Annuities - Thoughts?

[harley]

Are we still talking about this? Isn't there a way to roll this into an endless loop with all the other annuity threads so people don't have to waste their time typing the same thing over and over and over...

 

[bmcgonig]

Are we still talking about this? Isn't there a way to roll this into an endless loop with all the other annuity threads so people don't have to waste their time typing the same thing over and over and over...

Well apparently you have nothing better to do


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[harley]

Sad, isn't it?

 

[nun]

That's a risky way of looking at it cos it's not true. In the past you could have taken a flat 6%. But who knows what the bond and market will be like for the next 30 yrs. Some folks here act as if Firecalc has a guarantee with it. It predicts nothing. And that uncertainty is why people use the SPIAs.


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Well that 98% success rate does include all the worst years of the stock and bond markets. Obviously the high probability of low returns from bonds over the next 10 years needs to be considered. There is no guarantee when you are dealing with equities and bonds, so you have to go with the mathematics tempered by your ideas about the future.

 

[nun]

One of my friends who is 66 put over half of his savings in one and is a happy guy. Said he knows the market is going to take a massive dump and he can't bear the thought of watching years of gains go down the drain. Said he would never out live the huge losses. And it would take years off of his withdrawals. Said he sleeps well at night.

I'm feeling the same way.

I understand the impulse to take money "off the table" having done it myself, but at a far better rate than and SPIA. If you have made a plan and have enough to live off with the annuity and some sensible returns from the rest of the portfolio then it's as good a plan as any. However, these decisions are best made with some rigorous analysis, not dubious precognition of market down turns. Most (60%) of 65 year old men will be better off with a 5 year CD ladder paying 2% a year than an SPIA as it will provide a flat 6% income for 20 years. The SPIA is good for longevity insurance so if you plan to live longer than average there is an argument to be made for one even at today's rates.

 

[Huston55]

I plan to convert half of my IRA to Roth over time and use the IRA half to buy an annuity.

Then I'll have equities, muni bonds, a Roth and SS & annuity income. Stability.

I understand the impulse to take money "off the table" having done it myself, but at a far better rate than and SPIA. If you have made a plan and have enough to live off with the annuity and some sensible returns from the rest of the portfolio then it's as good a plan as any. However, these decisions are best made with some rigorous analysis, not dubious precognition of market down turns. Most (60%) of 65 year old men will be better off with a 5 year CD ladder paying 2% a year than an SPIA as it will provide a flat 6% income for 20 years. The SPIA is good for longevity insurance so if you plan to live longer than average there is an argument to be made for one even at today's rates.

Robbie-

Have you considered using a SPIA as a back-up plan in case the market does go down?

If you haven't read Otar's book, I'd suggest you do and focus on the "zone" concept. If you have read his book, I'd suggest you reread the "zone" concept section.

Our personal plan is along the lines described by Nun above. We have a 5-yr CD/Bond ladder for protection against downturns and, our back-up plan (if NW declines into the "grey" zone) is to purchase a SPIA to cover our gap of essential expenses that are not already covered by SS and pensions.

Just a suggestion, YMMV.

 

[pb4uski]

Good point. SS and pension will cover 62% of our expenses if I take at FRA and 68% if I defer until 70 so I'll probably pass on a SPIA. Close enough.

 

[RobbieB]

We shall see how the interest rates are in 5 years or so which I when I would do it.

It just gets me out of the RMD hassles and makes life easier and more predictable.

 

[nun]

One of my friends who is 66 put over half of his savings in one and is a happy guy. Said he knows the market is going to take a massive dump and he can't bear the thought of watching years of gains go down the drain. Said he would never out live the huge losses. And it would take years off of his withdrawals. Said he sleeps well at night.

I'm feeling the same way.

The question is "what sort of annuity".........?

 

[mathjak107]

Good point. SS and pension will cover 62% of our expenses if I take at FRA and 68% if I defer until 70 so I'll probably pass on a SPIA. Close enough.

delaying ss is the best annuity you can buy

 

[Richard4444]

delaying ss is the best annuity you can buy

If SS is delayed from a FRA of 66 to age 70, is the 'break-even' point at approximately age 81 ? Which would mean you become ahead beginning with monthly payments after 81.

Rich

 

[pb4uski]

1,000*x = 1,320*(x-48) where x = breakeven point in months
1,000x = 1,320x - 63,360
63,360 = 320x
198=x =16.5 years; + 66 = breakeven age of 82.5

Proof:
1,000*(82.5-66)*12 = 198,000 = 1,320*(82.5-70)*12

all above assumes no time value of money

 

[nun]

Deferring SS and annuities are good longevity insurance, but not good for the people that live an average lifespan


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[mathjak107]

1,000*x = 1,320*(x-48) where x = breakeven point in months
1,000x = 1,320x - 63,360
63,360 = 320x
198=x =16.5 years; + 66 = breakeven age of 82.5

Proof:
1,000*(82.5-66)*12 = 198,000 = 1,320*(82.5-70)*12

all above assumes no time value of money

according to kitces once you figure spending down a balanced portfolio to live on while delaying break even runs about 22-24 years .

it can be even longer if you are due any spousal adders when you file . in our case for every year i delay my wife does not get a 4500.00 dollar spousal benefit added to her benefit .

we don't look at delaying in terms of dollars we look at it as eventually being a lot less on markets for our income

 

[Richard4444]

1,000*x = 1,320*(x-48) where x = breakeven point in months
1,000x = 1,320x - 63,360
63,360 = 320x
198=x =16.5 years; + 66 = breakeven age of 82.5

Proof:
1,000*(82.5-66)*12 = 198,000 = 1,320*(82.5-70)*12

all above assumes no time value of money

So if I defer SS, I have to wait until 82.5 to realize the value of the deferral. And the life expectancy is around 78. I know, I know.

Thanks for doing the math !

Rich

 

[mathjak107]

that is incorrect . life expectancy from birth is very different than later on .

a 65 year old couple has a 74% chance of one of them seeing 85 and almost a 50% chance one will see 90. i would not want to bet against those odds .

 

[Richard4444]

that is incorrect . life expectancy from birth is very different than later on .

a 65 year old couple has a 74% chance of one of them seeing 85 and almost a 50% chance one will see 90. i would not want to bet against those odds .

I stand corrected - you are right. Childhood deaths are erased by 65. My mistake.

Rich

 

[nun]

that is incorrect . life expectancy from birth is very different than later on .

a 65 year old couple has a 74% chance of one of them seeing 85 and almost a 50% chance one will see 90. i would not want to bet against those odds .

If you are a single male, the numbers aren't nearly so good.

 

[Floridatennisplayer]

So I called my former retired friend and asked him about his annuity situation. Interesting response. He is now 67. He is a nervous type of guy, always was worried about the market taking a dive and his portfolio taking a big hit. He retired at 65. Was very upfront about his finances which surprised me as we weren't that close.

He had a total of about 1.6 mill total in everything. He bought 2 500k annuities as it took some type of approval to buy a 1 million dollar annuity. Got one from an old insurance friend with American something and another from a major insurance carrier. Single premium bought around age 62 or 63 and he timed them at age 65 when he was available for Medicare. This interested me as this is similar to my thoughts, but no way am I putting that much into them.

He is single as his wife died at 59. He has no idea what the interest rates are, said he doesn't care. Has a lifetime withdrawal of around 4.5%. So around 45k and has around 20k in SS. He is thrilled and has never been more relaxed he said. Said his stress level is below zero! Lol. He spent 60k on a used S class Benz and has about 540k in high dividend stocks, bond funds, and cd's. Says he is more relaxed and happier than he has ever been. He loves annuities and tells me it's the most happy investment he's ever done.

So there you go. It works perfectly for him. Your mileage may vary. He really got me thinking.

 

[alaska55]

So I called my former retired friend and asked him about his annuity situation. Interesting response. He is now 67. He is a nervous type of guy, always was worried about the market taking a dive and his portfolio taking a big hit. He retired at 65. Was very upfront about his finances which surprised me as we weren't that close.

He had a total of about 1.6 mill total in everything. He bought 2 500k annuities as it took some type of approval to buy a 1 million dollar annuity. Got one from an old insurance friend with American something and another from a major insurance carrier. Single premium bought around age 62 or 63 and he timed them at age 65 when he was available for Medicare. This interested me as this is similar to my thoughts, but no way am I putting that much into them.

He is single as his wife died at 59. He has no idea what the interest rates are, said he doesn't care. Has a lifetime withdrawal of around 4.5%. So around 45k and has around 20k in SS. He is thrilled and has never been more relaxed he said. Said his stress level is below zero! Lol. He spent 60k on a used S class Benz and has about 540k in high dividend stocks, bond funds, and cd's. Says he is more relaxed and happier than he has ever been. He loves annuities and tells me it's the most happy investment he's ever done.

So there you go. It works perfectly for him. Your mileage may vary. He really got me thinking.

Are you sure only 45K on a 1 million annuity, right now I can get 33k +(500k) and rates were higher 4/5 years ago. I was just checking rates the other day and was looking at different ages to start. If I get one it won't be til 70 at the earliest.

https://www.immediateannuities.com/information/annuity-rates-step-1.html

 

[pb4uski]

+1 according to immediateannuities.com the payout rates for a 2-3 year deferred annuity bought at 62 or 63 with payments starting at 65 should be 6.5-6.95%.... 4.5% is crazy low... I bet his annuity agent is even happier than your friend is but he's stuck now.

 

[bmcgonig]

+1 according to immediateannuities.com the payout rates for a 2-3 year deferred annuity bought at 62 or 63 with payments starting at 65 should be 6.5-6.95%.... 4.5% is crazy low... I bet his annuity agent is even happier than your friend is but he's stuck now.

Might be an inflation adjusted SPIA.

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[Floridatennisplayer]

You know, I'm not exactly sure if he said 4.5 or 5.5. He's kind of hard to understand. He's so happy, I'm happy for him.

 

[mathjak107]

If you are a single male, the numbers aren't nearly so good.

90% of married men die married . 90% of all married women die alone . so for anyone married or even single the woman's life expectancy seems to be the biggest issue to tackle . .

 

[pb4uski]

Might be an inflation adjusted SPIA.

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Good point... if it was COLAed then 4.5% would be sensible.