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Old 08-05-2013, 08:28 PM   #21
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OK in looking at the actual data at thirty years using the returns from the Evensky study for a 4% withdrawal for a 65 year old male the first scenario used by Michael and Wade, the new method has a 20.8 percent chance of depletion in 30 years, with a 50/50 starting stock bond portfolio increasing over time while the SPIA has a 7.6 percent chance of depletion. The 20.8 is a reduction from the 26.8 percent depletion rate with a straight 50/50 portfolio composition. Of course a depleted portfolio with an SPIA continues to pay the SPIA amount out versus zero for the alternative strategy.

The major advantage gained is primarily in larger portfolio value in death before age 85 the 20 year mark, which to me pretty much eliminates the actual need of the SPIA. As at the 20 year mark the depletion chances are about even at about 1.3 percent, versus the 3.6% for a straight up 50/50 portfolio.
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Old 08-05-2013, 09:10 PM   #22
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Originally Posted by Animorph View Post
Hopefully you had 10 years of great equity gains before you hit 75. That may have reduced your WR. And at 75 you only have to plan for 20-22 years remaining and can sustain a higher WR. And you should be internationally diversified as well. So a U.S. market bear at 75 is not the end of the world.
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This just does not seem reasonable considering the individuals who will be making these decisions. Really a 75-90 % Stock allocation at age 75 when mental facilities are in decline and need for money for medical resources and potentially high cost assisted living will be at it's peak? Stock markets can and will decline 80-90 percent or more, I do not see how a retiree could possibly endure this and to not plan for this contiginecy is reckless to me. That this is being marketed to financial planners will lead to too many individuals who will not have the intestinal fortitude to be able to stick to the plan when the super bear market comes along (despite the fact that Helicopter Ben believes he can keep them away forever).

I have not looked into detail in the study other than to skim the surface, but superficially the logic appears flawed to me. I will have to try in the next couple of days to study the details quite a bit more. This to me is akin to a pension fund claiming that over the long term they will earn 8 percent per year and therefore aren't underfunded while depleting their base funds (see Illinois pension fund declining to a less than 45 percent funding level by next year).

So can somebody use Firecalc or a similar historical calculator to see how the "new" system of increasing equity in the AA as you get older, would have worked for a 60 yr old who retired in 1929 and lived for 35 years?
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Old 08-05-2013, 09:10 PM   #23
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Thanks mathjak. Isn't that interesting, Pfau (who I've read with interest over the past few years) has seemed more and more inclined to advocate for annuitization/"floor income" (without any commercial interest, so genuinely IMO) - and now Kitces names him as a co-author discouraging SPIAs except for extreme longevity cases. Once again:
[*]Statistics can be applied to anything, doesn't mean the results are meaningful, aka GIGO.[*]You can find a convincing argument for almost anything you want to believe on the internet.[*]Caveat emptor...
My plan remains, I plan/hope to avoid buying a SPIA (especially at today's historically high costs/low returns), but I have not ruled it out when we get to our 70-80's. Unfortunately (from a financial planning POV) we do expect to live into our 90's based on both family histories...
Midpack

How do you intend to use an SPIA when you're 80 if you don't mind me asking? I.e., what will determine the decision and how much? And what are your thoughts on a longevity annuity that would start at 80/85. The latter is what I was considering as my mother is 95 and kicking. Also, I like that it almost solves the question of how many years should I plan for I.e., up till age 80/85. The big problem with them is that you have to estimate how much you would need by guessing the future inflation rate as they're not cola'd

One recent example I've seen is a 65 yr old man putting down 100000 would see 65000 per year when he hits 85. At 3% inflation that would be around half of that in today's dolars
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Old 08-06-2013, 03:22 AM   #24
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what i found especially interesting is the fact putting the emotional issue a side retirement planning is really backwards.

allocations to stocks are cut and sometimes ala bill bernstein eliminated from retirement planning.

the way facts show us to plan is to increase allocations as we age.

we always hear about the fact if we lose money we can't replace it and how equities are risky as we age.

but the fact is no group of retirees ever failed even at 100% equities at a 3.50% swr as far as i know.

really so far that thinking about getting more and more conservative has been been much ado about nothing.

we don't know what the future will bring and i always think i will be the exception if i try it or we will be another japan .

but facts are fact and as wade and kitces say increasing equities by 1% a year may be the best way to go.
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Old 08-06-2013, 08:36 AM   #25
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How do you intend to use an SPIA when you're 80 if you don't mind me asking? I.e., what will determine the decision and how much? And what are your thoughts on a longevity annuity that would start at 80/85. The latter is what I was considering as my mother is 95 and kicking. Also, I like that it almost solves the question of how many years should I plan for I.e., up till age 80/85. The big problem with them is that you have to estimate how much you would need by guessing the future inflation rate as they're not cola'd.
I would never consider anything but a SPIA, no VA or deferred annuities for me (a separate debate).

When and if? I monitor my annuitization hurdle quarterly, here's a good summary of the strategy http://www.schulmerichandassoc.com/M...cumulation.pdf. If markets are favorable in the next 20 years or so, we should never need a SPIA, but it is part of our "plan B."

And annuities are at an all time high WRT cost due to low interest rates/yields. I wouldn't buy one now even if I was 75-85 if I could avoid it. Costs (per income provided) can only go down in the future for practical purposes, though we all realize it may be years or decades before that happens. This aspect has also been debated repeatedly, so others may have a very different POV.
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Target AA: 60% equity funds / 35% bond funds / 5% cash
Target WR: Approx 2.5% Approx 20% SI (secure income, SS only)
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