Big_Hitter
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
:crickets:
That's too much trial and error just to figure out the rate based on life expectancy.In the graph, when the green and red bars are equal or nearly equal, then you know the rate of return % it would take for your Lump Sum, when invested, WITH you taking annual withdrawals, with your money lasting only until end of life.
For me the rate of return was 11.5%. This was too high of a rate for me to take a chance that I could average this between now and death while receiving a "regular paycheck".
For me the rate of return was THE important variable. Yes, end of life age is truly an unknown. Who knows the answer to this question? Next to no one. I used age 95 in mine and am happy with that choice.
It's a difficult decision to make for many. A tool like this one helps to easily answer some questions. You can what-if with it. This is EXACTLY WHAT I NEEDED AND MANY OTHER NEED when working through the variables.
Very interesting. My numbers are almost identical but I am 62 and working in new position without any retirement options.
Currently have a $34,000 with survivor benefits also but the lump sum number is $602,000 currently. The new CCBR 2016 lump sum calculation is based on this August, September and Octobers numbers. The lower they go, the higher the lump sum. Current direction favors waiting to take it in 2016.
I am surprised that your lump sum is so low. Maybe based on age?
I am favoring a lump sum since there is no pension COLA and a premature death of me or my spouse results in the pension balance going back to my employer as a credit and not to my survivors.
Just me 2 cents. Oh wait, just checked my portfolio, it is now 1.5 cents!
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You are being suckered into the annuity with the fixed payment that seems high now, but down the line it will put you in poverty.
Yes, we had a good discussion, here's the thread. It might be true that lump sum distributions are associated with poverty (when compared to a monthly check), but this poorly done study does a crummy job of indicating there's an association, much less causation.actually lump sum distributions cause poverty - I started another thread on that topic
The Transition from Defined Benefit to Defined Contribution Pensions: Does It Influence Elderly Poverty? | Center for Retirement Research
+1. Particularly so if the retiree is likely to blow through the lump sum quickly if left to their own devices.It is true that DB plans are disappearing; but annuitization of a portion of ones nest egg may immunize some retirees from panic and other financial mistakes while providing longevity insurance. I don't ascribe to the apparent general opinion of this forum that all annuities are bad. I think there is a place for SPIA is many retirees' plans.
You will only be "better off" in the short term with an annuity. But eventually you'll be living in poverty with an annuity. It's the only guarantee you get with an annuity -- inflation eats away at the fixed payment rate. As far as ROI the annuity will wind up paying between 0% and 3% if you're lucky. Not good for beneficiaries.Just recently I received from benefits calculations for my pension options. Corporation I retired from added lump sum option to our benefits. I have option to take lump sum or annuity at 55, or higher payout lump sum or annuity at 60. I entered those numbers into calculator and in both cases I am better off to take annuity. I used 3% return, and 0 annual increases.
Thank you for posting link to this calculator. Very helpful tool.
You are being suckered into the annuity with the fixed payment that seems high now, but down the line it will put you in poverty.
Still on the fence about the lump sum or monthly payments. I agree with the piece of mind benefit with the payments but do not like the fact that there is no COLI. The longer I wait, the higher interest rates will go reducing the lump sum amount.
Fixed Indexed Annuities look interesting but I do not like the indexes, bogus Ins. Company forecasts in their marketing materials and the 10 year wait period. Basically they are just giving you back your own money for about 15 - 20 years.
Can anyone here convince me that these annuities are a goof deal? I see too many variables with forecasts that are too rosey.
Tom C
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I have no intention of trying to convince you to buy an annuity. Odds are I won't, but if I do it won't be until I am 75-80 years old.Still on the fence about the lump sum or monthly payments. I agree with the piece of mind benefit with the payments but do not like the fact that there is no COLI. The longer I wait, the higher interest rates will go reducing the lump sum amount.
Fixed Indexed Annuities look interesting but I do not like the indexes, bogus Ins. Company forecasts in their marketing materials and the 10 year wait period. Basically they are just giving you back your own money for about 15 - 20 years.
Can anyone here convince me that these annuities are a goof deal? I see too many variables with forecasts that are too rosey.
Tom C
Sent from my iPad using Early Retirement Forum
I have no intention of trying to convince you to buy an annuity. Odds are I won't, but if I do it won't be until I am 75-80 years old.
However, while they are becoming scarcer, you can buy COL adjusted annuities from some providers still. They cost about twice as much as a fixed SPIA (or have initial payouts of about half that of a fixed SPIA, for a given initial same cost). So you could take the lump sum and buy a 'pension' by buying a COL adjusted annuity. Another option...
If I wanted an increasing payout SPIA, I'd be looking for a fixed increase (e.g. 3% per year) annuity, and not a CPI based COL adjustment. The uncertainty of CPI based over future (up to 40) years forces providers to charge a lot to protect themselves and other annuitants. From what I've read, COL adjusted annuities are becoming understandably scarce.
And it looks like based on past market performance, 1969 was the worst year. A conservative portfolio survived that OK. So the basic bond stock portfolio has survived all past market scenarios including the great depression the last recession. Insurance salesmen love to sell fear that has never exited.People need to do the maths and see if the annuity is good value for money given your circumstances. Right now a lump sum payout might be good value because interest rates are so low......and obviously the payments from a commercially available annuity will also be low. However, if we are talking about DB pensions there might still be some good deals available. Also videos like the one above make no distinction between annuity products and assume that putting all your eggs into the "market basket" is going to be the best in all scenarios and circumstances. It also ignores differing financial personalities and the possibility that some people might like to trade potential returns for a lower guaranteed return and stable income. There are obviously many annuities that are really bad value for money and should be avoided in basically all circumstances, but you need to do the calculations and think about your required income stream and make a considered choice rather than just rejecting all annuities.
Personally I just took a lump sum from a company pension plan because the implied interest rate was 5% and I already have sufficient pension/annuity type income at better rates. This is because I have the opportunity to buy into another employer's DB plan for $263k and it will give me a $19.5k annual payment starting at age 55 (I'm 54 now) with a 2% annual COLA. I'd be an idiot not to buy into this as if I have an average lifespan the internal rate of return is 8.4%.
Is there anyone who wouldn't use part of their portfolio to buy into an annuity that has an internal interest rate of 8.4% assuming you live an average lifespan?
Iirc, worst case starting point so far is 1966.And it looks like based on past market performance, 1969 was the worst year. A conservative portfolio survived that OK. So the basic bond stock portfolio has survived all past market scenarios including the great depression the last recession. Insurance salesmen love to sell fear that has never exited.
NO annuity pays an 8.4% ROI when it's all said and done. You are mixing up "interest rate" with ROI. Again, insurance salesmen love to confuse the two. Your actual ROI with a SPIA is going to be between zero and 3% over a lifetime. The insurance company always wins. 8.4%? Not a chance.
....NO annuity pays an 8.4% ROI when it's all said and done. You are mixing up "interest rate" with ROI. Again, insurance salesmen love to confuse the two. Your actual ROI with a SPIA is going to be between zero and 3% over a lifetime. The insurance company always wins. 8.4%? Not a chance.
Lump Sum | 263,000 | |
Monthly benefit | 1,625 | |
Age | n | IRR |
55 | 0 | |
56 | 1 | -326.2% |
57 | 2 | -140.8% |
58 | 3 | -79.2% |
59 | 4 | -50.2% |
60 | 5 | -33.8% |
61 | 6 | -23.6% |
62 | 7 | -16.8% |
63 | 8 | -11.9% |
64 | 9 | -8.4% |
65 | 10 | -5.7% |
66 | 11 | -3.6% |
67 | 12 | -1.9% |
68 | 13 | -0.6% |
69 | 14 | 0.5% |
70 | 15 | 1.4% |
71 | 16 | 2.2% |
72 | 17 | 2.8% |
73 | 18 | 3.4% |
74 | 19 | 3.8% |
75 | 20 | 4.2% |
76 | 21 | 4.6% |
77 | 22 | 4.9% |
78 | 23 | 5.1% |
79 | 24 | 5.4% |
80 | 25 | 5.6% |
81 | 26 | 5.7% |
82 | 27 | 5.9% |
83 | 28 | 6.0% |
84 | 29 | 6.2% |
85 | 30 | 6.3% |
86 | 31 | 6.4% |
87 | 32 | 6.5% |
88 | 33 | 6.6% |
89 | 34 | 6.6% |
90 | 35 | 6.7% |
91 | 36 | 6.8% |
92 | 37 | 6.8% |
93 | 38 | 6.9% |
94 | 39 | 6.9% |
95 | 40 | 7.0% |
96 | 41 | 7.0% |
97 | 42 | 7.0% |
98 | 43 | 7.1% |
99 | 44 | 7.1% |
100 | 45 | 7.1% |
101 | 46 | 7.1% |
102 | 47 | 7.2% |
103 | 48 | 7.2% |
104 | 49 | 7.2% |
105 | 50 | 7.2% |
106 | 51 | 7.2% |
107 | 52 | 7.2% |
108 | 53 | 7.3% |
109 | 54 | 7.3% |
110 | 55 | 7.3% |
Age | Cash Flow | IRR |
55 | (263,000) | |
56 | 19,500 | -92.6% |
57 | 19,890 | -68.5% |
58 | 20,288 | -48.6% |
59 | 20,694 | -34.7% |
60 | 21,107 | -24.9% |
61 | 21,530 | -17.9% |
62 | 21,960 | -12.8% |
63 | 22,399 | -8.9% |
64 | 22,847 | -5.9% |
65 | 23,304 | -3.5% |
66 | 23,770 | -1.6% |
67 | 24,246 | -0.1% |
68 | 24,731 | 1.2% |
69 | 25,225 | 2.2% |
70 | 25,730 | 3.1% |
71 | 26,244 | 3.9% |
72 | 26,769 | 4.5% |
73 | 27,305 | 5.1% |
74 | 27,851 | 5.5% |
75 | 28,408 | 5.9% |
76 | 28,976 | 6.3% |
77 | 29,555 | 6.6% |
78 | 30,147 | 6.9% |
79 | 30,750 | 7.1% |
80 | 31,365 | 7.3% |
81 | 31,992 | 7.5% |
82 | 32,632 | 7.7% |
83 | 33,284 | 7.9% |
84 | 33,950 | 8.0% |
85 | 34,629 | 8.1% |
86 | 35,322 | 8.2% |
87 | 36,028 | 8.3% |
88 | 36,749 | 8.4% |
89 | 37,484 | 8.5% |
90 | 38,233 | 8.6% |
91 | 38,998 | 8.7% |
92 | 39,778 | 8.7% |
93 | 40,573 | 8.8% |
94 | 41,385 | 8.8% |
95 | 42,213 | 8.9% |
96 | 43,057 | 8.9% |
97 | 43,918 | 8.9% |
98 | 44,796 | 9.0% |
99 | 45,692 | 9.0% |
100 | 46,606 | 9.0% |
101 | 47,538 | 9.1% |
102 | 48,489 | 9.1% |
103 | 49,459 | 9.1% |
104 | 50,448 | 9.1% |
105 | 51,457 | 9.2% |
106 | 52,486 | 9.2% |
107 | 53,536 | 9.2% |
108 | 54,606 | 9.2% |
109 | 55,699 | 9.2% |
110 | 56,812 | 9.2% |
.......SPIA from an insurance company, though, you're right. Based on quotes from immediateannuities, IRR I'm seeing after 20 years is typically just at 0-2% nominal and even if you live forever, IRR is just 5-6% nominal.
Lump Sum | 100,000 | |
Monthly benefit | 482 | |
Age | n | IRR |
55 | 0 | |
56 | 1 | -348.3% |
57 | 2 | -155.3% |
58 | 3 | -90.0% |
59 | 4 | -58.8% |
60 | 5 | -41.2% |
61 | 6 | -30.0% |
62 | 7 | -22.4% |
63 | 8 | -17.0% |
64 | 9 | -13.0% |
65 | 10 | -10.0% |
66 | 11 | -7.6% |
67 | 12 | -5.7% |
68 | 13 | -4.2% |
69 | 14 | -2.9% |
70 | 15 | -1.8% |
71 | 16 | -1.0% |
72 | 17 | -0.2% |
73 | 18 | 0.4% |
74 | 19 | 1.0% |
75 | 20 | 1.5% |
76 | 21 | 1.9% |
77 | 22 | 2.3% |
78 | 23 | 2.6% |
79 | 24 | 2.9% |
80 | 25 | 3.1% |
81 | 26 | 3.4% |
82 | 27 | 3.6% |
83 | 28 | 3.8% |
84 | 29 | 3.9% |
85 | 30 | 4.1% |
86 | 31 | 4.2% |
87 | 32 | 4.3% |
88 | 33 | 4.4% |
89 | 34 | 4.5% |
90 | 35 | 4.6% |
91 | 36 | 4.7% |
92 | 37 | 4.8% |
93 | 38 | 4.9% |
94 | 39 | 4.9% |
95 | 40 | 5.0% |
96 | 41 | 5.1% |
97 | 42 | 5.1% |
98 | 43 | 5.1% |
99 | 44 | 5.2% |
100 | 45 | 5.2% |