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Old 04-24-2014, 07:23 AM   #21
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I plugged the in a couple both age 65 and it gave me $2,365 on $400,000. This sounds a little closer to what I would expect and is in the neighborhood of the annuity lazysundays seems to be talking about.
You're looking at single life results on Chart 1. The OP's $2500 was based on joint life:
Quote:
...they put $400,000 down and get a guaranteed $2500 income for his and spouse's lifetime.
Scroll down to Chart 3 for those payouts.
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Old 04-24-2014, 07:28 AM   #22
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Get a comparative quote; Call Vanguard and ask what they would give compared to the annuity that's been offered. I'm assuming they can get the $400,000 without giving part of it to taxes. Personally, I'm against annuities but if you don't care about leaving an estate and want the security of lifetime income you may want an annuity; then, get the best one with a highly rated company so you don't have to worry about a bankruptcy. Years ago, my company's original profit sharing program allowed a high income annuity to retiree's. Then, it went bankrupt.....the bankrupt insurance company was bought but the annuities were substantially reduced.....but it was far better than getting nothing. Good luck with making good choices.
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Old 04-24-2014, 08:01 AM   #23
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Originally Posted by lazysundays View Post
So while I was reading the 4% article it said the 4 only mattered the first year. I have no concept. What % will it be adjusted to for inflation? 5, 6 8% ?
4% is the first year. Assuming 3% inflation, subsequent years are 4% *(1+3%)^n. So the second year would be 4.12% of the initial balance ($400k in this case) and the 10th year would be 5.37% of the initial balance and the 20th year would be 7.22% of the initial balance, etc.

Given that SPIA joint life quotes have payouts of about 5.5% for a 62 year old couple, the 7.5% payout implicit in the OP seems far too good to be true. Do annuity payments start right away or later?
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Old 04-24-2014, 08:10 AM   #24
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Ah that's how that works. Thanks for the equation. Now all the pieces are in place.
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Old 04-24-2014, 08:11 AM   #25
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Ok tell me what to read next
I'd start here: How Do Annuities Work? - For Dummies
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Old 04-24-2014, 08:14 AM   #26
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Ummm thanks. I will read that
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Old 04-24-2014, 09:15 AM   #27
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I didn't even know age mattered.


If you don't understand why age matters that is a huge warning sign. Annuities are tied to age big time. Please educate yourself before spending any money or signing anything.

Sometimes we literally don't know what we don't know.


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Annuity vs 4% rule
Old 04-24-2014, 09:19 AM   #28
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Annuity vs 4% rule

I'm just asking. I have 176k in SLs to pay off in 2023, mortgage by 2027 and 2.4 mill to save by age 65 around 2045. That is all from the allotted snowball $ turned to retirement savings. 4% rule sounds fine. Had no idea annuities existed.

Edit- I'm here to see if I can speed that plan up a bit.
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Old 04-24-2014, 09:22 AM   #29
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Edit- I'm here to see if I can speed that plan up a bit.

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Old 04-24-2014, 01:55 PM   #30
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Lazy. I am not a fan of annuities but you need to do a lot of reading before you take one or reject the concept entirely.
I'm not sure why. Most of us younger than 60 have little memory of severe or lasting high inflation, so we do not fear it like older people. But this is just demographics, and attitudes based on recency bias.

Whatever has kept inflation at bay for so long, in spite of high government stimulus, is not guaranteed forever, or for our lifetimes.

Buying an annuity is a risk we really do not have to take. Just because our experience and recent memory gives us no visceral fear of this risk does not mean it is not there.

This is not a prediction of the immanent return of inflation. I would doubt that; but it is a big leap of faith in the far future that I can see no reason to take.

IMO, many times categorically rejecting something because you don't like the concept makes very good sense.

There are many things I will not bother to read about or entertain because they have an Achilles heel that is obvious on a brief look.

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Old 04-24-2014, 04:42 PM   #31
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The first "annuity" you should buy is to defer taking social security until age 70 as it has a lot of features like COLAs, spousal benefits, and post FRA (full retirement age) roughly an 8% return. It is subject to policy risks, but once you hit FRA, the risks will probably be shouldered by the next generation.

After that, if you are willing to give up control and face inflation then annuities are another arrow in the quiver for providing retirement income.
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Old 04-25-2014, 09:11 AM   #32
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Mel Lindauer wrote an excellent series on annuities for Forbes a while back. You can still find it on the web here: Annuities: Good, Bad Or Ugly? - Forbes

I've read a lot of his articles and have always found them to be knowledgeable and well written.

Lorne
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Old 04-25-2014, 09:32 AM   #33
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Mel Lindauer wrote an excellent series on annuities for Forbes a while back. You can still find it on the web here: Annuities: Good, Bad Or Ugly? - Forbes
The above link is to Lindauer's first Forbes article in a series of six on annuities. Here are links to the others:

2. How To Cut The Cost Of A Variable Annuity - Forbes
3. Variable Annuities Don't Belong In Retirement Plans - Forbes
4. Fixed Deferred Annuities: CDs With Gotchas - Forbes
5. For Some Retirees, This Annuity Makes Sense - Forbes
6. The Truth About Equity-Indexed Annuities - Forbes

One of the best sources out there on the many pitfalls and limited advantages of annuity products.
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Old 05-12-2014, 09:40 PM   #34
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Newer annuities with guaranteed income withdrawal feature allow annuitant to make guaranteed withdrawals for life without annuitization. Our VA has a 5% guarantee based on the income account which steps up at 5% per year for 10 years or first withdrawal and resets when account value (real value) exceeds the income value. We got 5 more years with the 5% guaranteed where upon, it remains fixed or until the acct value exceeds the income acct. Or we take partial withdrawal or close the account.

Our Fixed-Index annuities has the same 5% guaranteed step-ups in the accumulation phase and a deemphasis on the actual account. BUT the backend, if held for 5 years and age 70, the return is 6.5% for life, no annuitization is required.

These are complicated products but worth the look see. Annuity plans change as insurance/annuity companies reevaluate their risks. Annuities can be an important part of your portfolio.
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Old 05-12-2014, 10:24 PM   #35
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I discovered that annuity company will offer different annuities to different marketing companies.

We laddered our annuities by amounts which means we can chose which annuity to call for the income withdrawal by time and optimization. The VAs did 24-27% net, in 2013 fiscal annuity year, expenses ~2%. Would have been 2-4% more but I reallocated to cash to protect gains in the last two months.
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Old 05-12-2014, 11:49 PM   #36
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Rewahoo- just looked up historical inflation rates. Like I thought- it's all over the place from 1%, 5% 22%! Yikes. Even a 4% inflation on year 2 of retirement leaves the annuity without enough buying power for the year.

And that is the answer I was looking for. Thanks peeps

I mention in the above post that we are laddered in our annuities, not by our choice but by the annuity companiy's policy. Our intention was to consolidate the various MF accounts into a single rollover account. We filed the annuity application and was setup awaiting for funding. We received the checks made out to me/wife and the annuity company. The first check was immediately sent out to annuity co. The second check came we endorsed and sent to annuity for their endorsement. But the annuity co. said that they would like us to set up another annuity because the first deposit was already hedged and adding to this account screwed up their hedging, their words. So, over two months we set up 4 VA accounts this company, no two with the exactly the same portfolio selection, but all strongly growth slanted and very little bonds.

My suggestions: 1) understand the product thoroughly whether be a MF, stock, bond, CD, 529, annuity, SS, pension; 2) Different companies offer different products ; 3) A company will offer different annuities. Annuities is an open end obligation to the insurance company and consequently it is hedged and amount of annuities is sold is limited to the risk they want to assume. 4) Fidelity, Vanguard, TDAmeritrade, Primerica, Waddell & Reed, et all are marketing companies that have their annuities designed and underwritten by annuity companies and from what I have seen they are sligjhtly better than the products directly offered by the annuity companies; 5) Attend some presentations. I must have attended at least 10 from my favorite plan and another 20 from competing plans. I am starting another cycle because we will be inheriting some money and annuities is just one investment option.
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Old 05-13-2014, 12:07 AM   #37
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BTW: Our current VA annuities have a 5% rule, exercisable at anytime; and if the 5% doesn't deplete the actual account value, the remainder goes to heir. And if the 5% depletes the actual account, the annuity company takes the risk

Our Fixed index Annuity has a 6.5% rule. for us optimally to be excerised at 70 and held for 5 years.
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Old 05-15-2014, 01:12 AM   #38
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I just plugged in the information on a couple aged 65 putting in $400,000 and annuitizing at age 70. They received $2556.19/m for their entire life guaranteed. If they live to 100, that's $950,903 in benefits! That's not including X years certain, where if both annuitants die, the beneficiaries receive the remaining amount left for x years which could be as high as $710,000.
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Old 05-15-2014, 08:55 AM   #39
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I just plugged in the information on a couple aged 65 putting in $400,000 and annuitizing at age 70. They received $2556.19/m for their entire life guaranteed. If they live to 100, that's $950,903 in benefits! That's not including X years certain, where if both annuitants die, the beneficiaries receive the remaining amount left for x years which could be as high as $710,000.
So are you on a really good commission plan?
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Old 05-15-2014, 09:17 AM   #40
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So are you on a really good commission plan?
One look at the previous posts answers that.
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