SPIAs and Market Corrections.

[nun]

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 (or a deferred annuity if you're not yet retired) to your portfolio.

I invest with TIAA-CREF and they promote a mix of annuities and index funds to fund retirement. I have money in TIAA-Traditional, but I don't plan on turning it into an annuity.

 

[Senator]

Nope. I am sticking with the S&P. My rentals and dividends will provide the income I need to live on.

 

[REWahoo]

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.

 

[Live And Learn]

No pension and ER'd at age 52 with a 3.0% WR (which is now 3.1% as a result of the correction). Only 10% if my annual budget is totally discretionary. I could reduce an additional 10% but doing so would have me beating myself up for retiring too early (ie: the pain of w*rk would be less than the pain of giving up some discretionary spend). I voted yes. The correction has made me think that adding an annuity at some point may not be as taboo an idea as I previously thought.

I'm ok having a minimalist existance once I hit 75. If it came to that it would be the "cost" of having had 23 years of freedom from Megacorp. If / when the time comes to purchase a SPIA it would begin at age 75 and be enough to ensure I could cover the gap vs SSI alone to pay for home maintenance, utilities, healthcare , eating well and some sort of monthly splurge for entertainment (think: 3D movie, comedy club dinner).

 

[NW-Bound]

Just a bitty correction so far, I doubt that people get scared yet. As for me, SS is my SPIA. I can live on it solely, though the housing would have to be quite different and the travel non-existent. But it is enough and I do not need more. SS is even COLA'd.

 

[karluk]

Naturally I can speak only for myself, but I would be truly astonished if what has so far proved to be a short and very mild correction were to cause anyone to seriously rethink their investment philosophy. In the past I've noticed forum members talk about switching to "Plan B", which typically entails claiming Social Security immediately and/or buying an annuity, but such backup plans typically are contingent on experiencing a severe bear market, similar to what happened in 2008.

So, for me at least, no new interest in purchasing a SPIA.

 

[audreyh1]

No.

 

[Dawg52]

I voted no. I've always been pretty much 50/50 on buying a fixed annunity at some point to supplement ss . Just enough to cover my basic budget. But the correction hasn't changed my viewpoint. I will decide after ss kicks in.

 

[nun]

Owning TIAA-Traditional guarantees me a minimum of 3% return every year and its usually above 4%......so along with SS etc that is my annuity. Owning TIAA-Traditional for the past 30 years probably hasn't maximized my investment returns, but it has made it easier to ride out the market corrections.

 

[jim584672]

The investment return on SPIAs is too low, maybe at 75 years old it might make more sense.

 

[HFWR]

I may, at some point, consider a SPIA, but the recent market turmoil won't be the deciding factor, or likely even a factor.

 

[nun]

The investment return on SPIAs is too low, maybe at 75 years old it might make more sense.

What does "too low" mean? SPIAs certainly don't have the potential to match stocks in a bull market....unless you fall for the variable annuity sales pitch. SPIAs should be considered for reasons other than "investment return". The thing how early do they come into the mix.

I wonder if people would buy something that would lock their money up for 10 years, guarantee principal and guarantee a minimum of 3% annual return with the strong probability that it would be closer to 4% or 5%.

 

[jim584672]

What does "too low" mean? SPIAs certainly don't have the potential to match stocks in a bull market....unless you fall for the variable annuity sales pitch. SPIAs should be considered for reasons other than "investment return". The thing how early do they come into the mix.

I wonder if people would buy something that would lock their money up for 10 years, guarantee principal and guarantee a minimum of 3% annual return with the strong probability that it would be closer to 4% or 5%.

When I was looking at the prices on a well known site it looks like the implied investment return was under 3%, more like 2-2.75% for the annuities. For me this is too low.

 

[youbet]

I wonder if people would buy something that would lock their money up for 10 years, guarantee principal and guarantee a minimum of 3% annual return with the strong probability that it would be closer to 4% or 5%.

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.

 

[youbet]

When I was looking at the prices on a well known site it looks like the implied investment return was under 3%, more like 2-2.75% for the annuities. For me this is too low.

+1

The only thing that could attract me to an annuity in my particular situation would be if the payout looked extremely attractive from an historical perspective. That's certainly not the case now.

 

[Katiek]

The current market fluctuations haven't made me consider it, but it's something I've considered already as part of an overall retirement plan. I might consider it to supplement SS to cover planned "basic spending". But I'd have a hard time doing that while the interest rates are so low. If interest rates go up in a few years, I'd consider it more seriously.

 

[aja8888]

No.

I don't see the logic in handing an annuity saleman a large chunk of money I spent decades accumulating in order for the company to charge me a high fee to hand me back small pieces of the cash I gave them each month.

Also, with interest rates so low now, if an annuity purchase was on the horizon, I would wait for higher rates. But if rates were to rise, I probably would buy CD's instead.

Right now, SS is my annuity.

 

[easysurfer]

I selected "no" since I did nothing, no knee jerk reaction to the market corrections. That said, in time of free fall, having a SPIA annuity (started a long time ago when I FIRE'd) is nice to fall back on, even if only a security blanket.

 

[samclem]

The only thing that could attract me to an annuity in my particular situation would be if the payout looked extremely attractive from an historical perspective. That's certainly not the case now.

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?"

 

[Independent]

I think of an SPIA as a bond ladder that you can't outlive.
So, it's not a replacement for equities.

 

[nun]

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.

 

[aja8888]

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.

 

[nun]

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%.

 

[nun]

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?

 

[Onward]