Laddered annuities

[ferco]

Has anyone built a laddered annuity (s) as part of their long term strategy for retirement income. Welcome positive constructive replies.
Thanks

 

[ShokWaveRider]

We here are not great advocates of Annuities because of their high fees and really they only give you back what you put in + a below average interest rate.

 

[ferco]

The question is: "Has anyone built a laddered annuity" ...... not whether or not you're an advocate. Thanks for the reply anyway !

 

[Another Reader]

You want "positive constructive replies." That sounds like you want people here to support your decision to buy (or sell) these products.

That's not likely to happen. Some people here support annuities in a very few situations, but most think annuities exist to enrich the insurance company. Low interest rates and high fees make annuities a very bad deal. You can structure an income stream yourself, without paying an insurance company to do it for you.

 

[hlfo718]

I am assuming you are referring to laddering immediate annuity, not the other crappy high fees annuities people are referring to? I spoke with a mass mutual guy and he recommended that method rather than lump sum. I am also looking to blend that with some longevity insurance, but still doing my research. Rest of our portfolio is with Vanguard. We just want to make sure our day to day expenses are covered.

 

[Big_Hitter]

a guy I used to w*rk with FIRED on a bond ladder - not sure about an annuity ladder but the combination of a diversivied portfolio, an immediate annuity and a QLAC make sense to me. YMMV

 

[ferco]

Consider this, often times a person has already read or heard tge statements you or the first opine have stated. These are redundant. That's not the purpose of MY question.
I'm interested in hearing from people who HAVE bought the product ! I aware of the theories you guys are expounding.
When I say positive constructive points, I don't mean those that only agree with me, but that will hopefully answer the query as its put forth be it ppositive or negative ; pro or con.

 

[Big_Hitter]

have you read this book?

https://www.amazon.com/Money-Life-Lifetime-Retirement-Paycheck/dp/0985384603

 

[pb4uski]

Are you talking about a ladder of life annuities, period certain annuities or deferred annuities?

 

[Senator]

I have considered an annuity in the past, although I am not a great advocate. They do have their place. I do not like bonds either. I do see a lot of similarities of an annuity in a bond.

An annuity probably has a better return than a bond fund, and is likely safer. Insurance companies are held to a higher fiscal standard than a municipality.

If you use the annuity as one leg of a retirement chair (pension, disability, SS, rentals, dividends, etc.), it could possibly a great income stream.

I considered 5-10% of my total liquid investment being put into an annuity. It would not be a lot monthly, but maybe it would be $1,000 a month (somewhat) guaranteed from age 62 or so forward. I view it as more of an income diversity thing than an investment.

IMHO, an annuity is a much better investment than LTC.

 

[ferco]

Thanks. Has good reviews on Amazon !

 

[Big_Hitter]

Thanks. Has good reviews on Amazon !

great read; written by a retired pension actuary that isn't trying to sell you anything

 

[pb4uski]

... An annuity probably has a better return than a bond fund, and is likely safer. ...

Not really in terms of return... not even close. On immediateannuities.com a 5 year period certain annuity yields 0.7%... you can easily beat that with an online savings account that is FDIC insured. The 10 year period certain annuity yields 1.6% but for longer terms an online account/CD ladder would beat that. The insurer invests in the same bonds but needs a profit.

If you have better than average longevity, then the mortality credits embedded in a life annuity might help it outperform a bond fund but it depends on how long you live.

The Vanguard Intermediate-Term Investment-Grade Fund Admiral has an SEC yield of 2.36%... a 60 yo male would need to live to be 84 to get that... live longer and your return increases... die early and it sucks. And you need to live beyond 80 to beat a plain old FDIC insured savings account that pays 1%.

Lump Sum		100,000
Monthly benefit		462
Age	n	IRR
60	0
61	1	-98.4%
62	2	-81.6%
63	3	-61.5%
64	4	-46.1%
65	5	-35.0%
66	6	-27.0%
67	7	-21.0%
68	8	-16.5%
69	9	-13.0%
70	10	-10.2%
71	11	-8.0%
72	12	-6.2%
73	13	-4.7%
74	14	-3.4%
75	15	-2.3%
76	16	-1.5%
77	17	-0.7%
78	18	0.0%
79	19	0.6%
80	20	1.1%
81	21	1.5%
82	22	1.9%
83	23	2.2%
84	24	2.5%
85	25	2.8%
86	26	3.0%
87	27	3.3%
88	28	3.5%
89	29	3.6%
90	30	3.8%
91	31	3.9%
92	32	4.1%
93	33	4.2%
94	34	4.3%
95	35	4.4%
96	36	4.5%
97	37	4.6%
98	38	4.7%
99	39	4.7%
100	40	4.8%

 

[Senator]

Not really in terms of return... not even close. On immediateannuities.com a 5 year period certain annuity yields 0.7%... you can easily beat that with an online savings account that is FDIC insured. The 10 year period certain annuity yields 1.6% but for longer terms an online account/CD ladder would beat that. The insurer invests in the same bonds but needs a profit.

If you have better than average longevity, then the mortality credits embedded in a life annuity might help it outperform a bond fund but it depends on how long you live.

The Vanguard Intermediate-Term Investment-Grade Fund Admiral has an SEC yield of 2.36%... a 60 yo male would need to live to be 84 to get that... live longer and your return increases... die early and it sucks. And you need to live beyond 80 to beat a plain old FDIC insured savings account that pays 1%.

That is interesting. I never really looked at the interest rate return, and every time I ask an annuity guy, they dodge the question.

I went to that site and just did a 5 year immediate annuity. $100K now, only gives back $101,820 over five years, or $1,697 per month. According to my HP12C, that is 0.593% interest. Most bonds, or even DVY, would give that. I get a lot more than that by paying off my mortgages.

The security of a 'guaranteed' investment is what you are buying I guess.

 

[pb4uski]

That is interesting. I never really looked at the interest rate return, and every time I ask an annuity guy, they dodge the question.

I went to that site and just did a 5 year immediate annuity. $100K now, only gives back $101,820 over five years, or $1,697 per month. According to my HP12C, that is 0.593% interest. Most bonds, or even DVY, would give that. I get a lot more than that by paying off my mortgages.

The security of a 'guaranteed' investment is what you are buying I guess.

I think you got 0.0593%, which is per month, which converts to 0.72%/year. Math is hard.

 

[Sunset]

We get a small Pension, non cola.
Took 1/2 of the $ as lump sum, and is invested, idea being in a decade to buy an annuity (possibly).
I have realized our SS is really an annuity as well, and we plan to tap those later on.

So yeah, I suppose I could think of ourselves as having laddered annuities, just not the kind where you pay some salesman to give you back your money over time.

 

[Big_Hitter]

I think you got 0.0593%, which is per month, which converts to 0.72%/year. Math is hard.

he's using a HP12C and not a TI BAII plus

 

[Senator]

I think you got 0.0593%, which is per month, which converts to 0.72%/year. Math is hard.

Yep. After looking at it again, that is what I got. Either way, it's not good.

 

[jazz4cash]

Are you talking about a ladder of life annuities, period certain annuities or deferred annuities?

+1
The word "annuity" is just too generic.

It's very tough to be constructive without knowing something about the specific situation and specific annuity types. I am considering a ladder of Multi-Year Guaranteed Annuities to bridge the gap between ER and starting SS. These are frequently compared to CD's except no FDIC. Rates are around 3% for 5 yrs. A CD ladder is my alternate choice and I will pull the trigger next year when I get a chunk from a maturing CD.

 

[pb4uski]

Are you sure about that 3%? Looks high in comparison to these SPDAs from Fidelity. Usually CDs and bonds and annuities returns are within similar range and I'm not aware of any 5 year 3% money out there though Andrews CU is offering a 7 year, 3% IRA CD.

Guaranteed Rates for Tax-Deferred Fixed Annuities (SPDAs) Available Through Fidelity

 

[daylatedollarshort]

We took our pensions as annuities and have CD and TIPS ladders as a part of our portfolio. I am not against annuities myself, but for our portfolio I find them more appealing to buy when we are older and the prices are cheaper and then using them as a form of longevity insurance.

 

[jazz4cash]

Are you sure about that 3%? Looks high in comparison to these SPDAs from Fidelity. Usually CDs and bonds and annuities returns are within similar range and I'm not aware of any 5 year 3% money out there though Andrews CU is offering a 7 year, 3% IRA CD.

Guaranteed Rates for Tax-Deferred Fixed Annuities (SPDAs) Available Through Fidelity

Sentinel Security Life
Personal Choice Annuity 5 (MVA)5 yrs.$2,500 min 3.00 %apy B++ - See more at: https://www.immediateannuities.com/deferred-annuities/#sthash.NEH9HHTL.dpuf


The early withdrawal penalty on the Andrews 7yr CD is only 6 months so it would still earn 2.74 if you early withdraw after 5 yrs and they allow partial withdrawals so it may be a good substitute for a CD ladder.

 

[pb4uski]

Sentinel Security Life
Personal Choice Annuity 5 (MVA)5 yrs.$2,500 min 3.00 %apy B++ - See more at: https://www.immediateannuities.com/deferred-annuities/#sthash.NEH9HHTL.dpuf


The early withdrawal penalty on the Andrews 7yr CD is only 6 months so it would still earn 2.74 if you early withdraw after 5 yrs and they allow partial withdrawals so it may be a good substitute for a CD ladder.

Be careful. The surrender charges are steep if you want your money before the 5 years is up and there is a market value adjustment as well.

The early surrender charges only apply to withdrawals which are greater than the annual accrued interest amount. You can always withdraw the annual accrued interest penalty-free. If surrender charges apply, they start at 9% and decline to 0% after the 5th year. The schedule is 9%, 8%, 7%, 6%, 5%, 0%.

 

[pb4uski]

Also, bbb rated by A.M. Best. Sounds fine for your money but my money ain't getting anywhere near a bbb company.

 

[jazz4cash]

Be careful. The surrender charges are steep if you want your money before the 5 years is up and there is a market value adjustment as well.

I'm not suggesting to buy or not to buy this. I am waiting to see how things look next April. The surrender charges must be taken into consideration and the insurer has decent but not top notch ratings as you mentioned. Most of these products do offer 10%/yr withdrawals with no surrender charge. The higher rated insurance companies have rates in the 2-2.3 range so very comparable to the online bank CD rates.