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Old 11-18-2017, 05:57 PM   #41
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Being able to sleep at night is certainly worth something.

And, if an annuity keeps somebody from panicking and selling out cheap in the next market correction, then I think it has value for that person.

Not everybody has what it takes to be in the stock market.
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Old 11-18-2017, 07:51 PM   #42
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I have a variable annuity from Vanguard that has done it's job...it reduced non-retirement asset balance while the kids were in school. It's tracking the underlying funds just fine, and I have not annuitized, nor do I plan to. When I turn 59.5, this will be covering my expenses through withdrawals. I need to use this exclusively (over 401k and IRAs) to uncover the tax free basis. Then I'll have a wad of cash to blow on something!
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Old 11-19-2017, 06:45 AM   #43
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Question: All this talk of annuities.....fixed or variable....If one has the appropriate AA for one's age and risk tolerance ......and one takes what they consider to be a SWR (3,3.5,4.0%)......have we not in effect created our own annuity with our portfolio? Realizing that the amount may not be the same year in and year out but would this not be preferable to the fees associated with annuities?

Running simulations of the above thru FIRECALC with a 98+% success rate over 30 years makes me question why many invest in an annuity. Is it the psychological comfort of "knowing" exactly what that monthly payment will be?

EDIT: DW and I both have pensions so I could see more of a reason to have an annuity if one does not have a pension. The annuity becomes their pension.
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Old 11-19-2017, 07:11 AM   #44
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Originally Posted by MrLoco View Post
Question: All this talk of annuities.....fixed or variable....If one has the appropriate AA for one's age and risk tolerance ......and one takes what they consider to be a SWR (3,3.5,4.0%)......have we not in effect created our own annuity with our portfolio? Realizing that the amount may not be the same year in and year out but would this not be preferable to the fees associated with annuities?

Running simulations of the above thru FIRECALC with a 98+% success rate over 30 years makes me question why many invest in an annuity. Is it the psychological comfort of "knowing" exactly what that monthly payment will be?

EDIT: DW and I both have pensions so I could see more of a reason to have an annuity if one does not have a pension. The annuity becomes their pension.
I think you have made a reasonable point. But annuities generally pay quite a bit more. If you bought an annuity at age 70 (male) it would pay around 7% every year guaranteed for your life. Tax treatment may be better than cap gains/divs too. A 7% withdrawal rate might not be safe even at age 70?
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Old 11-19-2017, 09:16 AM   #45
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Before you purchase an annuity find out exactly what all the fees are:

Annual fees including sub account fees, M&E expenses, any riders. Also ask of there are surrender penalties

My mom had one and we found out the annual fees were over 4%..absolutely criminal...
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Old 11-19-2017, 09:50 AM   #46
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In what would be viewed by the majority here as a Definitely Don't do move over 20 years ago I rolled a former 401K account into a Variable Life Insurance account. At that time we needed the additional Life Insurance coverage having younger children in the house, (yes term would have been much cheaper in hindsight), and liked the backstop of a 6% guaranteed growth, (on the annuity value side), in case markets crashed and didn't recover. Yes I was much less knowledgeable then. When the cash value subsequently plummeted by 50% I slept much better.

Last year in meeting with my agent I found out that with my contract I can pull out $24K per year without annuitizing the contract, (but lessening the contract value), and each year it recoups that amount in guaranteed growth so it maintains the "death" value to DW whereas annuitizing it would limit it her to a 10 year certain period if I was to die. The 6% growth guarantee terminates at age 70 so at that point it depends more on the market returns less expenses whether it makes more sense to annutize or continue withdrawing money as long as the cash value remains positive. Additionally since every year I wait shortens my life expectancy on their table the annual annuity payment when annuitized becomes larger so it is a bit like having a cola'd annuity until the time it starts.

Never having worked a job that came with a pension this cash stream was looked at like 1 leg of my stool!
Knowing what I have learned on this site over the past few years I would have done things differently but I also don't regret the choice I made.
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Old 11-19-2017, 10:02 AM   #47
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Originally Posted by Danmar View Post
I think you have made a reasonable point. But annuities generally pay quite a bit more. If you bought an annuity at age 70 (male) it would pay around 7% every year guaranteed for your life. Tax treatment may be better than cap gains/divs too. A 7% withdrawal rate might not be safe even at age 70?
I would have to compare the 7% to complete depletion of the amount invested in the annuity at your date with the grim reaper. It is well known that you can beat the insurance company by living longer than your statistical expiry date, minus overhead charges.

IOW it is a bet. There is a slightly less than 50% chance that you will win.
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Old 11-19-2017, 10:30 AM   #48
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When I retire next year I was thinking of purchasing a fixed immediate annuity from Vanguard. I know all the drawbacks. I like the idea of not having to worry about the stock market and having a fixed amount for life. If you purchased an annuity are you happy with it or do you regret the purchase? Any thoughts? Thanks for your time.
OP-

My suggestion is to consider using an ‘annuity hurdle’ concept to make this decision. I know of two methods (see links) you can use to help.

1. Fullmer Annuitization Hurdle- http://www.schulmerichandassoc.com/M...cumulation.pdf

2. Otar’s ‘Zone’ Concept- http://retirementoptimizer.com/articles/Article105.pdf

Also, here’s an old thread (there are many here) discussing the annuity question and it may be helpful to you.

http://www.early-retirement.org/foru...cle-67868.html
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Old 11-19-2017, 10:19 PM   #49
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Originally Posted by MrLoco View Post
Question: All this talk of annuities.....fixed or variable....If one has the appropriate AA for one's age and risk tolerance ......and one takes what they consider to be a SWR (3,3.5,4.0%)......have we not in effect created our own annuity with our portfolio?
As an aside, what is a bit unfortunate, IMHO, is that a "variable annuity" that is never annuitized really has nothing to do with an annuity, yet it's still got "annuity" in it's name. It's simply that an insurance company is holding your mutual fund, and the funds there are deemed "retirement assets" and can't be taken out before 59.5 without penalty.

But to answer your question, the difference is who is taking on the market and longevity risks. In the annuity case, the insurance company takes that risk, and because they have many customers, it's not a big deal. In the DIY case, that risk is all you, bay-bay!
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Old 11-19-2017, 10:51 PM   #50
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Not all annuities are created equal. After my DF passed, I had been using the bank next to my office for an estate account and for medallion guarantees that I needed for transfers. Well, wouldn't you know it they had one of their alleged "financial advisers" track me down. I was curious, and in any event, it was next door to my office so I did go in and meet with him. He was selling an annuity. Shuffled his papers around so fast he looked like a card shark.

He showed me payouts for a seven figure annuity. I put on my stupidest face (yep, it's a talent) and pointed at the papers and asked him to please show me the print-out with his commission on it. More shuffling. Another stupid look from me. Does NY State guarantee the entire amount if the insurance company goes bankrupt? (I knew they didn't). There was some tap dancing about the rating of the company. He managed to tick me off.

"Well, you know, I'd really like some life insurance to protect my family, do you sell that?" Amazingly he did. Out came the forms. I looked at them, very slowly of course, and commented, "oh, they want to know if I've had cancer in the last five years, I have it now, is that a problem?" Him, "you look very healthy!" Me, eyes wide, tears steam down cheeks. (Very easy to do with losing a parent followed by a cancer diagnosis.) I explain I hadn't started treatment yet. Him, "I'll look into it and get back to you."

I never did hear back from him.
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Old 11-20-2017, 02:10 PM   #51
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As often happens in these "annuity" threads, I see comments on two very different financial arrangements.

1. A guaranteed income stream that lasts exactly as long as the owner lives.

2. A competitor for CDs or mutual funds, with a different tax status. The buyer has no intention of "annuitizing" it, that is, converting it into (1).

Each has it's own pros and cons, but it would be useful if people identified their comments by type.
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Old 11-20-2017, 05:27 PM   #52
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The question was about immediate fixed annuities and many of the answers are falling on the pitfalls of long term variable annuities. Totally different financial instrument.

In 2007 I purchased a 4 percent payout, rising 4 percent annually fixed income immediate annuity covering the lives of myself and my wife, was thinking of investing 300K but only put 100K into it, I must admit the amount of negative talk on the annuity and how "low" the interest rate at an implied compound 6% per year led me to hesitate and reduce my investment.

It has been one of the best investments I have ever made and only regret is in not putting in the 300K. It is a check that comes in that my wife can deal with where she would never be able to deal with the remainder of my financial portfolio, so it certainly simplified investing for her in case of my demise in a profitable manner.

In the present environment you could get only a 2 percent annual increase with a 4% payout on an annuity in the 60-65 year old bracket. Predicting interest rates is hard. A portion invested in annuities if it gives the comfort to invest remainder for the long term is not a bad thing.
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Old 11-21-2017, 04:00 AM   #53
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Before you purchase an annuity find out exactly what all the fees are:

Annual fees including sub account fees, M&E expenses, any riders. Also ask of there are surrender penalties

My mom had one and we found out the annual fees were over 4%..absolutely criminal...
What kind of annuity are you talking about? The OP was talking about a fixed immediate annuity from vanguard, they have a one time upfront 3% commission and that's it.
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Old 11-21-2017, 06:52 AM   #54
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OP-

My suggestion is to consider using an ‘annuity hurdle’ concept to make this decision. I know of two methods (see links) you can use to help.

1. Fullmer Annuitization Hurdle- http://www.schulmerichandassoc.com/M...cumulation.pdf

2. Otar’s ‘Zone’ Concept- http://retirementoptimizer.com/articles/Article105.pdf

Also, here’s an old thread (there are many here) discussing the annuity question and it may be helpful to you.

http://www.early-retirement.org/foru...cle-67868.html

Thank you for sharing these references
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