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04-08-2013, 07:40 AM
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#21
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2008
Location: NC
Posts: 21,303
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I posted this a while ago, but it illustrates how annuities become - cheaper in time (years waiting to purchase) just because you have fewer years of payouts and
- cheaper still as yields/interest rates increase - and they will, though it may be a while.
(all based on actual quotes from immediateannuities.com)
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57
Target AA: 50% equity funds / 45% bonds / 5% cash
Target WR: Approx 1.5% Approx 20% SI (secure income, SS only)
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04-08-2013, 09:15 AM
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#22
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2011
Location: West of the Mississippi
Posts: 17,263
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This may be more than you want to read, but it does have a lot of useful information from one expert. Most interesting was the evidence that a mixture of stocks and SPIAs were better than stock and bonds. But, he also notes that more study is needed, so do your homework.
https://papers.ssrn.com/sol3/papers....act_id=2151259
As for me, my 'annuity' and old age insurance will come from delaying SS until I am 70 and laying out a huge lump of cash to buy additional service years from my pension plan.
__________________
Comparison is the thief of joy
The worst decisions are usually made in times of anger and impatience.
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04-08-2013, 09:47 AM
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#23
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Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
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Deciding to buy an annuity shouldn't depend on interest rates, but on your circumstances and need for income. You might get a low interest rate on an annuity if you buy it now......but your bonds also have low interest rates so that's a wash. The critical thing is to decide whether an annuity is even appropriate or the term and type of annuity that will work best for your circumstances. Waiting for rates to go up is just market timing, so if you think you need an annuity now get one, and consider "dollar cost average" by building an annuity ladder.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”
Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
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04-08-2013, 10:08 AM
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#24
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Thinks s/he gets paid by the post
Join Date: Oct 2006
Posts: 4,629
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I agree with your adviser - don't think in terms of percent of assets, do think about how much monthly income you need (in addition to SS) to get up to your basic expenses.
Deferring SS to age 70 is an excellent way to purchase a CPI-adjusted life annuity. It beats any quotes I've seen for private SPIAs. For lots of people, that's enough to cover basic expenses.
I don't think that buying an SPIA is a way of avoiding investment decisions. The purchase is a big, non-revocable decision.
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04-08-2013, 09:02 PM
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#25
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Recycles dryer sheets
Join Date: Feb 2013
Location: Morton
Posts: 56
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posted this a while ago, but it illustrates how annuities become - cheaper in time (years waiting to purchase) just because you have fewer years of payouts and
- cheaper still as yields/interest rates increase - and they will, though it may be a while.
& survivor credits
Deciding to buy an annuity shouldn't depend on interest rates, but on your circumstances and need for income. You might get a low interest rate on an annuity if you buy it now......but your bonds also have low interest rates so that's a wash. The critical thing is to decide whether an annuity is even appropriate or the term and type of annuity that will work best for your circumstances. Waiting for rates to go up is just market timing, so if you think you need an annuity now get one, and consider "dollar cost average" by building an annuity ladder.
Excellent point. In fact I was reading just over the weekend where the current low interest rates might remain with us for not just a couple more short years but even longer than that like maybe another decade or more.
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04-09-2013, 01:21 AM
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#26
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Thinks s/he gets paid by the post
Join Date: Sep 2010
Location: midwestern city
Posts: 4,061
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I do not think there is a rule re: the percentage you need to invest in an annuity. I would just annuitize using SPIAs what I need at a specific age.
Quote:
Originally Posted by Dino1
Due to the fact that I have the midas touch in reverse when it comes to investing, my wife and I decided that we should purchase a fixed immediate annuity when I retire. Is there a rule of thumb (like the 4% drawdown theory) as to what percentage of your 401K savings can safely be converted to an annuity? One advisor told me not to do it that way, but to simply see how much of a monthly deficet I am running (income vs. monthly expenditure) and get an annuity that can fill that gap. Seems reasonable to me. Any thoughts or advice? Thank you for sharing your time and expertise.
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__________________
Very conservative with investments. Not ER'd yet, 48 years old. Please do not take anything I write or imply as legal, financial or medical advice directed to you. Contact your own financial advisor, healthcare provider, or attorney for financial, medical and legal advice.
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04-09-2013, 03:36 AM
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#27
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2006
Posts: 11,401
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I agree with obgyn65. The purpose of an annuity is to provide a basic level of income. Therefore, if the individual already has, and always will have, in excess of that basic income, the value of an annuity diminishes. There is no linear relationship between income and desired or actual spending on annuities.
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04-09-2013, 08:10 AM
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#28
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jan 2008
Location: NC
Posts: 21,303
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Quote:
Originally Posted by nun & Brooks Saddle
Deciding to buy an annuity shouldn't depend on interest rates, but on your circumstances and need for income. You might get a low interest rate on an annuity if you buy it now......but your bonds also have low interest rates so that's a wash.
Excellent point. In fact I was reading just over the weekend where the current low interest rates might remain with us for not just a couple more short years but even longer than that like maybe another decade or more.
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Of course you can always buy an annuity anytime, tomorrow, a decade from now, or any time in between. It's by no means a now or never decision, but it's irrevocable once you buy the most common types of annuities. If you buy today and interest rates increase in a few years, you'll have locked yourself in to historic low yields.
It's true bonds aren't paying much now, but bond yields will increase, the yield on an annuity won't (unless you pay dearly for a COLAd annuity). You could buy a 5-year CD or a CD ladder if you don't want any risk and get some guaranteed return. And bonds aren't your only alternative to buying an annuity, presumably most retirees have some equities in our AA. It's not necessarily a wash at all.
But we all make our own decisions based on our own unique circumstances, interest rates are just one of several factors that deserve consideration. I certainly wouldn't make a major decision like buying an annuity without at least considering all the potential inputs. YMMV
__________________
No one agrees with other people's opinions; they merely agree with their own opinions -- expressed by somebody else. Sydney Tremayne
Retired Jun 2011 at age 57
Target AA: 50% equity funds / 45% bonds / 5% cash
Target WR: Approx 1.5% Approx 20% SI (secure income, SS only)
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04-09-2013, 11:37 AM
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#29
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Thinks s/he gets paid by the post
Join Date: Jul 2011
Location: Bernalillo, NM
Posts: 2,717
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Quote:
Originally Posted by Dino1
Due to the fact that I have the midas touch in reverse when it comes to investing, my wife and I decided that we should purchase a fixed immediate annuity when I retire. Is there a rule of thumb (like the 4% drawdown theory) as to what percentage of your 401K savings can safely be converted to an annuity? One advisor told me not to do it that way, but to simply see how much of a monthly deficet I am running (income vs. monthly expenditure) and get an annuity that can fill that gap. Seems reasonable to me. Any thoughts or advice? Thank you for sharing your time and expertise.
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I just recently completed this same analysis for myself, and in addition to planning to wait until 70 for SS, I'm starting a CD ladder that I'm hoping will substitute for an annuity and also have more flexibility than an annuity. I just can't justify to myself with the interest rates like they are getting an annuity. I did one estimate of an annuity at one company, and the total payout ended up being less than the initial amount!
__________________
"We live the lives we lead because of the thoughts we think" ...Michael O’Neill
"We can cannot compel others to do our will" ....Norman Goldman
"There never is shortage of the gullible to accept the illogical"...Anonymous
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04-09-2013, 12:22 PM
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#30
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Thinks s/he gets paid by the post
Join Date: Apr 2013
Location: Gosport, IN
Posts: 1,218
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I purchased a single premium variable life policy 15 years ago when I rolled over a 401K from a previous employer. It allows me to convert to an annuity any year starting this year. It has a guaranteed 6% growth until I exercise the guaranteed annuity clause. While the value of the investments has only grown about 25% in 15 years, ( I would be crying if that's all I had now!), the guaranteed value will provide at least a third of my retirement asset income when I choose to implement the joint survivor annuity. If I were to die prior to that it pays the guaranteed value to my wife as a death benefit. I don't know if such vehicles exist today but if so, I would recommend a similar plan to some of the young future early retirees on this board. Like anything else it is dependent of the financial security of the insurance company.
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04-09-2013, 09:07 PM
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#31
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Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
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Quote:
Originally Posted by Midpack
It's true bonds aren't paying much now, but bond yields will increase, the yield on an annuity won't (unless you pay dearly for a COLAd annuity). You could buy a 5-year CD or a CD ladder if you don't want any risk and get some guaranteed return. And bonds aren't your only alternative to buying an annuity, presumably most retirees have some equities in our AA. It's not necessarily a wash at all.
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That's why I suggested an annuity ladder and the use of the annuity as part of the fixed income allocation, not as a substitute for equities.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”
Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
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