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View Poll Results: Has the recent market correction made you consider adding fixed annuities to your AA
Yes 4 5.00%
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Old 08-27-2015, 12:10 PM   #21
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As soon as the salesperson mentions a term like "probability" or "might be as high as" or similar, I run. An annuity would not be where I'd be looking to have risk or variation. Just the inflation risk that comes with non-cola'd annuities is enough. The probability of Wellesley doing better than the annuity you describe above is very high and Wellesley historically has offered some protection against inflation. I'd do that before an annuity. I do enjoy having the annuities of my SS and DW's pension however.
The product I was describing is TIAA Traditional fixed deferred annuity. I'm currently getting 4.5%. I use it as part of my fixed income allocation, but it has the advantage that it won't fall in value if interest rates spike.....but it does have withdrawal restrictions ie you can only take a ma of 10% out each year.
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Old 08-27-2015, 12:17 PM   #22
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The product I was describing is TIAA Traditional fixed deferred annuity. I'm currently getting 4.5%. I use it as part of my fixed income allocation, but it has the advantage that it won't fall in value if interest rates spike.....but it does have withdrawal restrictions ie you can only take a ma of 10% out each year.
While that TIAA product may work good for you, it's not available for most of us here. I seriously doubt any commercially sold SPIA can match the terms of that product.
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Old 08-27-2015, 12:28 PM   #23
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Another future poll question, in 2020: " With inflation at 6% and the stock market returning 4% real for the last 5 years, are you glad you locked in those 3% nominal SPIA rates in 2015?"
Diversity is good to have. If you'd seen negative returns from the stock market for the 5 years to 2020 the SPIA at 3% would look good. Anyway 3% is the minimum, current rate is 4.5%.
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Old 08-27-2015, 12:29 PM   #24
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While that TIAA product may work good for you, it's not available for most of us here. I seriously doubt any commercially sold SPIA can match the terms of that product.
But would you buy it if you could? I wonder if the traditional idea of a diverse portfolio of cash stocks and bonds is diverse enough. People often say that SS is their retirement annuity so for us ERs is there an argument for an SPIA to cover the years between ER and taking SS?
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Old 08-27-2015, 12:39 PM   #25
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Old 08-27-2015, 01:21 PM   #26
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The video is about deferred annuities, this thread is about immediate annuities.

They are different animals.
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Old 08-27-2015, 01:26 PM   #27
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... People often say that SS is their retirement annuity so for us ERs is there an argument for an SPIA to cover the years between ER and taking SS?
I have not put myself in the shoes of the youngster ERs to see from their viewpoint. But for me, with SS just a few years away, and myself sleeping on a lumpy mattress (36% cash), I see no need for any SPIA.
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Old 08-27-2015, 01:46 PM   #28
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I have not put myself in the shoes of the youngster ERs to see from their viewpoint. But for me, with SS just a few years away, and myself sleeping on a lumpy mattress (36% cash), I see no need for any SPIA.
One of the big issues with giving up a very large pile of cash to an annuity company after age 70, like a lot of folks here think is the best time to do that, is that many folks over 70 are encountering health issues and don't necessarily see a long life ahead of them.

With that perspective, oldsters tend to keep the "stash" very available and easily used for a multitude of purposes with variable timing and no set amount to spend/gift/invest. Also, SS (if you receive it) is the annuity of choice. It is for us (both early 70's) and we like the flexibility of having ready stash cash.
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Old 08-27-2015, 02:16 PM   #29
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Although market gyrations are a great fear-induced sales tool for annuity salespersons, I'm no more prone to buy an annuity today than I was a week ago, a year ago or a decade ago.
+1 exactly!!
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Old 08-27-2015, 02:28 PM   #30
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I think at some point we will likely purchase a SPIA.
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Old 08-27-2015, 04:25 PM   #31
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with a military pension and SS in a couple of years, I see no good reason to buy a SPIA.
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Old 08-27-2015, 04:31 PM   #32
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with a military pension and SS in a couple of years, I see no good reason to buy a SPIA.
I agree. I have a state pension and SS as well as my TIAA-Traditional so all my income needs are covered by things other than market investments so I won't be buying an SPIA either. But would those of us who have pensions swap them for an equivalent amount invested in the markets. People with pensions generally seem glad of them, but few people seem to want to buy SPIAs. Is it just that commercially available SPIAs aren't good value when compared with the small number of workplace pensions still left or military pensions?
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Old 08-27-2015, 04:32 PM   #33
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I have not put myself in the shoes of the youngster ERs to see from their viewpoint. But for me, with SS just a few years away, and myself sleeping on a lumpy mattress (36% cash), I see no need for any SPIA.
Wouldn't using some of that cash to buy an SPIA be better than leaving it in the mattress?
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Old 08-27-2015, 04:43 PM   #34
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The video is about deferred annuities, this thread is about immediate annuities.

They are different animals.
Yes I agree....the video makes no distinction between types of annuities and the circumstance when they might be purchased. I'd always avoid variable annuities though.
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Old 08-27-2015, 05:27 PM   #35
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We all have our own individual investing styles and philosophies, but I'd be interested to learn if the recent market correction has made anyone think about adding an SPIA
That little blip? It didn't even make me think about leaning on cash next year, much less running out to buy an annuity any time in the next 15 years.

True, it's not over until it's over. But so far I haven't lost any sleep over it and I am just watching to see how this plays out. I do have a tiny pension, SS, the TSP "G Fund", and plenty of cash, so maybe that is why I am able to remain calm about it. But, as my late mother would have said, "That is not by accident, you know!"

The Dow is doing better today, and today does not seem wildly different from values during last August. I'm inclined to stick with my written plan and asset allocation for now.
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Old 08-27-2015, 06:36 PM   #36
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Wouldn't using some of that cash to buy an SPIA be better than leaving it in the mattress?
It's not strictly mattress money, but I-Bonds, stable value funds in 401k, etc... hence earning a bitty bit. In normal times, that money should be in bonds, but I do not trust the bond market right now. Risk/reward ratio is not to my liking.

The above said, I am sitting on real cash from reducing from 70% stock AA down to 60% AA just a few weeks ago. Do not know what to do with that money yet, but it may go back into stock if the market tanks. I normally run 70% stock AA and did go as high as 80%, or as low as 50%, if memory serves. Need to consult my diary.
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Old 08-27-2015, 08:38 PM   #37
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It's not strictly mattress money, but I-Bonds, stable value funds in 401k, etc... hence earning a bitty bit. In normal times, that money should be in bonds, but I do not trust the bond market right now. Risk/reward ratio is not to my liking.

The above said, I am sitting on real cash from reducing from 70% stock AA down to 60% AA just a few weeks ago. Do not know what to do with that money yet, but it may go back into stock if the market tanks. I normally run 70% stock AA and did go as high as 80%, or as low as 50%, if memory serves. Need to consult my diary.
I'm now using TIAA-Traditional as my "stable value" fund. I treat it like a 10 year CD. I can get at the money over a period of 10 years in 10 equal installments and it's returning 4.5% with a guaranteed minimum of 3%. That's roughly 18% of my portfolio, 22% is in bonds in Wellesley and Total Bond market and 60% is in equity indexes.
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Old 08-27-2015, 08:47 PM   #38
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Perhaps some day in the distant future, if interest rates should every skyrocket to double digits, I would consider a SPIA. But I would never buy one from a salesperson. I would call Vanguard and see what their product offerings look like.

I'm not familiar with TIAA's product, but it is highly unlikely that in this ultra low interest rate environment they could offer anything that would make sense to lock your money up over.
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Old 08-27-2015, 09:07 PM   #39
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I think of an SPIA as a bond ladder that you can't outlive.
So, it's not a replacement for equities.
It also has little in common with a bond ladder. The key advantage of a bond ladder is periodic turnover, which allows one to take advantage of a steep interest curve, and to roll over to higher rates if interest rates are trending up. Don't know what is the current ER.org consensus regarding direction of rates and expected shape of curve. It doesn't really matter, because so far ER.org consensus doesn't have a real good batting average on rates or curve shape . As I see it, a fixed annuity is a flat bet on steady or lower rates.

Currently Ray Dalio is expecting a head fake tightening, then more QE. Janet doesn't want us to think that she isn't bold after all.

Ha
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Old 08-27-2015, 09:50 PM   #40
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I agree. I have a state pension and SS as well as my TIAA-Traditional so all my income needs are covered by things other than market investments so I won't be buying an SPIA either. But would those of us who have pensions swap them for an equivalent amount invested in the markets. People with pensions generally seem glad of them, but few people seem to want to buy SPIAs. Is it just that commercially available SPIAs aren't good value when compared with the small number of workplace pensions still left or military pensions?
Although I don't see a need for an annuity for myself - I find SPIAs an acceptable option for those looking to lock in an income stream when they fear they will run out of funds (no other good reason IMHO). Inflation would be the Achilles' heal, but assume it's the lessor of two evils compared to the present fear of depleting your income stream (perceived desperate times call for desperate measures). It becomes a more palatable option the older one gets, and higher SPIA income streams are offered.

I find it interesting that they are suggested for those looking to increase their available income (over regular investments) or to take more risk in equities. That would increase the sales of SPIA annuities for annuity salespeople, but question the strategy. Aren't those normally looking to use them usually risk averse, or (as mentioned in the previous paragraph) afraid of outliving their income stream? Kind of like taking higher equity risk in an effort to increase potential retirement income, when in reality preserving retirement income should be the goal when currently having adequate funds is questionable (and time is no longer on your side)....

As for Pensions vs. annuities - there's a simple answer to your question of why people are more accepting of pensions. Pensions are something you are "given" (not chosen), and annuities are something you buy (choose).

People are glad to have pensions if they are adequate enough to cover their retirement income needs (and maybe lack adequate investments for a comfortable retirement w/o it). One should consider themselves fortunate to have a government/corporate pension - doubt they would consider trading places with those thrown under the bus in the "new 401K corporate world" who have to make it on their own with little to no guidance and no fall back pensions.

Some pensions are not the best and I had a small one that I gladly traded for a basket of self-chosen investments. I felt that I could more than double the lump sum payout (had the time) and exceed the offered income stream - and still have the principal to pass on to heirs. Most people also state they would gladly have taken their SS withholding and invested it themselves over their lifetime vs. letting the government provide them with an annuity (AKA SS).
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