Annuities

[brewer12345]

Hey, lex, you probably saw this, but Pen Fed (credit union) is offering 5.75% for 60 month money.

Like I said, AIG is probably money good for policyholders for many years to come. I just think that there are enough other players offering the same products that one does not need to deal with a company whose ethics you find distasteful.

 

[jug]

Jug:

I have both an annuity (I parked a bonus I received with my former employer during my last two years in one of Vanguard's single premium annuities) that throws off $1250/Month for my life and my spouse as survivor, and CD’s in a ladder going out 60 months, at three month (Quarterly) tiers.  I am rolling CD’s over now and getting rates in the 4.5 – 4.8 % range for 60 month maturity at my Credit Union (I prefer Credit Unions to Banks), which is close to my target of 5% overall for life of the ladder.  The annuity was easier for me since it was “found” money that I did not originally count on as part of my long term retirement “critical mass”, so if it was eaten up by inflation after the first half, I felt it had still bought me an earlier stable cash flow with which to ER. 

As to AIG’s ethics, they are about the same as everyone else, which means you do your homework prior to insurance placement.  I placed a corporate client’s annual Risk Programs anchor CGL policy with them when Greenberg was running the organization.  Most of their insurance lines are just fine.  I would be concerned if I was purchasing CGL variables with them or anyone else such that they had a premium rebate product.  These are the insurance lines where there was some issue with AIG and everyone else playing with their reserve accounting that made the press the last year or so.

I like this scene, the market to me over the long run is ok, but in the short run it has become, or maybe always was, a ponzi scheme, when everyone gets aboard, the prices go up, and the "boys" in the "know" pull out the carpet,, take their dough, and leave the rest of us blind investors in the lurch.

This is exactly what happened leading up to the recent crash of 2000. Greenspun was on the money.

CD's and things that make your life simple, no worries, and keep my nerves from going haywire, spitting out income over a 20-30 period is ok with me.

Inflation is a factor, but as I age, how many women can I chase, how much more crap do I need to buy?

My father in law is 92, and is with us the past 14 years, his money has been eaten up by inflation in fixed investments, but he is slowing down and doesnt need as much.

Same thing with my parents, CD's all of their lives, low expenses and still have enough to go the distance.

I think piece of mind is worth alot, since we do live inside of our heads. If the market tanks, or you lose 30% of your 700K portfolio , I dont think a good nights sleep is in the cards.
jug

 

[Dawg52]

I like this scene, the market to me over the long run is ok, but in the short run it has become, or maybe always was, a ponzi scheme, when everyone gets aboard, the prices go up, and the "boys" in the "know" pull out the carpet,, take their dough, and leave the rest of us blind investors in the lurch.

This is exactly what happened leading up to the recent crash of 2000. Greenspun was on the money. 

CD's and things that make your life simple, no worries, and keep my nerves from going haywire, spitting out income over a 20-30 period is ok with me.

Inflation is a factor, but as I age, how many women can I chase, how much more crap do I need to buy? 

My father in law is 92, and is with us the past 14 years, his money has been eaten up by inflation in fixed investments, but he is slowing down and doesnt need as much.

Same thing with my parents, CD's all of their lives, low expenses and still have enough to go the distance.

I think piece of mind is worth alot, since we do live inside of our heads.  If the market tanks, or you lose 30% of your 700K portfolio , I dont think a good nights sleep is in the cards.
jug

I agree good buddy. If you can't sleep at night with your investments, conservative is the way to go. My parents only invested in cd's over the year until I talked them into buying a little WorldCom.   They managed just fine with cd's. My dad also had a good pension however. As for me, I will have enough in bonds and cd's to get me through many years which  will enable me to keep a good chunk in stock funds and therefore not have to worry about market fluctuations. 

 

[LEX]

Brewer:  Penfed just might get my next quartely tier at 5.75%.  Lets see if others follow.

Jug:

I worked for years as a corporate lawyer and mining executive, and there was no margin for undue risk when it came to my fiduciary obligations.  Keep it simple.  Work backward from what you will need each month and secure the cash flow to get here.  My first tier for my cash flow "machine" is to make sure I always have at least $36,000 a year no matter what, and  absent the wind fall I made and placed with Vanguard's SP Annuities, I do this through CD's.  They are predictable, boring, anyone can do them, and no one ever braggs about how smart they are to be "in CD's".  I personally love them because they are boring, not sexy, not touted by the media, and the rip off risk is next to zero. You can get the money if you need it in a life and death situation.  There will always be inflation risk, but that is not the same level of risk as a band of smart con-artists working your mutual fund or limited partnership position and leaving you and your wife  broke.  The single best financial advice I can give you and which I always use is "assume the worst, and be surprised if the worst does not occur".  The 1st third or so of your "nest egg' should be very very safe and still throw off some monthly income.  For me, CD's do this as well as can be reasonably expected.  Remember, you are willing to manage your personal spending habits and that has more to do with your long term success than any other single money decision you will ever make.  I live on 45-55 K/ year, have a critical mass working ER portfolio (CD's making up most of this) in excess of the typical seven figure threshold we have all prudently set as a benchmark,  and budget to live well on much less.  Set your budget, and work back from that benchmark and you will be amazed at your success.  Keep it real simple and enjoy the freedom, Jug!

 

[Mr._johngalt]

I agree good buddy. If you can't sleep at night with your investments, conservative is the way to go. My parents only invested in cd's over the year until I talked them into buying a little WorldCom.   They managed just fine with cd's. My dad also had a good pension however. As for me, I will have enough in bonds and cd's to get me through many years which  will enable me to keep a good chunk in stock funds and therefore not have to worry about market fluctuations. 

This one got me thinking. My folks had no investmenets, other than their
home, a little land, and CDs. They did just fine. My grandparents, same deal.
I think my grandfather (maternal) died pretty close to broke, but until then they
never seemed to want for anything. Back one more generation, pretty
sure I could see virtually everything my great grandparents owned in and on
their 78 acre farm. They never seemed to lack for anything either. Anyway,
there are four(4) consecutive generations who did just fine without any common stock in their retirement port. Probably none of those who came before me ever talked to a broker or financial planner either.

JG

 

[LEX]

I concurr:  We spend a great deal of time attempting to squeeze that additional 3-5 % out of our money above what a typical CD will throw off, which results in 95% of the downside risk. I get a safe 4-5% with CD's.  Being simple is what works best for me.  I am not so smart that I can afford the risk of being a "rich" investor. I will leave that level of expertise to the really clever ER postings that I enjoy reading about on this board.

 

[brewer12345]

I concurr:  We spend a great deal of time attempting to squeeze that additional 3-5 % out of our money above what a typical CD will throw off, which results in 95% of the downside risk.  I get a safe 4-5% with CD's.  Being simple is what works best for me.  I am not so smart that I can afford the risk of being a "rich" investor.  I will leave that level of expertise to the really clever ER postings that I enjoy reading about on this board.

That's all fine and well, but many of us (like me) can't make it to FIRE in a reasonable amount of time with CD returns. I need CPI plus 4.5% to get there. Especially after taxes, ain't gonna get there even with 5.75% Pen Fed CDs.

 

[New Thinking]

Just a point of clarification as its Maurice "Mo" Greenberg who headed AIG, not Ace Greenberg who heads Bear Stearns.

 

[bongo2]

Has anyone looked at those new annuities that Jonathin Clements talked about a few months ago in the WSJ (can see the article here: http://www.southcoasttoday.com/daily/08-05/08-14-05/d04bu706.htm). The basic idea is that you buy an annuity now that doesn't start to pay for 20-30 years. This way you can lock in some "longevity insurance" well ahead of time, and give the mortality adjustment a chance to be meaningful (while a traditional immediate annuity is going to be very expensive for a, say, 55 year old because they live too darn long). It's an interesting idea, but I don't know if it has been implemented well.

 

[brewer12345]

Has anyone looked at those new annuities that Jonathin Clements talked about a few months ago in the WSJ (can see the article here: http://www.southcoasttoday.com/daily/08-05/08-14-05/d04bu706.htm).  The basic idea is that you buy an annuity now that doesn't start to pay for 20-30 years.  This way you can lock in some "longevity insurance" well ahead of time, and give the mortality adjustment a chance to be meaningful (while a traditional immediate annuity is going to be very expensive for a, say, 55 year old because they live too darn long).  It's an interesting idea, but I don't know if it has been implemented well.

There are two things I don't like about these products:

1) You are locked in once you sign the check.

2) You pay up for certainty, and boy do you pay.

The basic problem with all of these products (aside from expense, credit risk, inflexibility. etc.) is that they are backed by a bond portfolio. What the insurer has to work with is the return on a mixed bond portfolio. Then they take out expenses, pay taxes, pay you, and leave something left over for profit. No thanks.