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Old 01-15-2018, 04:02 PM   #41
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The assumption here is that bonds are safe. Puerto Rico's tanked. Greece's are worthless. The US, if continuing on the current path for another 10-20 () years, will eventually hit the edge, and bonds could be devalued here as well. If interest rates rise much, interest on the national debt balloons, along with the debt. My mom's bond funds tanked during the 2008 crisis, as these funds had invested in derivatives. Annuities are only as safe as they companies that hold them, and the investments they hold. No thank you!
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Old 01-15-2018, 04:07 PM   #42
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No thank you to what Bill? Bonds? Annuities? Both?

So what are you going to do... bury cash in the backyard?

BTW, we talk about bond portfolios and they are safe... at least compared to other alternatives... they hold a wide number of issuers to diversify away credit risk so if PR and/or Greece default then no big deal.
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Old 01-15-2018, 04:09 PM   #43
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Personally, no thank you to annuities. Bond funds, maybe. For me, it would have to be <10% of holdings. I'm 52 and never owned any (bonds or bond funds).
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Old 01-15-2018, 04:18 PM   #44
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So what are you going to do... bury cash in the backyard?
Please feel free to bury your cash in my backyard. I'll even help!
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Old 01-15-2018, 04:20 PM   #45
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Annuities are generally much safer than bonds because of regulatory oversight, required capital, guaranty fund backstop, etc.... the problem for me is their low returns.
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Old 01-15-2018, 05:34 PM   #46
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The assumption here is that bonds are safe. Puerto Rico's tanked. Greece's are worthless. The US, if continuing on the current path for another 10-20 () years, will eventually hit the edge, and bonds could be devalued here as well. If interest rates rise much, interest on the national debt balloons, along with the debt. My mom's bond funds tanked during the 2008 crisis, as these funds had invested in derivatives. Annuities are only as safe as they companies that hold them, and the investments they hold. No thank you!
Well if your Mom's bonds lost money in 2008 she wasn't in the right funds as in treasury funds they up in 2008 and 2009.
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Old 01-15-2018, 06:01 PM   #47
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With 2 of the key threats to the 4% rule being sequence of returns and inflation, in practical terms, I'd like to think one could reduce their spend below the inflation adjusted 4% WR when markets are weak or in the red. Also, with central banks having inflation target policy, do you think we'll see the kind of inflation like in the 70's that that overwhelmed portfolio returns?
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Old 01-15-2018, 06:20 PM   #48
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With 2 of the key threats to the 4% rule being sequence of returns and inflation, in practical terms, I'd like to think one could reduce their spend below the inflation adjusted 4% WR when markets are weak or in the red. Also, with central banks having inflation target policy, do you think we'll see the kind of inflation like in the 70's that that overwhelmed portfolio returns?
Yes, inflation was the real killer in the 4% rule.

There were multiple reasons for the high inflation in the 70s, one of which was monetary policy. But on top of that were wage and price controls (huge inflation after they were lifted), the oil shock, and dropping the gold standard. The later 3 are unlikely to recur, and we've had easy money for a decade with no substantial inflation. YMMV
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Old 01-15-2018, 08:29 PM   #49
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Wonder how VWIAX will do going forward -- that's my backup plan if I go off of SPIAs.
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Old 01-16-2018, 12:26 PM   #50
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Can you link the details of this 6.2% annuity? Does the 6.2% include the principal being returned?
It's not a specific SPIA; I just went to that annuity calculator website, entered age, age I might take the income, state, sex etc. and you get a dollar amount per month for a given amount invested. Did it just now, got $6,492/year for a $100k premium.

immediateannuities.com
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Old 01-16-2018, 01:10 PM   #51
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Full disclosure: No FA here, no annuities, but I believe straight annuities can make sense for some peoples' situations.

I'm in full agreement. For those who do not have access to pensions or SS, this may be the perfect base to create.
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Old 01-16-2018, 02:49 PM   #52
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It's not a specific SPIA; I just went to that annuity calculator website, entered age, age I might take the income, state, sex etc. and you get a dollar amount per month for a given amount invested. Did it just now, got $6,492/year for a $100k premium.

immediateannuities.com
Understand it’s not 6.2% return because they are returning your premium as well, a mutual fund returning 4% with $100K investment and withdrawal of $6000 will last 27 years. And if you die earlier, your family gets what’s leftover. You can also adjust withdrawals as needed.
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Old 01-17-2018, 01:08 AM   #53
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My key thing is, how do you know it will last 27 years? Market/economic conditions can change; and the likelihood we'll be blessed with the conditions which allowed the 30+ year stock/bond bull market we've been enjoying continuing is doubtful. Ongoing 6% withdrawals from any mutual fund seem ... brave.

Anyway, the bulk of my own retirement savings will remain in mutual funds; for myself, the idea is to add a SPIA to mainly bump up my age 65 Social Security payout to what it would be at 70. That modest increase has the dramatic effect of allowing dropping my withdrawal rate out the rest of the portfolio from >4% to 3% (approximately).

Don't get me wrong, though; I haven't for sure decided on buying a SPIA. Part of me thinks, just plonk it all in something tried 'n' reasonably true, like Vanguard Wellesley income fund. As you have suggested, but at 4% withdrawal rate.
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Old 01-17-2018, 01:40 AM   #54
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Hell, why not .5% as a SWR? Even that won't satisfy some here, although heirs will probably be very fine with it.

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Yes, he does state in that article that the 4% WR is not safe for today's environment yet the equation he developed in that article predicts a 4.16% SWR for a 2016 retiree.

I guess we always get back to the general understanding that yes 4% was safe in the past but who knows what kind of crappy environment we may encounter in the future so might as well drop that WR as low as we possibly can just in case.
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Old 01-17-2018, 07:02 AM   #55
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My key thing is, how do you know it will last 27 years? Market/economic conditions can change; and the likelihood we'll be blessed with the conditions which allowed the 30+ year stock/bond bull market we've been enjoying continuing is doubtful. Ongoing 6% withdrawals from any mutual fund seem ... brave.

Anyway, the bulk of my own retirement savings will remain in mutual funds; for myself, the idea is to add a SPIA to mainly bump up my age 65 Social Security payout to what it would be at 70. That modest increase has the dramatic effect of allowing dropping my withdrawal rate out the rest of the portfolio from >4% to 3% (approximately).

Don't get me wrong, though; I haven't for sure decided on buying a SPIA. Part of me thinks, just plonk it all in something tried 'n' reasonably true, like Vanguard Wellesley income fund. As you have suggested, but at 4% withdrawal rate.
According to FIRECalc, if you plunked $100k into a 65/35 fund like Wellington, you could withdraw $5,500/year (5.5% payout rate... fixed payments... so similar to a fixed annuity) and have a 93.5% of getting payouts for 40 years.

The tradeoff is that while the payout rate is a little lower and payments are not "guaranteed", if you die early or earlier then your heirs and charities get something... whereas they get nothing with an immediate annuity. Pros and cons.... pick your poison.
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Old 01-17-2018, 08:02 AM   #56
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According to FIRECalc, if you plunked $100k into a 65/35 fund like Wellington, you could withdraw $5,500/year (5.5% payout rate... fixed payments... so similar to a fixed annuity) and have a 93.5% of getting payouts for 40 years.

The tradeoff is that while the payout rate is a little lower and payments are not "guaranteed", if you die early or earlier then your heirs and charities get something... whereas they get nothing with an immediate annuity. Pros and cons.... pick your poison.
The FIRECALC withdrawal is adjusted for inflation. You have to find an inflation adjusted SPIA to compare. They are quite expensive = low payout rate.
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Old 01-17-2018, 08:08 AM   #57
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My key thing is, how do you know it will last 27 years? Market/economic conditions can change; and the likelihood we'll be blessed with the conditions which allowed the 30+ year stock/bond bull market we've been enjoying continuing is doubtful.
The point made here is that nothing is guaranteed including annuities, but in return for that (supposedly) lower risk your investment doesn't compensate. And then it all goes poof when you die.

I have no problem with insomniacs wanting to get an annuity, but don't pretend that it's any safer than a diversified portfolio.
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Old 01-17-2018, 08:12 AM   #58
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The FIRECALC withdrawal is adjusted for inflation. You have to find an inflation adjusted SPIA to compare. They are quite expensive = low payout rate.
I purposely set inflation to 0% in FIRECalc to make the comparison apples-to-apples.
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Old 01-17-2018, 08:28 AM   #59
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I purposely set inflation to 0% in FIRECalc to make the comparison apples-to-apples.
OK - thanks for clarifying that.
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Old 01-17-2018, 09:47 AM   #60
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Maybe we can consider an annuity is as safe as the 4% rule, success rate is around 96%?
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