Late retirement annuity?

[audreyh1]

Quote:

Originally Posted by marko As a long time forum reader I must say that the relative positive responses to annuities is a bit of a surprise. Seemed to me that in the past any mention of the "A" word brought a ton of negatives. Or is it just because the OP is planning a late in life purchase?

Yes, I think it's the late in life part. Makes a big difference.

We will also be considering around 75 or so.

[DawgMan]

I think I have a fundamental problem with buying an annuity, but understand the appeal to many, but a little surprised as to how many have chimed in as it being part of their plan. To me, an annuity is like buying Whole Life vs. Term or being an educated DIY investor vs. having an advisor. You are paying a premium for something you can/you should be able to set up yourself. If you need ins, buy term. If you need/want an "annuity-like" structure than adjust your portfolio accordingly. If you are worried about being incapacitated to properly run your portfolio and don't have faith in a younger family member, I suppose at that point engage an advisor. I have to admit, I have not studied these annuities as of late, so my response is based on my previous understanding.

[2017ish]

Quote:

Originally Posted by DawgMan ...To me, an annuity is like buying Whole Life vs. Term or being an educated DIY investor vs. having an advisor. You are paying a premium for something you can/you should be able to set up yourself. If you need ins, buy term. If you need/want an "annuity-like" structure than adjust your portfolio accordingly. ...

You can't provide the mortality credits yourself; to me that is the essential part of the longevity insurance/protection that an simple annuity can provide, particularly when looking late in life as postulated by OP.

(We may or may not do it when we get to that point; assets may be sufficient to make it unnecessary, but we'll see.)

[Options]

Quote:

Originally Posted by audreyh1 Yes, I think it's the late in life part. Makes a big difference. We will also be considering around 75 or so.

+1
I agree with Otar's characterization of annuitization as "exporting risk". But in my case only as a Plan B at approx. age 75 if called for.

[COcheesehead]

Why wouldn't you buy a 30 year bond? You probably aren't going to outlive it. You can always sell it if you need a lump sum and the return is going to be close, depending on what you buy.

[nun]

Quote:

Originally Posted by COcheesehead Why wouldn't you buy a 30 year bond? You probably aren't going to outlive it. You can always sell it if you need a lump sum and the return is going to be close, depending on what you buy.

For me TIAA-Traditional deferred annuity and my house were going to be my "late stage" money to supplement social security if my DC money ran out. I was going to let TIAA-Traditional accumulate and use the 10 year payout option if I needed money and tap the home equity as a last resort.

[MikeTN]

First, you don't have to pay big sales commissions. Look to Vanguard and TIAA first for a simple annuity that pays you and/ spouse for life.

Also, the annuity will pay more per year than you could get using a safe withdrawal rate from a conservative portfolio. This differential increases with age. So when you reach your late 70s it would be a good way to increase both income and safety at the same time. I will have at least half my assets in TIAA annuities by my late 70s, have 35% in annuities now and no regrets.

[nun]

Quote:

Originally Posted by MikeTN Also, the annuity will pay more per year than you could get using a safe withdrawal rate from a conservative portfolio.

Initially that's true, but the annuity probably won't have any COI increases and after a few years it might well lag the SWR from a portfolio. The annuity does have longevity insurance going for it. I see annuities as useful if you want to guarantee a base income level, but once that's done I would not use them.

TIAA is a good place to get annuities and if you are buying them from within a retirement plan you will get some nice rates, but with all the same drawbacks that are often debated here.

[haha]

Quote:

Originally Posted by marko As a long time forum reader I must say that the relative positive responses to annuities is a bit of a surprise. Seemed to me that in the past any mention of the "A" word brought a ton of negatives. Or is it just because the OP is planning a late in life purchase?

No, it's just that people get bored. "She loves me, she loves me not..."

Actually, I can't understand why anyone would even consider an non-COLA annuity in the modern world with modern central banking. Our memories are so short, and our imaginations about things have not happened recently are deficient. But surprises will come, and they will mainly be surprises. Though I have recently come to think that the assumption that markets discount risk adequately is goofy. Suddenly equity markets and media are all surprised that Macy's, Sears, etc. etc. are staggering. Who couldn't predict this once he or she saw Amazon in action? This is not to say that Amazon is a good buy at whatever price. But other retail is certainly at risk for what Amazon and other online merchants can do to traditional retail.

Ha

[Gill]

Quote:

Originally Posted by marko As a long time forum reader I must say that the relative positive responses to annuities is a bit of a surprise. Seemed to me that in the past any mention of the "A" word brought a ton of negatives. Or is it just because the OP is planning a late in life purchase?

Yes, there are people who seem to oppose SPIA's. I've always felt it's at least in part because they don't fully understand them or have a reluctance to part with a lump sum of cash.

I spent my career in the personal finance end of things and have always favored SPIA's when used where needed and to the extent necessary. As I posted above, when I reached age 70 or thereabouts I purchased several contracts for myself, to the point of investing about 25% of my assets, and have been very pleased I did.
Bruce

[W2R]

I just checked on immediateannuities dot com. I found that if I buy a $100,000 SPIA at age 85, I would get $1117/month for the rest of my life, no matter how long that is.

If I invested it instead, and took 4%, I'd get $333/month from that $100K.

Inflation between age 85 and death is unlikely to be much of an issue because that isn't much time.

The advantage of investing it, is that I could leave it to my heirs. But, I am inclined to think "so what" since most of my money would not end up in the SPIA.

[COcheesehead]

Quote:

Originally Posted by W2R I just checked on immediateannuities dot com. I found that if I buy a $100,000 SPIA at age 85, I would get $1117/month for the rest of my life, no matter how long that is. If I invested it instead, and took 4%, I'd get $333/month from that $100K. Inflation between age 85 and death is unlikely to be much of an issue because that isn't much time. The advantage of investing it, is that I could leave it to my heirs. But, I am inclined to think "so what" since most of my money would not end up in the SPIA.

Investing it also gives you the opportunity to liquidate it if you run into needing cash for oh, I don't know, long term care or a new BMW

[nun]

Quote:

Originally Posted by W2R I just checked on immediateannuities dot com. I found that if I buy a $100,000 SPIA at age 85, I would get $1117/month for the rest of my life, no matter how long that is. If I invested it instead, and took 4%, I'd get $333/month from that $100K. Inflation between age 85 and death is unlikely to be much of an issue because that isn't much time. The advantage of investing it, is that I could leave it to my heirs. But, I am inclined to think "so what" since most of my money would not end up in the SPIA.

But given your life expectancy at age 85 you could take out a lot more than 4%. If you got 2% return from cay a CD you could take out $1117/month for 7 years and theres only a 35% chance that you'd live that long. The 65% that die before age 92 are paying for those payouts. It really is about insurance, most people will lose out, a minority will live long enough to get into the black and the insurance company is the big winner.

[garyt]

Quote:

Originally Posted by nun But given your life expectancy at age 85 you could take out a lot more than 4%. If you got 2% return from cay a CD you could take out $1117/month for 7 years and theres only a 35% chance that you'd live that long. The 65% that die before age 92 are paying for those payouts. It really is about insurance, most people will lose out, a minority will live long enough to get into the black and the insurance company is the big winner.

If I die I don't care if I lose money compared to investing it, I'll be dead. To me, this is like the "When should I take SS to get the most money?" I say "Who cares?" I want to take SS when it will help me enjoy life the most. If taking it early will help me better enjoy life that's what I'll do. Who cares if when I'm stuck in the house at 90 I could have made a few extra bucks.

[garyt]

One of the main points of my original post was that since we don't have kids we don't want to leave a huge inheritance when we die. If we invest the money we can never spend it all for fear of outliving our cash. So being more conservative people as most here are we'd end up leaving quite a bit on the table, because we'd never spend so much as to put us in jeopardy.
If we put the money in an annuity we know what we can spend and if we die early and don't get much bang for our buck, we're dead, who cares?
I'm enjoying the responses, both pro and con. This is an idea that just popped in my head not something I'm committed to doing.
I'm not thinking of this as a way to maximize my money. I agree investing would be the better way. I'm looking at a way to maximize my enjoyment of life, even if it costs me money at the very end.

[nun]

Quote:

Originally Posted by garyt I'm not thinking of this as a way to maximize my money. I agree investing would be the better way. I'm looking at a way to maximize my enjoyment of life, even if it costs me money at the very end.

Investing does not necessarily maximize you money, it just gives you the change to do that....and also the chance to lose it.

I don't have children, but I do have nieces (and a couple of charities) that are in my will and I want to leave them a good amount of money. So to do that I have annutiized some of my DC money and that along with rent and SS checks from both the US and the UK more than cover my expenses. My attitude is I don't want to wait until I have to annuitize incase I leave it too late. I've been doing it in a way since I was 25 by saving for the rental property and keeping up my UK SS contributions.

[harley]

Quote:

Originally Posted by haha No, it's just that people get bored. "She loves me, she loves me not..." Actually, I can't understand why anyone would even consider an non-COLA annuity in the modern world with modern central banking. Our memories are so short, and our imaginations about things have not happened recently are deficient. But surprises will come, and they will mainly be surprises. Though I have recently come to think that the assumption that markets discount risk adequately is goofy. Suddenly equity markets and media are all surprised that Macy's, Sears, etc. etc. are staggering. Who couldn't predict this once he or she saw Amazon in action? This is not to say that Amazon is a good buy at whatever price. But other retail is certainly at risk for what Amazon and other online merchants can do to traditional retail. Ha

I'm basically with you on annuities. However, in this case the OP specified "late in life", which would probably mitigate the non-COLA aspect. I still would never do it, since I would like to leave money to heirs, and also because I'm a control freak, especially about money. I just don't see a situation other than mental incompetence where I would turn over control. And never to a stranger. But in the situation the OP describes, I might at least consider it before rejecting it.

[Sunset]

Quote:

Originally Posted by garyt One of the main points of my original post was that since we don't have kids we don't want to leave a huge inheritance when we die. If we invest the money we can never spend it all for fear of outliving our cash. So being more conservative people as most here are we'd end up leaving quite a bit on the table, because we'd never spend so much as to put us in jeopardy. .......

For this same reason of being free to spend every single penny each month, I looked into an annuity for a 90 yr old.
With a simple 100K investment, he can spend $20,640 every year for the rest of his life. Right now he only feels free to spend $5,000 per year, because he could live to 115.

[RobLJ]

I've considered a delayed annuity that starts paying at 75-80, as insurance against long life (my grandparents lived into their 90s--Dad died at 85 but mainly because he had diabetes and Mom is going strong at 85).
Probably would buy it at 60-65, but I haven't really researched it, but have been hoping interest rates go up first.

[Richard4444]

FWIW, I purchased a SPIA through Vanguard in May, 2015. I compared the same SPIA with online annuity companies, and Vanguard kept 1% less of the commission than the online companies, so their payout was 1% more to me. Therefore, if you are considering an SPIA, I would recommend checking it with the same one at Vanguard to see if that is still the case.

Rich