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Late retirement annuity?
Old 01-05-2017, 05:56 AM   #1
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Late retirement annuity?

So, like most here I'm not high on annuities. But since my wife and I have no children and don't feel the need to leave an inheritance to anyone, would buying an annuity later in life make sense?
We'd like to be the people who's last check ever written bounces, but we're too conservative to get in that position. So let's assume things are going pretty well and we still have a decent nest egg at 70 or 75, would it make sense to put it all (or a great majority) in an annuity with survivorship? I'm thinking we'd get a better amount at that age seeing as how we probably wouldn't be drawing on it that long?
We could then spend everything that comes in knowing our income is guaranteed and either of us would be fine if one dies.
Any holes to be poked in this theory?
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Old 01-05-2017, 07:15 AM   #2
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One non-expert's opinion. Annuitizing a chunk of our portfolio is in my "to consider" plan when we hit 70. But, I don't know about "all (or a great majority)," unless you are running really tight at that point. The flexibility of portfolio holdings has something to say for it.

Most of the professional and academic commentary that I've read indicate that age 70 starts to be a sweet spot for annuitizing a portion of your portfolio because the mortality credits start accumulating more rapidly. One disadvantage, particularly if you expect to have one or two long-lived annuitants, is that COLA'd SPIA/SPDA are a rare beast today. (Anecdotally, someone on a B'Head thread this week said they'd found one such animal via the vanguard annuity window--and you pay a pretty penny for the COLA via reduced monthly payments up front....) That would weigh in favor of not annuitizing everything. (Although you'd still have social COLA and Bernicke spending curve in your favor.)

How far out are you from 70?
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Old 01-05-2017, 07:20 AM   #3
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There are much greater financial minds on this forum than mine. But having looked at annuities, and those selling them, I have formed my own lay opinion.

For your purposes, an annuity might be a good part of your plan.

My theory is that the major beneficiary of any sort of annuity (and they go by all kinds of names, to try to hide what they really are) is the salesman who sold it to you.

That doesn't mean it can't be a useful financial tool. Basically, it's an insurance policy. Once you've got enough resources to meet your needs, diversified enough to mitigate most likely risks, anything left over could be used to purchase this type of insurance. Basically, it's just another way to diversify.

My own decision was not to wait until I had enough excess wealth for that sort of thing. I may regret that, and I can't disagree with anyone who set different priorities.
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Old 01-05-2017, 07:36 AM   #4
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...

My theory is that the major beneficiary of any sort of annuity (and they go by all kinds of names, to try to hide what they really are) is the salesman who sold it to you.

....
True. If an annuity is being examined, never buy one that someone is actively selling and never buy one that you can't properly explain to a bright fifth grader. SPIA/SPDA policies should be bought clean. Vanguard and immediateannuities.com seem to be good places to start.
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Old 01-05-2017, 11:31 AM   #5
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It's probably part of my plan. One possibility is I will take SS at 70 and at the same time use some of my fixed income to buy an SPIA to cover the rest of my non discretionary expenses. Then I can go wildish on equities if I like and not worry about running out of money etc. My house then would be by LTC insurance.
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Old 01-05-2017, 11:57 AM   #6
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Annuities are to be sold, not bought.

Ha
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Old 01-05-2017, 12:07 PM   #7
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From the "don't feel the need to leave an inheritance to anyone" perspective, I say that's a personal preference. Similar to if you had children, do you leave them all/most of your inheritance or do a Warren Buffet.
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Old 01-05-2017, 12:29 PM   #8
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I don't expect to annuitize any of our nest egg, but if we do it won't be until we're much older (and yields improve). But I check our annuitization hurdle [*] quarterly just to know where we stand - happily not even close so far.

From the quotes I've seen, many-some-most insurers won't sell a guaranteed life annuity past a certain age - IIRC that's 80 years old for the one I get quotes from.[*] http://www.early-retirement.org/foru...dle-80324.html
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Old 01-05-2017, 12:36 PM   #9
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Annuities are to be sold, not bought.
Hadn't heard that one. Love it!
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QLAC?
Old 01-05-2017, 03:12 PM   #10
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QLAC?

I am considering using $125k to purchase a qualified longevity annuity contract at age 60 to start paying at 85 to provide a base to cover my tail end. Immediate annuities quotes a non-COLA payment of $5,341/mo. This plus SS more than covers normal expenses and I'll be more worried about eating cat food.
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Old 01-05-2017, 03:13 PM   #11
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LESS worried!
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Old 01-05-2017, 03:33 PM   #12
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LESS worried!
I was wondering!
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Old 01-05-2017, 04:26 PM   #13
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I would be unconcerned with what the annuity company’s profits were, an investment in an annuity is what it returns to me and I hope the company is able to remain profitable. The return an annuity ultimately earns is based on how long you live, the risk for you is living a long life, for the insurance company once they get enough in a pool the life expectancy of the average is far more certain.

So if you are planning for one to live to 100 years old, (~10% likelihood) an annuity at Fidelity with a 2% annual step up the return is 5.18% annually on the original investment. — it would be 4.95% for the non-step up, assuming one lives to 100. For the annuity company planning is for the median because of pooling which is 89 years old for a 70 year old couple the return needed for 2% step up for the pool is 2.25% about the rate on a 10 year US treasury - it is 2.45% for the non-step as you are taking more money early in the life of the annuity.

In either case the cost of money or investment return required to equal what the annuity provides you for income to age 100 is the 5.18% not the 2.45% as your risk is different than the risk of the annuity company which is why people should look at what annuities actually provide and not what the insurance company can make on the policy, that portion is irrelevant.
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Old 01-05-2017, 04:38 PM   #14
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One non-expert's opinion. Annuitizing a chunk of our portfolio is in my "to consider" plan when we hit 70. But, I don't know about "all (or a great majority)," unless you are running really tight at that point. The flexibility of portfolio holdings has something to say for it.

Most of the professional and academic commentary that I've read indicate that age 70 starts to be a sweet spot for annuitizing a portion of your portfolio because the mortality credits start accumulating more rapidly. One disadvantage, particularly if you expect to have one or two long-lived annuitants, is that COLA'd SPIA/SPDA are a rare beast today. (Anecdotally, someone on a B'Head thread this week said they'd found one such animal via the vanguard annuity window--and you pay a pretty penny for the COLA via reduced monthly payments up front....) That would weigh in favor of not annuitizing everything. (Although you'd still have social COLA and Bernicke spending curve in your favor.)

How far out are you from 70?
I'm 59 1/2, thinking about retiring at 60. I was thinking of an annuity at 70-80?
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Old 01-05-2017, 05:20 PM   #15
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Originally Posted by garyt View Post
So, like most here I'm not high on annuities. But since my wife and I have no children and don't feel the need to leave an inheritance to anyone, would buying an annuity later in life make sense?
We'd like to be the people who's last check ever written bounces, but we're too conservative to get in that position. So let's assume things are going pretty well and we still have a decent nest egg at 70 or 75, would it make sense to put it all (or a great majority) in an annuity with survivorship? I'm thinking we'd get a better amount at that age seeing as how we probably wouldn't be drawing on it that long?
We could then spend everything that comes in knowing our income is guaranteed and either of us would be fine if one dies.
Any holes to be poked in this theory?
Yes, it could make sense. This is what immediate annuities were designed to do.

And, yes, there are few downsides to waiting until you're old enough for mortality credits to become significant. Understand that the company prices the product on the assumption that most buyers are very healthy, so I wouldn't want to buy unless I were also very healthy.

If you have a Vanguard account, go to their site and you'll get a link to an agency that provides internet quotes without follow-up sales calls. You'll see that payouts are very age sensitive.

Fortunately, plain vanilla SPIAs are simple products. They are easy to understand and easy to comparison shop.

But, as always, if you're thinking about a private immediate annuity, you should also be thinking about deferring SS to age 70. The dollars look better with SS.
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Old 01-05-2017, 05:28 PM   #16
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Also, remember that arguably the best annuity available to most US citizens (residents too?) is social security. If one is wanting a great COLA'd annuity delaying the larger wage earner's claim until 70 can get you there. To make it to 70, you can spend more of your portfolio in your sixties... IF I had to make a bet (and assuming that DW and I will be able to get the benefits currently projected), this is likely what we will do--although our primary owner is only 55 right now.

(Acknowledging in advance that some have concerns about program being changed for those not already drawing, that medicare premiums can do weird things to those not drawing their social yet, and that there are other arguments against waiting.)

E.T.A.--Independent made essentially the same point within an intervening post! I'm too slow.
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Old 01-05-2017, 05:44 PM   #17
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I am delaying my SS until age 70, of course.

I am considering buying a SPIA if/when I reach age 80-85 or so, just to provide a bit more nice steady income to pay my expenses during my final years. I am thinking it would be pretty cheap for someone that old, and this would be a small annuity.
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Old 01-05-2017, 06:33 PM   #18
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I am strongly considering taking a large part of my bond allocation and buying immediate annuities. I will retire later this year at 60. I will wait until 70 to collect social security (I think best for my wife to take social security based on my account when she reaches FRA). I am thinking of buying four 250K annuities when we are 62, 64, 66, and 68 to supplement social security (we should be getting maximum (35 years of max). This should cover all necessary expenses; assisted living costs if necessary and a little more. At the same time, I will feel better about a withdrawal rate higher than 4%.

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Old 01-06-2017, 05:28 AM   #19
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I am strongly considering taking a large part of my bond allocation and buying immediate annuities. I will retire later this year at 60. I will wait until 70 to collect social security (I think best for my wife to take social security based on my account when she reaches FRA). I am thinking of buying four 250K annuities when we are 62, 64, 66, and 68 to supplement social security (we should be getting maximum (35 years of max). This should cover all necessary expenses; assisted living costs if necessary and a little more. At the same time, I will feel better about a withdrawal rate higher than 4%.

Marc
I'm with you on that, Marc, although I began at about age 70. I have comfortably raised my standard of living through the SPIA's with little risk to my portfolio from which I withdraw 3%.
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Old 01-06-2017, 05:41 AM   #20
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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?
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