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Old 02-17-2012, 02:04 PM   #21
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your principle will still be reduced by taking monthly WDs while waiting to buy the annuity
And your SPIA payout increases as you "consume" your average life expectancy while you wait. My guess is that this is pretty close to a wash.
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Old 02-17-2012, 02:10 PM   #22
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Assuming equally high credit quality of the annuity and the existing bond portfolio, the asnwer to "a wash" or not a wash depends entirely on the average duration of the existing bond portfolio. If portfolio duration is 5 years, that means that it will take 5 years before better returns on new bonds will compensate for capital losses on old bonds.
Agreed.

And considering I can get a near-zero durration 5-yr CD from Ally paying about as much as a 10-year treasury bond, my incentive to go extremely long duration and lock in today's rate is close to zero. The only way it makes sense to do that is if you think rates are going to go even lower over the next five years.
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Old 02-17-2012, 11:44 PM   #23
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And your SPIA payout increases as you "consume" your average life expectancy while you wait. My guess is that this is pretty close to a wash.
i see you agree with the point that it is a "wash" and therefore it doesnt really pay to wait for higher interest rates to buy the SPIA.
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Old 02-18-2012, 08:21 AM   #24
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i see you agree with the point that it is a "wash" and therefore it doesnt really pay to wait for higher interest rates to buy the SPIA.
No where near that simple for reasons that have been explained already. If you're 65 years old @ 6% WR, unfortunately you probably can't risk waiting to annuitiize at least somewhat.

If you'd like to explain the case for not waiting - for a 55 year old @ 2.5% WR with Soc Sec in the future and knowing interest rates will increase eventually (they are not going to decrease meaningfully next), it would be instructive.
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Old 02-18-2012, 12:33 PM   #25
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No where near that simple for reasons that have been explained already. If you're 65 years old @ 6% WR, unfortunately you probably can't risk waiting to annuitiize at least somewhat.

If you'd like to explain the case for not waiting - for a 55 year old @ 2.5% WR with Soc Sec in the future and knowing interest rates will increase eventually (they are not going to decrease meaningfully next), it would be instructive.
For a 55 year old living off of a 2.5% WR, it may not make sense.

The only reason I would purchase a SPIA is for the same reason I put $7,000 into a deferred annuity in my late 20s - to diversify a tiny bit. Some people like me enjoy having a very broad diversification, and might see "peace of mind" value in having a small part of their expenses hedged with a fixed income allocation. The 'yield' for a 55 year old from a SPIA would be roughly 4% or so, which isn't that far from an approximate average of short-term interest rates over the past 30 years. What short-term rates will average over the next 30 years is anyone's guess, but as rates rise at some point in the future, you have to average out the current yield against the maximum likely yield down the road. As technology and the ease of moving money across the globe only advances, you also have to factor in that impact on fixed income financial markets (i.e. it's easier for lenders to have access to a greater pool of capital, which will tend to ease rates lower rather than higher over time).

If you have complete confidence in your AA/portfolio, and ability to maintain a 2.5%-3% WR from here on out, and don't desire to have that diversification "peace of mind" aspect (as well as potentially wanting to maximize the benefit for your estate), then I'd say a SPIA is probably not for you.
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Old 02-18-2012, 05:30 PM   #26
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If you have complete confidence in your AA/portfolio, and ability to maintain a 2.5%-3% WR from here on out, and don't desire to have that diversification "peace of mind" aspect (as well as potentially wanting to maximize the benefit for your estate), then I'd say a SPIA is probably not for you.
It's not a matter of confident in the long run either, no one can reliably predict that, see graph & link below re: how to determine when/if to annuitize.

For those who aren't anywhere near their annuitization hurdle, waiting is likely to be beneficial. It's unlikely waiting will be "a wash" with just buying an annuity now all else being equal, not with interest rates at historic lows - that's key right now.

http://www.schulmerichandassoc.com/M...cumulation.pdf
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File Type: jpg Annuitization Hurdle.jpg (88.5 KB, 17 views)
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Old 02-18-2012, 06:33 PM   #27
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It's not a matter of confident in the long run either, no one can reliably predict that, see graph & link below re: how to determine when/if to annuitize.
It's a little scary to contemplate an 85-year-old going out on their own to price annuities.

I guess the good news is that they get a great rate.
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Old 02-23-2012, 03:18 PM   #28
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No where near that simple for reasons that have been explained already. If you're 65 years old @ 6% WR, unfortunately you probably can't risk waiting to annuitiize at least somewhat.

If you'd like to explain the case for not waiting - for a 55 year old @ 2.5% WR with Soc Sec in the future and knowing interest rates will increase eventually (they are not going to decrease meaningfully next), it would be instructive.
it appears to me that you are back to the decision of buying an SPIA or not buying. as i said in an earlier post

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getting out of the annuity isnt the point. you are getting into the annuity because you want to put the longevity risk off on someone else (the insurance company). this was only a discussion of timing (i.e. when to buy the annuity, not if); will delaying the purchase be more financially advantagous than buying immediately.
the discussion on BHs was not if (that was already decided) but when. your example has someone trying to decide if they are going to buy when they are only using a 2.5% WD rate, hence they have not yet decided to buy. the case was being made that once you have decided to buy an SPIA it doesnt really pay to wait for higher interest rates.
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Old 02-23-2012, 03:34 PM   #29
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it appears to me that you are back to the decision of buying an SPIA or not buying. as i said in an earlier post.
What? Not sure what that has to do with your earlier post (below) which is simply false as a general statement, and that's what I was replying to. Again, it can pay to wait if your WR is low enough (just one example, Otar's green zone if you're familiar), and that's without the additional incentive to wait due to current low interest rates.
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i see you agree with the point that it is a "wash" and therefore it doesnt really pay to wait for higher interest rates to buy the SPIA.
Still waiting for you to reply to:
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No where near that simple for reasons that have been explained already. If you're 65 years old @ 6% WR, unfortunately you probably can't risk waiting to annuitiize at least somewhat.

If you'd like to explain the case for not waiting - for a 55 year old @ 2.5% WR with Soc Sec in the future and knowing interest rates will increase eventually (they are not going to decrease meaningfully next), it would be instructive.
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Old 02-23-2012, 04:02 PM   #30
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It's not a matter of confident in the long run either, no one can reliably predict that, see graph & link below re: how to determine when/if to annuitize.

For those who aren't anywhere near their annuitization hurdle, waiting is likely to be beneficial. It's unlikely waiting will be "a wash" with just buying an annuity now all else being equal, not with interest rates at historic lows - that's key right now.

http://www.schulmerichandassoc.com/M...cumulation.pdf
Nice chart. I haven't seen it before, but this calculation is part of my retirement income spreadsheet.

I figure our assets don't have to last to 100 or 115 or whatever, just to the point where an annuity would take us (probably just one survivor) the rest of the way.
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Old 02-23-2012, 04:13 PM   #31
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Nice chart. I haven't seen it before, but this calculation is part of my retirement income spreadsheet.

I figure our assets don't have to last to 100 or 115 or whatever, just to the point where an annuity would take us (probably just one survivor) the rest of the way.
Our plan B as well...
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