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Old 03-09-2010, 09:00 AM   #41
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I am sure sometime in the past 30 years that some insurance company has written an SPIA with at least 7% interest rate . I vaguely remember having that option to invest in one when I opened my first IRA in 1982/3 and since mortgages were 12-14% I bet annuities were close to that level.

The point being what if an insurance companies wrote SPIA at very high interest rates and made investments in equities, they could be in trouble. It looks like Annuities were near 7% back in 2000 and I suspect many insurance companies aren't making a profits on those annuities.
The highest I know of today are about 2.5% IRR. Until interest rates go up, I wouldn't put a chunk into a SPIA, unless you have no other options.

I am sure brewer can offer a little more insight.....
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Old 03-09-2010, 11:36 AM   #42
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The mother of all options is to put off taking SS until age 70. IMO that is superior to fancy moves like payback and refile, as it is more robust.

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Old 03-15-2010, 09:15 AM   #43
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That assumes, Mr. haha, that SS will be solvent at that time. Sort of like a high-risk investment, IMO.
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Old 03-15-2010, 10:06 AM   #44
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The mother of all options is to put off taking SS until age 70. IMO that is superior to fancy moves like payback and refile, as it is more robust.

Ha
How so? Isn't the payback & refile the best of both worlds? Take it early, if @ age 70 you confirm that taking it @ 70YO is best as expected, you repay & refile. If life has thrown you a curve ball, maybe taking it early was best, then don't repay & refile.

I had planned on taking it at 70YO, it seems like the best move to counter the "what if I outlive my portfolio" concern. But the repay & refile option seems good in the rare case that I might (with the hindsight @ 70YO) be better off financially by taking it early.

By 'robust' - are you referring to the chance they might change the repay & refile option?

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Old 03-15-2010, 10:33 AM   #45
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The mother of all options is to put off taking SS until age 70. IMO that is superior to fancy moves like payback and refile, as it is more robust.

Ha
My SPIA is allowing me to do exactly that ...

Of course, I'll be filing against my wife at her FRA (we're both 62) at age 66, so I will have SS income (50% of her FRA PIA) for the time I'm 66-69, so I will get a bit of SS income until I file at age 70.

I'm with you on the take it/repay scheme. Too much of a chance of governement intervention, along with paying taxes on $$$ I can't immediately consume, plus loss of my income for those four years from my wife's SS (which does not get repaid), along with the current low returns on "safe" investments which must be used to ensure the $$$ is there to repay the government.
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Old 03-15-2010, 01:52 PM   #46
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Too much of a chance of governement intervention, along with paying taxes on $$$ I can't immediately consume, plus loss of my income for those four years from my wife's SS (which does not get repaid), along with the current low returns on "safe" investments which must be used to ensure the $$$ is there to repay the government.
I agree the issue with our oh-so-fine gov't possibly changing the rules mid-steam is a risk and paying a cpa to do your taxes the year you repay to handle the complications of getting the taxes you paid due to SS back are negatives. But the investment return issue is NOT a problem. Anything over zero is gravy, so a low yielding CD or whatever would work fine.

I started my SS at 62 and will happily collect while living life and learning how things will go. Either poor health will tell me to not bother repaying or to repay at 66 or 70 depending on how things go.

My status is married but with DW ineligilble for SS (mine or hers) due to the GPO and WEP provisions. Collecting my SS early is our strategy to provide her with some longevity insurance should I die early and my pension is reduced to her 50% survivor's portion.

YMMV depending on your personal circumstances.
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Old 03-15-2010, 05:26 PM   #47
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My status is married but with DW ineligilble for SS (mine or hers) due to the GPO and WEP provisions.
WEP doesnt make a person ineligible for their own SS it just reduces the payment.
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Old 03-15-2010, 08:31 PM   #48
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WEP doesnt make a person ineligible for their own SS it just reduces the payment.
Obviously and as stated in my previous posts ( Potentially Devastating Social Security Offsets ) on the subject. But when someone's career is primarily outside of SS to the extent that her/his few contributions = a tiny payment and WEP reduces that tiny payment to a tiny, tiny payment, some of us just round that down to zero and do our planning and assumptions based on that.

You might include $30 - $40 per month SS in the calculations as part of the decision process, but I'm sort of a "round numbers" kind of guy and feel comfortable just considering it as non-existant!

The significant thing about our personal situation is that GPO reduces her survivors benefit based on my earnings to zero and that her low level of participation in SS combined with WEP makes her personal benefit inconsequential.
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Old 03-15-2010, 10:16 PM   #49
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By 'robust' - are you referring to the chance they might change the repay & refile option?

-ERD50
Yes, that is what I mean. Plus the hassles of getting the taxes paid back, enhanced chance of audit, etc.

I filed for SS at age 67 in Dec 2008, so I could invest heavily without regard t income. I may pay back and refile, it has worked for others. But it does not appear to be without a significant bureaucratic and hassle overhead.

Ha
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Old 09-21-2010, 07:43 AM   #50
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Apologies for thread-bumping, but it looks like this idea still has life:

Annuities may be coming to 401(k)s Robert Powell - MarketWatch

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BOSTON (MarketWatch) ó Annuities in your 401(k): Itís beginning to seem less a question of whether and more a question of when and how.

This week, a bevy of retirement-income experts said annuities should be offered as a 401(k) investment option as well as a default distribution option for when workers leave a company. The experts were speaking at a two-day hearing on lifetime-income options for retirement plans hosted by the U.S. Labor Departmentís Employee Benefits Security Administration (EBSA) and the Treasury Department.

From this vantage point, it seems like a done deal, and the only questions remaining are those dealing with safe harbor rules, fiduciary requirements and the in-the-way details.
All of the testimony can be read here:
Lifetime Income Options For Participants And Beneficiaries In Retirement Plans
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Old 09-21-2010, 08:41 AM   #51
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Apologies for thread-bumping, but it looks like this idea still has life:

Annuities may be coming to 401(k)s Robert Powell - MarketWatch

All of the testimony can be read here:
Lifetime Income Options For Participants And Beneficiaries In Retirement Plans
Interesting..........wonder which companies the govt would use for this...........
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Old 09-21-2010, 09:28 AM   #52
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Interesting..........wonder which companies the govt would use for this...........
The government has offered an annuity option for their TSP plan for many years, it is currently with MetLife. Very few employees have used it, if I recall correctly less than 5% of retirees select the annuity option.
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Old 09-21-2010, 10:01 AM   #53
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The government has offered an annuity option for their TSP plan for many years, it is currently with MetLife. Very few employees have used it, if I recall correctly less than 5% of retirees select the annuity option.
As long as it's purely optional (as with the annuitization of TSP) and only sold to those who understand what they are buying, I have no problem with this provided it's actuarially neutral to the U.S. Treasury. It's not that much different than "trading in" some or all of your 401K for a pension, which may be fine in some cases but the devil is in the details. I just don't want to see annuity sales critters preying on people about to retire and giving a high-pressure sales job.

Put another way, I have no problem with this idea IF it's optional and if there is no aggressive marketing campaign to convince people to annuitize.

My concern would be a form of "adverse selection" where someone is more likely to take the annuity option when their parents and grandparents all lived to be at least (say) 85, and their payout is based on average life expectancy. In other words, I would expect an annuity to be more attractive to folks with a family history of longevity, and if the payout is based on overall life expectancy this could be a bad deal for the taxpayers.

As far as only 5% of TSP participants taking the annuity -- were CSRS folks ever in the TSP or was that only for FERS people? I would imagine CSRS retirees would feel less need to "annuitize" any TSP balances because the defined benefit pension under CSRS was likely generous enough to not need "buying" any more pension benefit. I could be wrong but I would imagine more FERS retirees would be interested in annuitizing their TSP than CSRS retirees would be.
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Old 09-21-2010, 10:38 AM   #54
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As long as it's purely optional (as with the annuitization of TSP) and only sold to those who understand what they are buying, I have no problem with this provided it's actuarially neutral to the U.S. Treasury. It's not that much different than "trading in" some or all of your 401K for a pension, which may be fine in some cases but the devil is in the details. I just don't want to see annuity sales critters preying on people about to retire and giving a high-pressure sales job.

Put another way, I have no problem with this idea IF it's optional and if there is no aggressive marketing campaign to convince people to annuitize.

My concern would be a form of "adverse selection" where someone is more likely to take the annuity option when their parents and grandparents all lived to be at least (say) 85, and their payout is based on average life expectancy. In other words, I would expect an annuity to be more attractive to folks with a family history of longevity, and if the payout is based on overall life expectancy this could be a bad deal for the taxpayers.

As far as only 5% of TSP participants taking the annuity -- were CSRS folks ever in the TSP or was that only for FERS people? I would imagine CSRS retirees would feel less need to "annuitize" any TSP balances because the defined benefit pension under CSRS was likely generous enough to not need "buying" any more pension benefit. I could be wrong but I would imagine more FERS retirees would be interested in annuitizing their TSP than CSRS retirees would be.

I would think that it would not affect the taxpayer... the insurace company would be taking on the risk... right IOW, they would say an annuity for someone X old cost Y... then it is their problem...
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Old 09-21-2010, 11:28 AM   #55
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My concern would be a form of "adverse selection" where someone is more likely to take the annuity option when their parents and grandparents all lived to be at least (say) 85, and their payout is based on average life expectancy. In other words, I would expect an annuity to be more attractive to folks with a family history of longevity, and if the payout is based on overall life expectancy this could be a bad deal for the taxpayers.
Life companies do not use the same life tables for figuring annuities that they use for life insurance, for the reason that you cite.

Ha
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Old 09-21-2010, 11:31 AM   #56
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I would think that it would not affect the taxpayer... the insurace company would be taking on the risk... right IOW, they would say an annuity for someone X old cost Y... then it is their problem...
But what if the insurer starts to struggle because they mispriced the risk, or goes under (and the annuity is above state protection limits)? If this program is "sponsored" by the federal government (even if through a private insurer) I would imagine that in such a case (as in state and local pension shortfalls) the taxpayer may be expected to "make good" on the promise and step in to make them whole.
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Old 09-21-2010, 02:06 PM   #57
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But what if the insurer starts to struggle because they mispriced the risk, or goes under (and the annuity is above state protection limits)? If this program is "sponsored" by the federal government (even if through a private insurer) I would imagine that in such a case (as in state and local pension shortfalls) the taxpayer may be expected to "make good" on the promise and step in to make them whole.

I would bet money that the people who sponsered it would say that the taxpayer would never have to make up for any lost money.... and then when the first one goes belly up the new group in place will say that we have to protect these poor folks from losing all their hard earned money...
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Old 09-21-2010, 02:11 PM   #58
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As someone who only really knows the SPIA form of an annuity, typically used to convert a tax-deferred retirement account's lump-sum payout into a monthly income, can someone draw me a verbal diagram of what "an annuity in a retirement savings account" looks like?
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Old 09-21-2010, 03:08 PM   #59
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I would bet money that the people who sponsered it would say that the taxpayer would never have to make up for any lost money.... and then when the first one goes belly up the new group in place will say that we have to protect these poor folks from losing all their hard earned money...
The proposals I've read include part of the annuity cost on conversion of part of the account going to re-insurance, such as buying coverage from the Pension Benefit Guarantee Corporation. There are limits on what this coverage guarantees.
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Old 09-21-2010, 03:24 PM   #60
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As far as only 5% of TSP participants taking the annuity -- were CSRS folks ever in the TSP or was that only for FERS people? I would imagine CSRS retirees would feel less need to "annuitize" any TSP balances because the defined benefit pension under CSRS was likely generous enough to not need "buying" any more pension benefit. I could be wrong but I would imagine more FERS retirees would be interested in annuitizing their TSP than CSRS retirees would be.
CSRS people can contribute to the TSP, but their contributions are limited to a lower amount, I believe (plus they don't get any matching).

Before interest rates dropped quite so much I was thinking of buying the annuity with part of my TSP. However, all the input from my co-workers, plus input from our agency sponsored retirement training seminars, told me to avoid the annuity. I don't recall anybody from work who planned to take the annuity option, whether FERS or CSRS.

Once the TSP sends the money for an annuity to MetLife, the TSP and government wash their hands of that. They make that perfectly clear - - that your only dealings regarding the annuity is through MetLife, and the government and TSP are out of the picture. You have no more guarantees than any other annuitant with MetLife.
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