include SS and the UK equivalent of SS when I say pensions.

[daylatedollarshort]

Quote:

Originally Posted by LOL! I'd like to see how to save $100 a year on laundry detergent. I just looked at Amazon and name-brand Tide is less than 25 cents a load. So one hundred dollars of laundry detergent will let one do 400 loads of laundry a year. If one did 4 loads a week, that would be $50 of laundry detergent a year. If one used half the detergent amount, that would be $25 of laundry detergent a year. If one used an off-brand, I am sure one could save even more. Anyways, I hope folks can see that saving $100 a year on laundry detergent was probably the wrong metaphor to use on a forum based on dryer sheets.

I wasn't buying low priced commercial detergent on Amazon. I used to buy hypoallergenic, no caustic chemical detergent at the local grocery store in a high rent zip code in a high cost of living area. Plus I probably do a load a day of laundry.

I am not sure what your point is, that I don't know what I spend on laundry detergent, or that hundreds of little recurring expenses added up over 50 years do not result in big savings?

My point is that we had hundreds of little items like that we were overspending money on. If you already have every expense in your budget optimized, including buying low cost brands of every product from low cost stores, then logically you would not have any additional expense cuts to make.

[ERD50]

Quote:

Originally Posted by pb4uski I don't see how deferred annuities would be preferable. Annuity writers invest in the same fixed Income securities and then reduce it for expenses and profit/cost of capital in determining crediting rates vs fixed Income expense ratios. ...

Bu the annuity writers do have the advantage of risk pooling. I do not know if the costs outweighs the advantage for the annuity buyer though.

I've never tried putting these into FIRECalc, I guess there are on-line quotes for annuities, shouldn't be too hard to get some general ideas (not today for me, will be busy with other things). I suspect that the non-cola affect is likely to be a downer.

-ERD50

[bmcgonig]

Quote:

Originally Posted by ERD50 Bu the annuity writers do have the advantage of risk pooling. I do not know if the costs outweighs the advantage for the annuity buyer though. I've never tried putting these into FIRECalc, I guess there are on-line quotes for annuities, shouldn't be too hard to get some general ideas (not today for me, will be busy with other things). I suspect that the non-cola affect is likely to be a downer. -ERD50

Since we are experiencing the Pineapple Express here in the Bay Area I had time to play with this.

I got a quote from fidelity for a deferred annuity for a single man aged 60 deferring until age 70. And then determined the IRR, I hope correctly.

Investing 100000 at age 60 one would receive 13272 per year from age 70. The IRR of course depends on when you die. But if you are a conservative investor concerned with longevity, the results are quite good:

If you live to 100 the IRR is 6.468%
At 95 it's 6.117
At 90 it's 5.536
At 83 which is the life expectancy for a 60 yr old, it's 3.9
And of course goes down from there to a neg number if u die soon.

So if you are worried about longevity the deferred annuity allows you to swap a large positive IRR if you live a long time for a large negative one, if you die early.

If you have good genes and your parents lived to a ripe old age , and you're healthy, then, for me anyway, there's a good case to be made that this is way better than a conservative income portfolio...unless I screwed up the calculation

I'd welcome opposing opinions or someone seeing holes in this as I have severe longevity in my family

[Midpack]

Quote:

Originally Posted by obgyn65 Well with all due respect - is there something you know about the OP that I don't? Unless I am missing something from previous posts, maybe the OP has $3m or $4m, and lives on $40k or 50k a year, in which case he does NOT have to take any risk at all. He wants to take no risk and maybe has no heir. If he does not want to leave any legacy to anyone, I really don't see why a caveat is needed to my post. If a caveat is needed to my post, then a lot more caveats are needed :-)

Quote:

Originally Posted by Midpack I am not criticizing a (very) conservative approach like yours, but it's (equities) not an either or decision - which you usually forget to note. The less risk you take, the larger your portfolio has to be relative to spending, substantially larger without equities - 40-60% is not trivial. Not including the caveat could mislead a novice member...

I don't need to know more about the OP to make the statement in blue, which is much the same as your statement in blue.

The graphs do provide a good indication of how risk and return relate.

Re: the caveat: Just my opinion, but if you're going to recommend investing in CDs, annuities and fixed income without any equity allocation (esp to newbies), you should also note that very conservative approach will require a much larger portfolio relative to spending. There are many inexperienced readers who may not realize how substantial that difference is.

Beyond that we've had this discussion many times, no need to repeat ourselves.

[Chuckanut]

Quote:

Originally Posted by pb4uski I don't see how deferred annuities would be preferable. Annuity writers invest in the same fixed Income securities and then reduce it for expenses and profit/cost of capital in determining crediting rates vs fixed Income expense ratios. Sent from my KFJWI using Tapatalk HD

Is it the idea that if one outlives fellow annuity holder, one can also collect part of their income? Not that I recommend an annuity, but the idea is that those who die early allow bigger payments for the remaining folks. But are the payments big enough?