Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Old 11-17-2017, 09:18 AM   #21
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
REWahoo's Avatar
 
Join Date: Jun 2002
Location: Texas: No Country for Old Men
Posts: 48,178
Quote:
Originally Posted by OHjosh View Post
ReWahoo: I don't appreciate the editorializing on my question. I didn't undertand the connection; that is why I asked the question in the first place. If unknowlegable people can't ask questions, how can anyone learn?
Sorry if you were offended, wasn't my intent. I was only expressing my surprise as I stated.

Of course unknowlegable people can ask questions - I do it all the time.

Quote:
Originally Posted by OHjosh View Post
I still don't necessarily get your answer. If I don't like the fixed rate I won't take the annuity.
I think you and rodi are in agreement. I interpreted her post as "when interest rates (and payouts) go up, I'll reconsider."
__________________
Numbers is hard

Retired in 2005 at age 58, no pension
REWahoo is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 11-17-2017, 09:49 AM   #22
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
easysurfer's Avatar
 
Join Date: Jun 2008
Posts: 11,166
Am I happy with my annuity as an investment? no

Am I happy with my annuity as a constant income stream rest of my life? yes

Happy with annuity overall? Yes. I kinda like the idea of getting paid to be alive.
__________________
Have you ever seen a headstone with these words
"If only I had spent more time at work" ... from "Busy Man" sung by Billy Ray Cyrus
easysurfer is offline   Reply With Quote
Old 11-17-2017, 01:29 PM   #23
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
haha's Avatar
 
Join Date: Apr 2003
Location: Hooverville
Posts: 22,983
Quote:
Originally Posted by OHjosh View Post
I don't understand what changes in interest rates have to do with making this decision.
__________________
"As a general rule, the more dangerous or inappropriate a conversation, the more interesting it is."-Scott Adams
haha is offline   Reply With Quote
Old 11-17-2017, 03:43 PM   #24
Thinks s/he gets paid by the post
 
Join Date: Nov 2006
Posts: 1,047
We'll probably consider a SPIA when we start taking SS in 5 - 10 years. I like the idea of having a steady stream of income that would cover most of our expenses when combined with SS. I wouldn't probably spend more than 20-30% of our retirement money, though. And, the payouts would have to be higher than today.
PatrickA5 is offline   Reply With Quote
Old 11-17-2017, 06:25 PM   #25
Full time employment: Posting here.
 
Join Date: Apr 2013
Location: Beach and Mountain
Posts: 725
Here is how interest rates effect pricing. The insurance company takes your money and lets say they invest at 50/50 AA. Long term on market is 11% and 30 year Treasury notes are paying 3%. That is a long term return of (11%/2 + 3%/2) 7%. Therefore they price your annuity at 5%. They have a long term margin of 2%.

When 30 year Treasury notes are paying 6% their return is 8.5%. If their margin is always 2%, then they price your annuity at 6.5%

In the first example, on $100,000 this means that you would get a 5% payout or $5,000 a year. Second example would be $6,500.

I have oversimplified and used the wrong benchmarks but the theory is still sound.
Z3Dreamer is offline   Reply With Quote
Old 11-17-2017, 06:49 PM   #26
Moderator
Jerry1's Avatar
 
Join Date: Nov 2014
Posts: 5,584
I really appreciate threads like these. I have a lump sum pension. When I retire, I can take the lump sum or I can take an annuity. I have a very small annuity and the person who sold it to me has his eye on my pension when I retire. The problem is that apparently, the annuity that I can get from my corporation is significantly better than he can do. Basically, to get the same return (monthly payout), I would have to leave the money with him and not draw anything for ten years. While I don't fully understand annuities, that tells me that my corporation is providing a much better deal. Only problem is (beyond being an annuity) that I have to trust that the company will live up to it's obligation. While I think the risk is small, I think it's greater than if I went outside (Allianz).

Question to the group, I understand that a fixed annuity gets ate up by inflation, but I'm curious how you think that balances out with the natural tendency to spend less as we get older. Outside of aggressive inflation, I'm thinking my spending will probably reduce at least similar to inflation.

Note: I realize the cost of an annuity, but I like the thought of that third leg (fixed income) given that I do not have a defined benefit pension. For me, like many, it's savings+401k/IRA+SS. I like the idea of SS+annuity=minimum living standard. Savings+401K/IRA=better living and discretionary spending.
Jerry1 is offline   Reply With Quote
Old 11-17-2017, 06:59 PM   #27
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
street's Avatar
 
Join Date: Nov 2016
Posts: 5,072
What % of your portfolio is invested in an annuity?
street is offline   Reply With Quote
Old 11-17-2017, 07:10 PM   #28
Moderator
Jerry1's Avatar
 
Join Date: Nov 2014
Posts: 5,584
Quote:
Originally Posted by street View Post
What % of your portfolio is invested in an annuity?
Not sure who you're asking, but if me, my existing annuity is very small. I put an old IRA with this guy and it is only 2% of my portfolio. You want to learn, you put some money in play. No regrets. It will be beer money so at least I got that covered.

If I convert my pension when I retire, that's a lot more. It would be 20%. I would not have the ability to take some as a lump sum and some as an annuity. All or nothing.
Jerry1 is offline   Reply With Quote
Old 11-17-2017, 07:15 PM   #29
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 4,628
My wife and I have Flexible Premium Retirement Annuities that we bought 36 years ago when I didn't have any workplace savings available. We made deposits for one or two years then moved on to something else.

They pay 4.5% interest and have no surrender charge.

I'm happy with them.
Independent is offline   Reply With Quote
Old 11-17-2017, 07:23 PM   #30
Thinks s/he gets paid by the post
 
Join Date: Oct 2006
Posts: 4,628
Quote:
Originally Posted by Jerry1 View Post
Question to the group, I understand that a fixed annuity gets ate up by inflation, but I'm curious how you think that balances out with the natural tendency to spend less as we get older.
Depends on a lot of variables. I think we spend less on fun stuff and more on have-to-do stuff. Medicare premiums, Medicare supplement premiums, Medicare Part D premiums, dental work, hearing aids, help with lawn mowing and snow removal. Eventually, in-home part time aid or assisted living facility.

I have a co-worker who says retirement spending is U-shaped as we go through three phases - Active, Passive, Dependent.

But, some individuals never have a lot of spending during the Active phase, they enjoy cheap hobbies and volunteer work. Others don't last long in the dependent phase because they go from good health to the grave very quickly.
Independent is offline   Reply With Quote
Old 11-17-2017, 08:47 PM   #31
Thinks s/he gets paid by the post
 
Join Date: Jun 2002
Posts: 1,380
I was "sold" on a Fidelity VA years ago. If I had been a Boglehead back then I would not have done it. After a few years I did a 1035 transfer to a VG VA which I still own. It is now worth more than 3x the original investment.

It now fits into my planning as income for my wife if/when I predecease her (as the actuaries seem to think I will). As the beneficiary she will become the owner and can annuitize it to replace the part of my pension which the survivor benefit won't. If she predeceases me I will use some of it for charitable donations and spend the rest on wine, women and song.

Depending on the OP's marital situation I would encourage considering a joint life annuity to take care of the surviving spouse.
__________________
friar1610
friar1610 is offline   Reply With Quote
Old 11-17-2017, 08:54 PM   #32
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
MRG's Avatar
 
Join Date: Apr 2013
Posts: 10,139
Quote:
Originally Posted by street View Post
What % of your portfolio is invested in an annuity?
I dont have one but.... When fido was pitching it was 30-35%? to me. The sales guy suggested no more than 40%?.

I wouldn't ever go near that number, of course right now it's 0.
MRG is offline   Reply With Quote
Old 11-17-2017, 08:57 PM   #33
Thinks s/he gets paid by the post
GalaxyBoy's Avatar
 
Join Date: Jul 2009
Location: The Beautiful Blue Ridge Mountains
Posts: 2,257
I inherited an annuity from DF earlier this year. Even though he was 90 years old, he hadn't annuitized it yet.

This left me with the choice of whether to take the money out in a lump sum, take it out within five years, or annuitize it myself. The choice of investments, being with a full-service broker, stunk with high expense ratios. At this point in my life, newly retired and pre-SS, I'm trying to limit my income on my 1040 in order to maximize Roth conversions in the lower tax brackets. This darn annuity really messes with that. Bless his heart, but I wish dear old Dad had just left the money in his taxable account. I'm taking it within five years. It's also taken out gains-first, principal second, so I'm planning to take the taxable gains in five equal installments, plus all the (already-taxed) principal at the end.

Anyway, another perspective on annuities, FWIW.
GalaxyBoy is offline   Reply With Quote
Old 11-17-2017, 09:16 PM   #34
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
street's Avatar
 
Join Date: Nov 2016
Posts: 5,072
Quote:
Originally Posted by GalaxyBoy View Post
I inherited an annuity from DF earlier this year. Even though he was 90 years old, he hadn't annuitized it yet.

This left me with the choice of whether to take the money out in a lump sum, take it out within five years, or annuitize it myself. The choice of investments, being with a full-service broker, stunk with high expense ratios. At this point in my life, newly retired and pre-SS, I'm trying to limit my income on my 1040 in order to maximize Roth conversions in the lower tax brackets. This darn annuity really messes with that. Bless his heart, but I wish dear old Dad had just left the money in his taxable account. I'm taking it within five years. It's also taken out gains-first, principal second, so I'm planning to take the taxable gains in five equal installments, plus all the (already-taxed) principal at the end.

Anyway, another perspective on annuities, FWIW.
My is 4% of my portfolio good or bad I'm not sure. I have done every well at 7% plus return on an average per year. So I really can't complain.

So if mu annuity isn't used between my wife or me my son would inherit the annuity. So do you know if it is a federal law that an heir would have to take out in full with in 5 years. I have heard of this just wondering if it is law.
street is offline   Reply With Quote
Old 11-18-2017, 12:29 PM   #35
Recycles dryer sheets
 
Join Date: Jan 2017
Location: Bay Area
Posts: 248
I have a couple of pensions, which as noted above by others, are basically annuities. There was no lump sum option for them - and I knew that in advance. In large part, because I knew I'd have pension income, my finances in ER is based on a "floor with upside" approach, with the intention that my pensions provide for my non-discretionary and basic recurring expenses and my portfolio provide for any extras/larger discretionary ones. Valued as annuities, the pensions make up ~35% of my NW, and, at the moment, cover more than my current basic recurring expenses.

I don't think I would have purchased this income as annuities if I'd simply had the money in a 401k or IRA (because of my prior bias against annuity fees and terms); however, I am very happy to have them and they help me sleep well at night.

NL
Nature Lover is offline   Reply With Quote
Old 11-18-2017, 02:04 PM   #36
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
travelover's Avatar
 
Join Date: Mar 2007
Posts: 13,269
Quote:
Originally Posted by Nature Lover View Post
............I don't think I would have purchased this income as annuities if I'd simply had the money in a 401k or IRA (because of my prior bias against annuity fees and terms); however, I am very happy to have them and they help me sleep well at night.

NL
I think the key is the underlying cost of the annuity. Pensions are often structured so the payout is better than any annuity you could buy for yourself.

When I was offered a lump sum in exchange for the pension I was already receiving, I certainly couldn't duplicate the pension payout using the lump sum to buy an annuity.
travelover is offline   Reply With Quote
Old 11-18-2017, 02:04 PM   #37
gone traveling
 
Join Date: Apr 2011
Posts: 3,375
Totally. Don't have one.
gerntz is offline   Reply With Quote
Old 11-18-2017, 04:58 PM   #38
Full time employment: Posting here.
 
Join Date: Jan 2008
Location: Flyover America
Posts: 663
Annuities are not investments, they are insurance.
I am looking at them as well in addition to the pension I already have (which I am very thankful that I have one non COLA, however).
In regards to interest rates, my crystal ball is not working, I cannot predict the future so maybe better to ladder them over next several years as you age the cost is better and if rates increase the cost will improve as well. The vanguard portal to Hueler immediate annuities is a good one but not always the best payout, I am also looking at immediate annuity.com and Stan the Annuity Man.
capjak is offline   Reply With Quote
Old 11-18-2017, 05:34 PM   #39
Thinks s/he gets paid by the post
 
Join Date: Jul 2011
Posts: 1,004
Quote:
Originally Posted by travelover View Post
I guess I have an annuity. I get a monthly pension check from Mega and a few years ago they offered me a lump sum, which I refused. I'm happy with it, but it is not COLA-ed, so I am starting to feel my buying power slip away after a decade. Fortunately, I also have a 60/40 portfolio to compensate for inflation when I reach the point where the pension does not cover my expenses.
I am in a similar position. I took annuity vs lump sum. But I am very happy with the choice. I like that with my annuity and SS, I can have a decent life for several more years. Toss in portfolio and my ER should exceed expectations.
savory is offline   Reply With Quote
Old 11-18-2017, 05:49 PM   #40
Recycles dryer sheets
 
Join Date: Jan 2017
Location: Bay Area
Posts: 248
Quote:
Originally Posted by travelover View Post
I think the key is the underlying cost of the annuity. Pensions are often structured so the payout is better than any annuity you could buy for yourself.

When I was offered a lump sum in exchange for the pension I was already receiving, I certainly couldn't duplicate the pension payout using the lump sum to buy an annuity.
Agreed.
Nature Lover is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Single Life Annuity or Joint Survivor Annuity Chief322 FIRE and Money 19 09-27-2015 05:45 AM
Poll: How happy are you in your ER stage? Focus Life after FIRE 66 11-10-2014 04:07 PM
Happy Birthday to my little buddy..and Happy St. Patty's day to the rest of you! thefed Other topics 18 03-18-2010 04:15 AM
Annuity post to end all annuity posts... Midpack FIRE and Money 61 07-09-2008 07:29 AM
Rolling over annuity money to Variable Annuity?? bigcedargrandma Hi, I am... 4 03-20-2008 06:39 AM

» Quick Links

 
All times are GMT -6. The time now is 02:01 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2021, vBulletin Solutions, Inc.