cute fuzzy bunny
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Eh, if nothing else, all y'all can slice me thin and grill me when its all over. I should be smoky, salty and delicious!
In a nutshell, in my plan, I have:
1) Annuities--survival income
2) Insurance-protection from major financial losses due to LTC, hospitalisation, etc
3) Balanced Portfolio-additional income
4) Basics for Survival Inflation Hedging- in a basket of funds focused on the sectors involved in the basic things I need for survival which may be affected by hyperinflation
5) Gold
6) Cash reserves for emergency
This means that if I want to have $40,000/y, I can't retire when I just have $1m. Probably I'd need more to allocate to the other parts of the plan other than a Balanced Fund.
Dang it, I knew I should have stayed up later. I wanna know what the unmodified version said!
Did you make note of the veiled "eat me!"?
H0cus? Is that you?!?A lot of discussion and historical research have been done to ascertain a Safe Withdrawal Rate. Many experts even recommend that retirees should keep their nest egg in a balanced portfolio of stocks and bonds, and withdraw around 4% pa. This rate is called the swr. I beg to differ. I argue that retirees should have two streams of income: insured stream and uninsured stream.
What do you think?
Always good to be lectured on ER & SWRs by someone who has yet to do either one...For example, I plan to ER at 35, in 5 years.
I think the short answer is that injecting a reliable income stream - even a modest one - helps portfolio survivability somewhat in some historical cases.
I think the rationale behind buying a non-cpi adjusted annuity is that the payment is so much higher right off the bat. Some folks (Rich?) who are interested in these things are planning to periodically buy small non adjusted annuities when the rates are good, sort of getting some adjustment along the way as opposed to sinking a big sum into one adjusted annuity.
I guess if you're planning on living to 120 and feel the need for 100% protection at that age level, at the risk of losing control of your principal should you need it, and to stymie your heirs who must have moved in with a republican to garner such scorn, then its a good plan.
The general concept here is that an annuity provides more security. But AA seems to be using a non-inflation protected annuity. That doesn't make a lot of sense to me.
I looked at the plan above and said it's roughly stocks plus an annuity.
So I tried FireCalc. I ran it 3 ways:
a) The defaults - $750,000 invested 75/25 stocks/bonds, $30,000 income, 30 years
b) I changed the investments to 100% stocks
c) I kept the 100% stocks, but put $300,000 into an annuity paying a fixed $18,700 per year. I got the $18,700 from Vanguard's site, using a male age 35.
The number of failures in 106 sample retirement years was:
a) 6
b) 8
c) 10
It seems that adding the annuity didn't do a lot of good.
Looking at the detail, (c) outperforms (b) for 1906 and 1929. OTOH, (b) outlasts (c) in 1964, 1970, 1971, and 1972. They both failed for years 1965-69 and 1973.
This isn't very surprising. I believe we had deflation following 1929, so a fixed annuity was a winner. We had high inflation following 70, 71, and 72, so you didn't want a fixed annuity.
Of course, in the 6 cases where they both failed, (c) had some residual income after the assets were depleted. That would be whatever was left of the fixed annuity after 30 years of inflation.
Simply diversifying into bonds, as in (a) seems to do better than either (b) or (c).
I understand that AA intends to over-weight stocks that he thinks are particularly resistant to inflation, and have some gold. However, he doesn't specify how much in either of those categories, or his selling strategy, or what performance he expects from either the gold or those inflation-resistant stocks. So I couldn't do anything with them.
H0cus? Is that you?!?
Always good to be lectured on ER & SWRs by someone who has yet to do either one...
But it's always good to listen to someone who has done it successfully for others, and who has done it for a living.
Interesting stuff.
Re the Singapore annuity: In the US, some companies offer annuities with guaranteed annual increases at a pre-determined percent. (Vanguard calls this a "graded payment option".) Or, you can buy a variable annuity with a "Guaranteed Lifetime Withdrawal Benefit" that sounds a little more like your description. In the GLWB case, the upward ratchets are entirely driven by the performance of your funds, the insurance company doesn't have any discretion.
Some observations on some apparently understated risk that is built into your plan:
Regarding the "projected growth" in your annuities (e.g. 2.5% p.a.): I take it that this is not guaranteed. Well, I have a "projected growth" of 4% p.a. in my investments--after inflation. That projection is every bit as solid (or not) as the projection from an insurance company, as most holders f whole life insurance can attest. Even if an insurance company were to offer a "guarantee," it would all still be predicated on the soundness of the company--over a 50 year span. That's a lot to take on faith.
Regarding your hedging on the costs of survival items: Your underlying assumption is that whatever drives up the price of these items will also drive up the profits of the companies that deal in them. Not so. If, for example, Thailand has an epiphytotic of the rice blast bacteria, it could wipe out a large portion of the rice crop there. This would drive local rice prices up. I don't think that your local rice farmers, wading through the muck to salvage a few unaffected rice grains, are going to see a big jump in the value of the shares of their company. There are many cases when a commodity skyrockets in price but the companies/stock price of the companies dealing in it do not benefit significantly. You'd have t pick the right spot in the supply chain to benefit from the price jump, and buying stocks across the entire supply chain might not net any profit at all (e.g. if rice doubles in retail price because of a shortage, but there is far less rice sold overall as a result, lots of companies in the supply chain would be hurting and suffer a drop in stock price for the few who are winners--if you own everything, you should expect to about break even)
Here's how I break it down in the USA:
1)SPIA: I have access to over 20 companies that offer this. And yes, I can choose between giving a client a 3, 4, 5 or 6% INCREASE each year, however since it is actuarially based, they just get a smaller payment to begin with the more "COLA" they want.........no rocket science there..........
2)VA with living benefit rider: The newer versions offer a guaranteed growth of an "income base" from which a client can take income now or later, and that "income base" is credited between 5% and 7% a year depending on the company. Some compound the rate, some don't. Here's a hypothetical example:
You make a $100,000 investment in this. We'll say you don't need the monny right away. Using a 7% income base rider, you will in effect double that income base in a little less than 10 years, so you have $200,000. At the minimum, you can withdraw $10,000 a year for life if you are under 75, 6% if you are age 76-80, and 7% if you are 80 or older, regardless of if the funds don't do 7% or better over that 10 year period. Companies do a "rachet" on an annual, quarterly,or daily basis. The only discretion they have is WHEN the potential rachet occurs............
The downside is the contracts are not cheap, typically 2.50-3.0% a year, and you can't just walk away with the $200,000 if the market is down, you can only take it as an income stream. In addition, you are betting that the insurance company is allocating enough money to pay their future promises on these income streams...........
Maybe if Berkshire sold immediate annuities.