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09-07-2015, 02:04 PM
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#61
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Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
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I'm planning on leaving my grand nieces enough money to be comfortable. So I'm not doing the 4% SWR thing at all. I'm using 18% of my portfolio to buy into my DB pension and I'll keep reinvesting dividends on the rest. My plan is to be in the accumulation phase until I die.
My opinion is that people don't go into retirement with enough diversification. They carry very similar AAs into retirement as they had while they were working; having just stock and bond funds isn't enough for me. Of course the alternatives are pretty poor today as the traditional DB pension is rare and annuities are very expensive in this low interest rate environment. I think it was pretty unanimous the the OP should take the pension being offered rather than the lump sum so obviously the pension/annuity route is a good one when the circumstances and offer are right. I-bonds, a stable value fund or rental real estate might be good additions to many retirement portfolios when a DB pension or good value annuity isn't an option. Of course there is SS, but for the early retiree that isn't available and I think they take on a lot of risk by relying on a market based total return approach if they retire around 55.
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”
Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
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09-07-2015, 02:38 PM
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#62
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,370
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Quote:
Originally Posted by hnzw_rui
There still seems to be something wrong in those calcs. If you were able to get one full year's worth of payments (5,784), IRR for the first year would be (100,000 - 5,784) / 100,000 or 100% minus payout rate which is -94.216%. ....
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Did you follow the math in the table?
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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09-07-2015, 05:00 PM
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#63
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Full time employment: Posting here.
Join Date: Apr 2015
Posts: 903
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Quote:
Originally Posted by pb4uski
After further review, I concede. I had a glitch in the compounding calc converting from monthly to annual. For one year, the IRR is -98.37% (sticking with monthly benefit payments).
n | n in years | Cash flow | PV factor | Cash flow | 0 | - | (100,000.00) | 1.00 | (100,000.00) | 1 | 0.083 | 482.00 | 1.41 | 679.14 | 2 | 0.167 | 482.00 | 1.99 | 956.90 | 3 | 0.250 | 482.00 | 2.80 | 1,348.27 | 4 | 0.333 | 482.00 | 3.94 | 1,899.70 | 5 | 0.417 | 482.00 | 5.55 | 2,676.67 | 6 | 0.500 | 482.00 | 7.82 | 3,771.41 | 7 | 0.583 | 482.00 | 11.02 | 5,313.90 | 8 | 0.667 | 482.00 | 15.53 | 7,487.26 | 9 | 0.750 | 482.00 | 21.89 | 10,549.51 | 10 | 0.833 | 482.00 | 30.84 | 14,864.21 | 11 | 0.917 | 482.00 | 43.45 | 20,943.60 | 12 | 1.000 | 482.00 | 61.22 | 29,509.43 | | | | | (0.00) | IRR per period (month) | -29.03% | | | | Coverted to annual rate | | -98.37% | | |
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Quote:
Originally Posted by pb4uski
Did you follow the math in the table?
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I was kinda sleepy when I looked at first looked at it. After a second review, you've got your cash flow on the far right column inverted. Yes, -98.37% is compounded rate [(1 - 0.2903)^12 - 1] but doing it this way disregards your cash flow.
I'm thinking we're probably going to need some complicated ln formula or something to convert the monthly rate at month 12 to the annual rate.
Consider the ff:
PV(-29.03%, 12, 482) = -100,000.00
PV(-98.37%/12, 12, 482) = -10,530.03
PV(-98.37%, 1, 482*12) = -354,113.19
n in Months | Initial Balance | Gain/Loss | Distribution | Total Cash Flow | Ending Balance | 1 | 100,000.00 | -29,027.43 | -482.00 | -29,509.43 | 70,490.57 | 2 | 70,490.57 | -20,461.60 | -482.00 | -20,943.60 | 49,546.97 | 3 | 49,546.97 | -14,382.21 | -482.00 | -14,864.21 | 34,682.75 | 4 | 34,682.75 | -10,067.51 | -482.00 | -10,549.51 | 24,133.24 | 5 | 24,133.24 | -7,005.26 | -482.00 | -7,487.26 | 16,645.98 | 6 | 16,645.98 | -4,831.90 | -482.00 | -5,313.90 | 11,332.08 | 7 | 11,332.08 | -3,289.41 | -482.00 | -3,771.41 | 7,560.67 | 8 | 7,560.67 | -2,194.67 | -482.00 | -2,676.67 | 4,884.00 | 9 | 4,884.00 | -1,417.70 | -482.00 | -1,899.70 | 2,984.30 | 10 | 2,984.30 | -866.27 | -482.00 | -1,348.27 | 1,636.06 | 11 | 1,636.03 | -474.90 | -482.00 | -956.90 | 679.14 | 12 | 679.14 | -197.14 | -482.00 | -679.14 | 0 | | | | | | | Monthly Rate | -29.02743% | | | | |
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09-07-2015, 08:08 PM
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#64
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Nov 2010
Location: Sarasota, FL & Vermont
Posts: 36,370
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Quote:
Originally Posted by hnzw_rui
....After a second review, you've got your cash flow on the far right column inverted. ....[/TABLE]
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Sorry... far right column was mislabled... it is not cash flow... it is PV of cash flow which is the cash flow (in the third column) multiplied by the PV factor in the 4th column. The PV factor is 1/(1+i)^n where i is the -.983... and n is in years or fractions thereof.
As an example, the PV factor for the 11th month is 1/(1+-0.983666239766709)^(11/12)= 43.45
The -98.37% can be derived as =((1+-0.2903)^12)-1 which is odd but thankfully I don't very often work with negative interest rates/
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.
Retired Jan 2012 at age 56
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10-04-2015, 12:26 PM
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#65
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Dryer sheet aficionado
Join Date: Mar 2013
Posts: 27
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I have been looking at annuities in place of my pension to see if I can do better and preserve the annuity payment for heirs.
Anyone found a great deal on an income indexed annuity?
Tom C.
Sent from my iPad using Early Retirement Forum
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10-04-2015, 02:28 PM
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#66
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gone traveling
Join Date: Nov 2013
Location: Los Angeles
Posts: 202
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Quote:
Originally Posted by tcaron20
I have been looking at annuities in place of my pension to see if I can do better and preserve the annuity payment for heirs.
Anyone found a great deal on an income indexed annuity?
Tom C.
Sent from my iPad using Early Retirement Forum
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Bad move. Have fun earning 2 - 5%.
The Ugly Truth about Equity Index Annuities
Also there's no such thing as a "great deal" with insurance products. They are all variations of the same thing. None are playing Santa Claus.
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10-04-2015, 02:59 PM
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#67
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Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
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Quote:
Originally Posted by tcaron20
I have been looking at annuities in place of my pension to see if I can do better and preserve the annuity payment for heirs.
Anyone found a great deal on an income indexed annuity?
Tom C.
Sent from my iPad using Early Retirement Forum
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Company pensions are usually better value than an annuity that you can buy. I would never buy an index annuity because you'll be crippled by fees and/or fine print. An index annuity that has some component that you can pass on to heirs will be even worse value.
What are the specifics of your pension?
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”
Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
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10-04-2015, 06:29 PM
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#68
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Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
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Quote:
Originally Posted by ETFs_Rule
Also there's no such thing as a "great deal" with insurance products. They are all variations of the same thing. None are playing Santa Claus.
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True for most commercially available annuities, but in the employer pension area the lump sum payout vs lifetime income decision often comes down on the side of the annuitized payments.
As an example through an admittedly rare and lucky set of circumstances I can buy into my employer's pension plan for $183k and receive $20k a year with a current 2% COLA starting at age 55 (I'm a 54 year old male now).
__________________
“So we beat on, boats against the current, borne back ceaselessly into the past.”
Current AA: 75% Equity Funds / 15% Bonds / 5% Stable Value /2% Cash / 3% TIAA Traditional
Retired Mar 2014 at age 52, target WR: 0.0%,
Income from pension and rent
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