Originally Posted by brewer12345
Milevsky is the only academic researcher I know of who concenrates exclusively in this area and he does pretty good work, IMO. I don't alwayts think that his conclusions are applicable in the real world, but it is worth a read for everyone who retires.
If you think you may need/want to buy something more complicated than a SPIA, there are fee-only advisors out there who exclusively work on insurance prodct analyses to determine what product might be appropriate, tear apart the prospectus, and reverse engineer the economics of a specific product. Well worth the money if we are talking about a significant fraction of your assets. I wouldn't consider fooling with anything more complicated than a SPIA without hiring one of these folks.
I agree. I have a healthy fear of things I do not understand. And I will admit... I do not fully understand the issues enough to plunk down a significant amount of money on it.
We are on a solid financial footing. But I still want to create a safety net... mainly for my DW if something happens to me.
My simplistic approach... buy only enough nominal (fixed) SPIA to create a base income (by augmenting my pension and SS) that will support our normal lifestyle (which is our current lifestyle). The cost will amount to about 15 - 18% of our portfolio (definitely less than 20%). I intend to wait to see how interest rates move and make the purchase using a ladder style.
I intend to purchase it sooner (early in FIRE) rather than later. It will help reduce my SWIP% in the early and later years.
Over the following 15 years I may consider buying another nominal SPIA (an inflation raise ... if interest rates look attractive) to inflation adjust our guaranteed base income.
Most of our assets will remain in the portfolio.
While there is a lot of talk about longevity risk... and I believe that concern needs to be part of anybody's plan
... it seems that most people do not live into their 90's.
Actuarial Life Table
Our family history seems to be mid 70's to mid 80's... there are some outliers like my grandfather that lived till 94.
The guaranteed income does 4 things for us:
- Provides some sort of longevity safety net... just in case DW and/or I live to be really old.
- Provides an early predictable income source which reduces the SWIP% and therefore increases the probability of a longer portfolio life.
- Provides some level of risk mitigation just in cases some unexpected/really bad event happened financially.... and we lost a significant portion of our nest egg. While it is an unlikely event, it does happen to people. And as people age, they are more vulnerable.
- DW is not investment savvy. If something happened to me unexpectedly, she might reduce her lifestyle (out of fear) unnecessarily. So the guaranteed income would help with that. I am also working to position the portfolio to be simple to manage (if it wound up in passive mode for a while).