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More retirement income 'advice' ???
02-18-2017, 09:22 AM
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#1
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2011
Location: West of the Mississippi
Posts: 17,266
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More retirement income 'advice' ???
First, let me state I am not an enemy of single premium instant annuities. For many people they solve financial problems in a way that is simple and lets them sleep at night. Great!
https://www.nytimes.com/2017/02/18/y...rity.html?_r=2
This article recommends purchase of a SPIA at age 70 for this couple so as to avoid plan failure. I have problems with this article:
First, in the comparison table the authors tactfully omit any income from the investment portfolio that is many hundreds of thousands of dollars at age 70.
Second, there is no mention of inflation. The authors seem to assume that the $12,000 SPIA bought at age 70 will buy as many loaves of bread in the distant future as it does on the day it is purchased.
Quote:
Say the couple spends $298,000 on a single-premium immediate annuity when they retire, and it pays them $12,000 annually. Here, the odds of plan failure fall to zero. “They will always have enough to cover essential living expenses, no matter how long they live or how badly their investments perform,”
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Oh, while the table shows they want to spend $80,000 a year, failure happens when they do not generate at least $70,000 a year. It's in the mice type under the table.
Why does this article leave me with a bad taste in my mouth?
__________________
Comparison is the thief of joy
The worst decisions are usually made in times of anger and impatience.
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02-18-2017, 11:04 AM
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#2
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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 also not totally against SPIAs.....it's just that interest rates have sucked for so long that in my planning they have always looked like a very expensive way to get retirement income.....their guarantee just costs too much. However, when I got the chance to buy into my employer's DB plan I jumped at it as the IRR was 7.5% if I lived to age 83.
The projections done by Mr. Tomlinson might have some bias and I think it would be interesting to run them through FireCalc. But your point about inflation is critical, although some models assume flat or even decreasing expenses as we age.
Sent from my iPhone using Early Retirement Forum
__________________
“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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02-18-2017, 12:36 PM
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#3
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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: 36,376
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Firecalc results:
Scenario A: SS at 65: 92.8%
Scenario B: SS at 70: 100.0%
Scenario C: SS at 70 with SPIA: 83.8%
I suspected that the analyst didn't properly account for the impact of inflation in spending, so I changed inflation to zero and got the following:
Scenario A: SS at 65: 100.0%
Scenario B: SS at 70: 100.0%
Scenario C: SS at 70 with SPIA: 98.2%
Not sure where the analyst is getting their numbers but they look flaky to me.
__________________
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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02-18-2017, 01:09 PM
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#4
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Aug 2011
Location: West of the Mississippi
Posts: 17,266
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Quote:
Originally Posted by pb4uski
Firecalc results:
Scenario A: SS at 65: 92.8%
Scenario B: SS at 70: 100.0%
Scenario C: SS at 70 with SPIA: 83.8%
I suspected that the analyst didn't properly account for the impact of inflation in spending, so I changed inflation to zero and got the following:
Scenario A: SS at 65: 100.0%
Scenario B: SS at 70: 100.0%
Scenario C: SS at 70 with SPIA: 98.2%
Not sure where the analyst is getting their numbers but they look flaky to me.
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I agree. Long term zero percent inflation would be a big boost for many investment and withdrawal strategies (all other things being equal). To bad it's not in the cards, unless most of us are badly mistaken.
__________________
Comparison is the thief of joy
The worst decisions are usually made in times of anger and impatience.
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02-18-2017, 01:26 PM
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#5
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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 pb4uski
Firecalc results:
Scenario A: SS at 65: 92.8%
Scenario B: SS at 70: 100.0%
Scenario C: SS at 70 with SPIA: 83.8%
I suspected that the analyst didn't properly account for the impact of inflation in spending, so I changed inflation to zero and got the following:
Scenario A: SS at 65: 100.0%
Scenario B: SS at 70: 100.0%
Scenario C: SS at 70 with SPIA: 98.2%
Not sure where the analyst is getting their numbers but they look flaky to me.
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You beat me to it....I assume you used something like a 60/40 AA.....maybe with a different AA or large investment fees we can approximate Mr. Tomlinson's results?
__________________
“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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02-18-2017, 01:45 PM
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#6
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Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
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Using 0.18% fees and 3% inflation a ~22% equity allocation produces the failure rates for Scenario A in the article.....a similar failure rate is produced using a 60/40 AA with 2% fees.
If we assume 0% inflation then to get the same failure rates as the article you'd need an AA of 10/90 and fees of 3%.
__________________
“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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02-18-2017, 02:04 PM
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#7
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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: 36,376
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Quote:
Originally Posted by nun
You beat me to it....I assume you used something like a 60/40 AA.....maybe with a different AA or large investment fees we can approximate Mr. Tomlinson's results?
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I used the default AA (70/30). I don't think could get anywhere near a 47% chance of failure. I have no idea how he got his numbers... they make no sense.... he is saying that a 4.1% WR ($41k withdrawal on $1 million for a 65 yo) has a 47% chance of failure, that a 3.1% WR ($22k withdrawal on a $714k portfolio at 70 yo) has a 38% chance of failure and that a 2.4% WR ($10k withdrawal on a $416k portfolio at 70 yo) has a 0% chance of failure.
If he is right and a 3.1% WR for a 70 yo has a 38% chance of failure then there are a whole boatload of us in deep doo-doo... but I think he is messed up.
__________________
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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02-18-2017, 02:06 PM
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#8
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Recycles dryer sheets
Join Date: Jun 2012
Location: Just Inside the Perimeter
Posts: 69
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They need a better annuity provider; even these days a $298000 SPIA should provide more than $12000 per year to a 70-year-old couple. From Immediate Annuities, $1004/month would cost them $191000. When I change the portfolio at 70 from $416000 to $523000, I get 100% success from firecalc for the annuity scenario too.
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02-18-2017, 02:14 PM
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#9
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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: 36,376
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Good point... that's a 4% payout rate... very meager for a 70 yo unless it is a COLAed annuity (but he doesn't say it is COLAed and COLAed annuities are not easy to find).
__________________
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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02-18-2017, 02:51 PM
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#10
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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 pb4uski
I used the default AA (70/30). I don't think could get anywhere near a 47% chance of failure. I have no idea how he got his numbers... they make no sense.... he is saying that a 4.1% WR ($41k withdrawal on $1 million for a 65 yo) has a 47% chance of failure, that a 3.1% WR ($22k withdrawal on a $714k portfolio at 70 yo) has a 38% chance of failure and that a 2.4% WR ($10k withdrawal on a $416k portfolio at 70 yo) has a 0% chance of failure.
If he is right and a 3.1% WR for a 70 yo has a 38% chance of failure then there are a whole boatload of us in deep doo-doo... but I think he is messed up.
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It's even worse than that as the 65 year old only need withdraw $39k as they have $41k SS....so the article claims a 47% failure rate for a 3.9% withdrawal for 35 years.
__________________
“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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02-18-2017, 03:08 PM
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#11
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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 Cricky
They need a better annuity provider; even these days a $298000 SPIA should provide more than $12000 per year to a 70-year-old couple. From Immediate Annuities, $1004/month would cost them $191000. When I change the portfolio at 70 from $416000 to $523000, I get 100% success from firecalc for the annuity scenario too.
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Yes $298k would buy a 70 year old couple almost $19k in joint life annuity income. It's hardly surprising that $58k in SS, $19k in SPIA and $400k in savings would support an $80k retirement.
There are lots of holes in the analysis. I wish financial journalists would do the numbers themselves rather than trusting Financial Advisors.
__________________
“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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02-18-2017, 03:49 PM
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#12
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Moderator
Join Date: Feb 2010
Location: Flyover country
Posts: 25,362
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Quote:
Originally Posted by nun
I wish financial journalists would do the numbers themselves rather than trusting Financial Advisors.
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But ... but ... they're EXPERTS!
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