Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Social Security Is The Best "Annuity" Deal, Say Experts
Old 05-01-2013, 03:40 PM   #1
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
mickeyd's Avatar
 
Join Date: Apr 2004
Location: South Texas~29N/98W
Posts: 5,881
Social Security Is The Best "Annuity" Deal, Say Experts

The author digs into his own SS account and discovers that it's a darn good deal after all. Prior to receiving my SS, I dug into SS as much as I could and came away with an understanding that SS was an excellent plan for the beneficiaries (not necessarily for the taxpayers) because it was so flexible.

I agree with much of what the author says in the piece.


Quote:
By the time he retires, Klein estimates, he and his employer will have paid $314,000 to $381,000 into Social Security, depending on when he retires, far less than the cost of a deferred income annuity that would match the Social Security benefits.
Part of the reason Social Security is such a good deal, Klein explains, is the fact that the benefits go up 8 percent a year for each year the recipient delays receiving benefits after full retirement age until age 70.
To keep the calculations simple, Klein says he did not include his wife’s spousal Social Security benefits. But in fact, she will be entitled to half of the amount he is receiving when she reaches her full retirement age and she will receive either his full benefit amount or hers, whichever is higher, after he dies.
Social Security Is The Best "Annuity" Deal, Say Experts
__________________

__________________
Part-Owner of Texas

Outside of a dog, a book is man's best friend. Inside of a dog, it's too dark to read. Groucho Marx

In dire need of: faster horses, younger woman, older whiskey, more money.
mickeyd 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 05-01-2013, 03:56 PM   #2
Thinks s/he gets paid by the post
heeyy_joe's Avatar
 
Join Date: Nov 2012
Location: Madeira Beach Fl
Posts: 1,403
After checking other current annuity rates, the author decided to go way out on a limb with this declaration, eh?
__________________

__________________
_______________________________________________
"A man is a success if he gets up in the morning and goes to bed at night and in between does what he wants to do" --Bob Dylan.
heeyy_joe is offline   Reply With Quote
Old 05-01-2013, 04:12 PM   #3
Recycles dryer sheets
 
Join Date: May 2011
Location: Austin
Posts: 223
The author is clueless about present and future value of the money.

Excluding this year, I paid 17 years of tax, combined at a total of $194K (employers & self). If I stop working today, I will get a SSA payout of $15.4K (today's dollar) at 62.

Do I make my contribution $194K at 62? Definitely not!

Assuming 6% compounding, my $194K today over the 17 years should have been $309K now. And at 62, that is going to be $741K. Assume sustainable WR of 4%, my money will produce $29.6K. While SSA check will be $24K (assuming 3% inflation).
__________________
HillCountry is offline   Reply With Quote
Old 05-01-2013, 04:16 PM   #4
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
......and it's even better if you can defer until 70. I came to the conclusion that Government sources of retirement income were a good deal 25 years ago and I decided to make voluntary payments into the UK equivalent of SS in addition to also paying FICA. So for the past 25 years I've paid an average of $200 a year to the UK and that will get me a full state pension at age 66 of about $1800/month........so I've doubled down on SS.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 05-01-2013, 04:18 PM   #5
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
Quote:
Originally Posted by HillCountry View Post
The author is clueless about present and future value of the money.

Excluding this year, I paid 17 years of tax, combined at a total of $194K (employers & self). If I stop working today, I will get a SSA payout of $15.4K (today's dollar) at 62.

Do I make my contribution $194K at 62? Definitely not!

Assuming 6% compounding, my $194K today over the 17 years should have been $309K now. And at 62, that is going to be $741K. Assume sustainable WR of 4%, my money will produce $29.6K. While SSA check will be $24K (assuming 3% inflation).
A nice annuity then........the SS has political risk rather than market risk, but I believe it's good to have both in your portfolio.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 05-01-2013, 04:24 PM   #6
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: Texas
Posts: 15,612
Quote:
Originally Posted by heeyy_joe View Post
After checking other current annuity rates, the author decided to go way out on a limb with this declaration, eh?
I thought this was pretty common knowledge by now, even more so today than in the past given horrible rates on annuities because of the ongoing low interest rates (aka The War on Savers)....
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
ziggy29 is offline   Reply With Quote
Old 05-01-2013, 04:26 PM   #7
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: Texas
Posts: 15,612
Quote:
Originally Posted by nun View Post
A nice annuity then........the SS has political risk rather than market risk, but I believe it's good to have both in your portfolio.
And in reality, if you are over 55 the political risk drops sharply. It doesn't vanish entirely, but as I mentioned in another thread this morning, I hear almost no one in Washington willing to suggest, let alone vote for, any changes that would result in *direct* benefit cuts for anyone over 55.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
ziggy29 is offline   Reply With Quote
Old 05-01-2013, 04:42 PM   #8
Thinks s/he gets paid by the post
 
Join Date: Feb 2011
Posts: 1,629
Quote:
Originally Posted by ziggy29 View Post
And in reality, if you are over 55 the political risk drops sharply. It doesn't vanish entirely, but as I mentioned in another thread this morning, I hear almost no one in Washington willing to suggest, let alone vote for, any changes that would result in *direct* benefit cuts for anyone over 55.
Perhaps not direct benefit cuts, but certainly NET benefit cuts if/when taxes are increased on high-earners/high NW retirees. It's only a small jump to subjecting all SS benefits (from current max of 85%) to income tax. Most forget that prior to 1980's SS benefits were not subject to fed income tax. IMHO- there is very real political risk of increased SS taxation &/or benefit reductions with outside income.
__________________
ERhoosier is offline   Reply With Quote
Old 05-01-2013, 04:48 PM   #9
Moderator
ziggy29's Avatar
 
Join Date: Oct 2005
Location: Texas
Posts: 15,612
Quote:
Originally Posted by ERhoosier View Post
Perhaps not direct benefit cuts, but certainly NET benefit cuts if/when taxes are increased on high-earners/high NW retirees. It's only a small jump to subjecting all SS benefits (from current max of 85%) to income tax.
Sure -- which is why I specifically said "direct". I fully expect some tinkering with the amount of SS that is taxable, or changes to how COLAs are calculated, but no one directly slashing benefits for anyone already old enough to get benefits, and probably not anyone over 55.

In reality, the lack of inflation indexing on the thresholds that trigger 50% and 85% taxation of SS benefits already is an ongoing stealth form of "reduced benefit" through bracket creep, and have been a rather significant source of lower *real* after-tax benefits over the years. That's really a topic that should have had seniors hopping mad for years, even more so than about proposed "SS reforms" that aren't likely to hit them too hard anyway (relative to their kids and grandkids).

As it is today, if you don't even have 50% of your SS taxed, you're probably living in poverty or very close to it, and that wasn't the case in the 1980s when this started. And the threshold that triggers 85% is generally considered lower middle class today. It's a little ironic that in the 1980s, when they eliminated "bracket creep" by indexing income tax brackets to inflation, they added a system of taxing SS benefits which were NOT.
__________________
"Hey, for every ten dollars, that's another hour that I have to be in the work place. That's an hour of my life. And my life is a very finite thing. I have only 'x' number of hours left before I'm dead. So how do I want to use these hours of my life? Do I want to use them just spending it on more crap and more stuff, or do I want to start getting a handle on it and using my life more intelligently?" -- Joe Dominguez (1938 - 1997)

RIP to Reemy, my avatar dog (2003 - 9/16/2017)
ziggy29 is offline   Reply With Quote
Old 05-01-2013, 08:08 PM   #10
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 3,820
Quote:
Originally Posted by mickeyd View Post
The author digs into his own SS account and discovers that it's a darn good deal after all. Prior to receiving my SS, I dug into SS as much as I could and came away with an understanding that SS was an excellent plan for the beneficiaries (not necessarily for the taxpayers) because it was so flexible.

I agree with much of what the author says in the piece.
I think most people here would agree that if you're 62 and thinking about buying a private SPIA, you should defer your SS payment instead. Especially given today's low interest rates, SS is the better deal.

But, whether SS has been a good deal based on a lifetime's history of tax payments is a different question. The author appears to be completely ignoring investment returns that could have been earned on his taxes. I don't see how someone who claims to be a financial adviser can make that mistake.
__________________
Independent is offline   Reply With Quote
Old 05-01-2013, 08:19 PM   #11
Thinks s/he gets paid by the post
gauss's Avatar
 
Join Date: Aug 2011
Posts: 1,708
Quote:
Originally Posted by HillCountry View Post
The author is clueless about present and future value of the money.

Excluding this year, I paid 17 years of tax, combined at a total of $194K (employers & self). If I stop working today, I will get a SSA payout of $15.4K (today's dollar) at 62.

Do I make my contribution $194K at 62? Definitely not!

Assuming 6% compounding, my $194K today over the 17 years should have been $309K now. And at 62, that is going to be $741K. Assume sustainable WR of 4%, my money will produce $29.6K. While SSA check will be $24K (assuming 3% inflation).
But it sounds like you are counting the employer half of "your" $194K. You should be comparing the SSA check ($24k) to 1/2 of the sustainable WR, ie $14.8k if I am following your illustration correctly

-gauss
__________________
gauss is offline   Reply With Quote
Old 05-01-2013, 08:33 PM   #12
Recycles dryer sheets
comicbookgujy's Avatar
 
Join Date: Jan 2013
Posts: 178
Why would anyone buy an Annuity in this low rate environment

So he contributed about $122,000 during his 35 years working. that's about $3,500 annually.

If he put that $3,500 annually into the S & P 500 for the last 35 years, his $122,000 would be $1,000,000.00(using the 10% return over the last 35 years...past performance is not an indication of future performance blah blah).

Hell of a lot more than the $600k he's talking about to buy an annuity!!!



"Over his working career, Klein and his employers have paid $243,000 into the Social Security system."
__________________
comicbookgujy is offline   Reply With Quote
Old 05-01-2013, 11:42 PM   #13
Recycles dryer sheets
 
Join Date: Jan 2013
Posts: 118
Like others have said, you need to calculate the fv the employee/employer tax payments. If one would have invested these funds, the beneficiary would have received a much much higher return, it would be of no liability to anyone, and it could be passed on to other generations. game/set/match
__________________
AndrewJackson is offline   Reply With Quote
Old 05-02-2013, 06:44 AM   #14
Thinks s/he gets paid by the post
obgyn65's Avatar
 
Join Date: Sep 2010
Location: midwestern city
Posts: 4,061
I did last year. I bought deferred annuities, as discussed in other threads. Please use the google function above for more details. I am also aware that other forum participants have bought deferred annuities and SPIAs. However, it is fair to say that a majority of participants here are not in favor of annuities.

IMO the rate environment will get worse so I locked in my rate last year. Only time will tell who was right.
Quote:
Originally Posted by comicbookgujy View Post
Why would anyone buy an Annuity in this low rate environment

"
__________________
Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.
obgyn65 is offline   Reply With Quote
Old 05-02-2013, 06:52 AM   #15
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
Quote:
Originally Posted by Independent View Post

But, whether SS has been a good deal based on a lifetime's history of tax payments is a different question.
It is a different question, and SS is completely different from equities so to compare the returns on a given contribution without including the relative risks isn't of much use IMHO.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 05-02-2013, 06:57 AM   #16
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
Quote:
Originally Posted by AndrewJackson View Post
Like others have said, you need to calculate the fv the employee/employer tax payments. If one would have invested these funds, the beneficiary would have received a much much higher return, it would be of no liability to anyone, and it could be passed on to other generations. game/set/match
Risk needs to be included to make any comparison. Also people forget that SS is not just for you, it's for everyone who works and also provides disability payments. The SS of those on low wages is subsidized by higher earners.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 05-02-2013, 07:01 AM   #17
Thinks s/he gets paid by the post
nun's Avatar
 
Join Date: Feb 2006
Posts: 4,836
Quote:
Originally Posted by obgyn65 View Post
I did last year. I bought deferred annuities, as discussed in other threads. Please use the google function above for more details. I am also aware that other forum participants have bought deferred annuities and SPIAs. However, it is fair to say that a majority of participants here are not in favor of annuities.

IMO the rate environment will get worse so I locked in my rate last year. Only time will tell who was right.
I'll give a shout out for annuities as a part of retirement income planning. My post 66 income will be completely covered by SS, annuities and rental income. My equity and bond portfolio is there as a backstop and my WR will actually be negative.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”

Current AA: 65% Equity Funds / 20% Bonds / 7% Stable Value /3% Cash / 5% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
nun is offline   Reply With Quote
Old 05-02-2013, 07:13 AM   #18
Thinks s/he gets paid by the post
steelyman's Avatar
 
Join Date: Feb 2011
Location: Triangle
Posts: 3,218
Quote:
Originally Posted by nun View Post

I'll give a shout out for annuities as a part of retirement income planning. My post 66 income will be completely covered by SS, annuities and rental income. My equity and bond portfolio is there as a backstop and my WR will actually be negative.
I think your teeth will be very white too.
__________________

steelyman is offline   Reply With Quote
Old 05-02-2013, 08:45 AM   #19
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Midpack's Avatar
 
Join Date: Jan 2008
Location: Chicagoland
Posts: 11,971
Quote:
Originally Posted by obgyn65 View Post
I did last year. I bought deferred annuities, as discussed in other threads. Please use the google function above for more details. I am also aware that other forum participants have bought deferred annuities and SPIAs. However, it is fair to say that a majority of participants here are not in favor of annuities.

IMO the rate environment will get worse so I locked in my rate last year. Only time will tell who was right.
Not impossible by any means, but how much worse can it get? There's not much downside left is there? One chart below, more at the link.

OTOH, better yields (annuities, bonds, CDs, etc.) are most likely years away if not a decade or more. I'm still not interested in a SPIA, but I never expected low rates to persist as long as it now appears they may.

Annuity Rates & Trends (Updated Monthly) — ImmediateAnnuities.com
Attached Images
File Type: jpg 5.jpg (38.6 KB, 8 views)
__________________
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
Old 05-02-2013, 09:15 AM   #20
Full time employment: Posting here.
 
Join Date: Jan 2008
Posts: 609
Quote:
Originally Posted by HillCountry View Post
The author is clueless about present and future value of the money.

Excluding this year, I paid 17 years of tax, combined at a total of $194K (employers & self). If I stop working today, I will get a SSA payout of $15.4K (today's dollar) at 62.

Do I make my contribution $194K at 62? Definitely not!

Assuming 6% compounding, my $194K today over the 17 years should have been $309K now. And at 62, that is going to be $741K. Assume sustainable WR of 4%, my money will produce $29.6K. While SSA check will be $24K (assuming 3% inflation).
Most of this conversation revolves around whether SS is a good deal for the contributor or not. For my money SS is much much more. Considering the life insurance aspect of SS for your family should you not make it to anywhere close to FRA. That's where it just became the deal of a lifetime.

We all cheer for how important it is for children to have a stay at home parent. Heaven forbid the bread provider pass early; but, it's nice to know there is SS for the spouse and children's benefit.

To me there's more to SS than meets the eye.
__________________

__________________
NanoSour 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 12:08 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2017, vBulletin Solutions, Inc.