Questions for lifetime annuity holders!

[pb4uski]

What is complicated elisap?

 

[ethernow]

I agree with elisap! Retirement planning takes a great deal of effort and lots of attention to minute details! In addition, there isn't a "one size fits all" solution that will work for everybody! There are plenty of people, like me, who invested money in their 401K to retire on and really don't care that the money disappears when they pass-away! You see, I really can take it with me!

I have enough experience investing that I don't believe that I can rollover my 401K today into an IRA that's invested in stock and bond mutual funds without experiencing considerable losses! This is why I want to purchase a deferred annuity with a 2% annual increase! I like the fact that my annuity will have an inflation adjustment because there's no guarantee that Social Security will have inflation increases in the future! I believe that I'm taking control over my future as best I can!

Since I'm a retired software engineer, I write programs to help me make investing decisions. I wrote one that accepts the initial annuity payment, annual increase percentage, starting year, and the number of years of payments. It generates a table showing the year, monthly payment, and the cumulative payments at the end of each year. The table this program generates convinced me, beyond the shadow of a doubt, that a deferred annuity with a 2% annual increase is exactly what I need!

I believe that I'm a member of a tiny minority of retirees who write software to make investing decisions! I've analyzed the problem and found a solution!

 

[pb4uski]

Careful there fella.... you may wear out your "!" key.

...really don't care that the money disappears ....

It seems to me that annuities are ideal for people like you who don't care if their money disappears.

 

[nun]

I have enough experience investing that I don't believe that I can rollover my 401K today into an IRA that's invested in stock and bond mutual funds without experiencing considerable losses! This is why I want to purchase a deferred annuity with a 2% annual increase! I like the fact that my annuity will have an inflation adjustment because there's no guarantee that Social Security will have inflation increases in the future! I believe that I'm taking control over my future as best I can!

Why would rolling from a 401k to an IRA necessarily involve losses? I accept that some people believe that the markets might perform poorly in the near future, but that has nothing to do with the rollover.

The 2% annual increase in your deferred annuity is not an inflation adjustment it just drops out of the actuarial calculations because you will be drawing income for a shorter period. If you have actually purchased an COLA'ed annuity I would be careful as they can be poor value for money....you pay too much for the inflation adjustment. A better approach might be to purchase a lower cost fixed annuity and invest the money you save in equities to cover inflation. You might be interested to read some of the papers by Wade Pfau on retirement income and asset allocation.

 

[rodi]

Since I'm a retired software engineer, I write programs to help me make investing decisions.

I believe that I'm a member of a tiny minority of retirees who write software to make investing decisions! I've analyzed the problem and found a solution!

LOL. You don't know this member base very well. It's heavily tilted toward engineer/software types who over analyze everything. Trust me - between the spreadsheets, self written programs, etc. Heck - look at firecalc - which was crowdsourced from this group of people.

Many of us have looked at SPIA options and are considering it when
a) we are older so they are cheaper
b) interest rates improve enough to make them an easier decision.

 

[nun]

LOL. You don't know this member base very well. It's heavily tilted toward engineer/software types who over analyze everything. Trust me - between the spreadsheets, self written programs, etc. Heck - look at firecalc - which was crowdsourced from this group of people.

Many of us have looked at SPIA options and are considering it when
a) we are older so they are cheaper
b) interest rates improve enough to make them an easier decision.

The OP is actually doing option a) they are talking about a deferred annuity, but point b) is interesting as with interest rates probably increasing it might not be a good time to buy a deferred annuity right now.

 

[bobandsherry]

I agree with elisap! Retirement planning takes a great deal of effort and lots of attention to minute details! In addition, there isn't a "one size fits all" solution that will work for everybody! There are plenty of people, like me, who invested money in their 401K to retire on and really don't care that the money disappears when they pass-away! You see, I really can take it with me!

I have enough experience investing that I don't believe that I can rollover my 401K today into an IRA that's invested in stock and bond mutual funds without experiencing considerable losses! This is why I want to purchase a deferred annuity with a 2% annual increase! I like the fact that my annuity will have an inflation adjustment because there's no guarantee that Social Security will have inflation increases in the future! I believe that I'm taking control over my future as best I can!

Since I'm a retired software engineer, I write programs to help me make investing decisions. I wrote one that accepts the initial annuity payment, annual increase percentage, starting year, and the number of years of payments. It generates a table showing the year, monthly payment, and the cumulative payments at the end of each year. The table this program generates convinced me, beyond the shadow of a doubt, that a deferred annuity with a 2% annual increase is exactly what I need!

I believe that I'm a member of a tiny minority of retirees who write software to make investing decisions! I've analyzed the problem and found a solution!

Agree with you that retirement planning takes a great deal of effort. As they say no pain no gain. I will be calling it quits in Feb at 54. I've been spending time trying to figure out what's the best way of turning 7 figures into a stream of income and comfort for my wife and I. Still lots to learn for me. I don't think annuity is the answer for me.

If you are going through a broker realize they are taking a cut and the company issuing your annuity makes money too. So there is meat left on the bone, you are leaving money on the table. These companies don't operate on charity.

However if the annuity provides the income stream you need and lets you sleep well at night it may be right for you. No one size fits all, everyone has different needs and willingness to accept different risks.

 

[nun]

Agree with you that retirement planning takes a great deal of effort. As they say no pain no gain. I will be calling it quits in Feb at 54. I've been spending time trying to figure out what's the best way of turning 7 figures into a stream of income and comfort for my wife and I. Still lots to learn for me. I don't think annuity is the answer for me.

I think people have a tough time transitioning from the accumulation to the income phase because they start to plan for the income phase a bit too late. They concentrate on saving enough to retire and then only consider turning it into income as they near retirement.

In 1987 I started to make contributions to a deferred annuity to provide income for my retirement. I now use it as my emergency fund. In 1997 I bought a rental property, also to provide retirement income, and decided to retire once I had all my mortgages paid off thus reducing my need for income. So I haven't done much planning as I approach retirement as most of it was done years ago.

 

[MRG]

...snip...

Since I'm a retired software engineer, I write programs to help me make investing decisions. I wrote one that accepts the initial annuity payment, annual increase percentage, starting year, and the number of years of payments. It generates a table showing the year, monthly payment, and the cumulative payments at the end of each year. The table this program generates convinced me, beyond the shadow of a doubt, that a deferred annuity with a 2% annual increase is exactly what I need!

I believe that I'm a member of a tiny minority of retirees who write software to make investing decisions! I've analyzed the problem and found a solution!

Well I'm a retired software engineer who would not trust my code for such important decesions. I use free software like Firecalc and RIP.

I'm reminded of former a co-w*rker who used their development skills to write algorithms to trade the VIX. They paper traded for months testing the code, that went well. Then real trades, it didn't end well at all.

 

[elisap]

What is complicated elisap?

I'm 55 yo, my husband is retired but not retirement age. I have a business that has been did very well for about 7-8 years but there is now a lot more competition. Because I had to change my focus on taking care of my mother my lack of focus hurt the business.

Luckily I saved and invested about 20% - 25% of the $1 million, mortgage free but do use credit cards for benefits but pay off in full each month. I don't feel comfortable investing more right now. Having to pay for my mom care, also staying with her myself, pay my expenses and the out of hand healthcare insurance premiums it's hard to continue building more wealth and have the time to learn.

So like you I'm trying to set us up to use our money to produce cash flow for retirement years and just now starting to looking into annuities. It's like I'm trying to learn a foreign language. Maybe I'll pick up a annuities for dummies book to start. I need an aha moment because I'm feeling overwhelmed.

So when does that relaxing part come lol

 

[nun]

So like you I'm trying to set us up to use our money to produce cash flow for retirement years and just now starting to looking into annuities. It's like I'm trying to learn a foreign language. Maybe I'll pick up a annuities for dummies book to start. I need an aha moment because I'm feeling overwhelmed.

So when does that relaxing part come lol

You need to be really careful with annuities. There are many that are an enormous rip off and should be avoided at all costs. The only annuities you should consider are probably fixed interest rate single premium immediate annuities (SPIAs) and QLACs if you are worried about longevity insurance. All other annuities come with fees and complicated contracts that make them expensive ways to fund retirement.

Whether an annuity might be appropriate for you depends on you need for income, available assets and your personal preference, but remember SS is the best annuity you'll ever have, so you need to decide if you really need more annuity income and for many people the answer will be "no".

 

[jazz4cash]

The mass migration from DBP to DCP will result in more and more folks going with annuities vs diy. I may even be one myself for a small fraction of nest egg. The annuity industry must be thrilled! DCPs should include an inexpensive annuity option for distribution like the Govt TSP has.


Sent from my iPhone using Early Retirement Forum

 

[nun]

The mass migration from DBP to DCP will result in more and more folks going with annuities vs diy. I may even be one myself for a small fraction of nest egg. The annuity industry must be thrilled! DCPs should include an inexpensive annuity option for distribution like the Govt TSP has.


Sent from my iPhone using Early Retirement Forum

That's not a bad idea if you think you need a bit more conservative and safe income to supplement SS. The difficulty would come if it was used too much because people were afraid of the stock market and they ended up with insufficient income growth. Personally I planned to use TIAA-Traditional deferred annuity as my safe income source, but I've ended up just reinvesting the 4% annual interest.

 

[ethernow]

I realize that I'm not considering the purchase of an inflation-adjusted annuity! However, the Federal Reserve likes to maintain a 2% core inflation rate, so I like having a big chunk of my retirement income tied to the core inflation rate! This addresses the feedback that I've received about not having enough income later in life.

 

[nun]

I realize that I'm not considering the purchase of an inflation-adjusted annuity! However, the Federal Reserve likes to maintain a 2% core inflation rate, so I like having a big chunk of my retirement income tied to the core inflation rate! This addresses the feedback that I've received about not having enough income later in life.

I think you might be mis-interpreting your deferred annuity. That 2% annual increase just drops out of taking the income later in life. If you took the annuity now and calculated the interest rate based on your actuarial lifespan you'd probably come out with ~2% interest rate too. Once you start taking income you imply that there will be no inflation adjustment, this is one big criticism of fixed annuities because their buying power declines with time. You must understand that a 2% interest rate will be required to keep your annuity payments constant and that your income will not be tied to inflation and if the rate goes to 3%, 4%, 5% etc you will find your constant income buying less and less. Over 10, 20 or 30 years this can lead to large shortfalls.

 

[pb4uski]

John, nun hit on a critical point that it is important that you understand.

Let's say if you buy an annuity today, your benefit start in 3 years and are $1,000/month when you are 60. If inflation is 2%, when you are 80 those $1,000/month payments will only buy $672 worth of goods. At age 80, can you afford to live on 67% of what your income is at age 60?

 

[alaska55]

pb4uski Now that just wrong. If i have SS of 2000 a month my income doesn't
drop to 67% of income at 80. Just the annuity drops to 67%. The annuity is just 33% of starting retirement income.

 

[pb4uski]

alaska55, I don't understand what you think is wrong. The SS doesn't drop because it is inflation adjusted. The annuity drops because it is NOT inflation adjusted.

The discussion is only about the annuity.

 

[alaska55]

Go back and read what you posted, you stated income would drop. What I'm saying with the annuity only being 33% of of income your not taking that big of a hit from inflation, because SS is inflation protected! Now if you want to go back and edit so it says the annuity I would agree with you 100%. I would say over 50% of Defined pension plans are not cola. So looking at buying a annuity with about 25%of investments is something to look at for a base retirement amount for people with no DPP or in my case a small one. I did contract work the last 15 years of my employment. which included higher pay instead of benefits. So I'm most likely going to buy a small spia, along with my small pension will be about the same as a pension i would have earned if I had stayed full time.

 

[pb4uski]

alaska, we were talking about the annuity... we were NOT at all talking about SS. For all I know JohnS might be one of those people who do not have SS. In fact, John has not mentioned SS at all in any of his posts, just annuities.

I see your point that IF someone had SS and a fixed annuity that their total income would only be partially impacted by inflation since SS is inflation adjusted and a fixed annuity is not, but that isn't what we were talking about!

I guess to be more clear for you I should have been more specific and stated "annuity income" rather than "income" in the last sentence of the post you responded to but in context it should have been evident.

 

[rkser]

This is a very informative thread for people like me who are looking into investing in an Annuity.

 

[MikeTN]

I'm satisfied with my annuities

I worked for a non-profit and TIAA-CREF handled our retirement funds. In this case it is easy to use annuities as part of one's retirement funds. I annuitized about 40 percent of my retirement assets (some at age 66 and the rest at age 70). This, together with my SS covers my basic needs. I invest the rest of my funds fairly aggressively because my basic needs are safely met.

This has worked out well for me. The alternative was to buy something safe like bonds and I don't like to have too many bonds in today's environment.

If you are under age 70 you might consider waiting to buy an annuity. This takes away some of the inflation risk as you are no longer planning for such a long period.

 

[Gearhead Jim]

Just another guy who doesn't have one but seriously considered getting one years ago. I didn't, and now regret it.


Using one of those "Immediate Annuity Quotes" websites:
At age 60 (2005), $100k would have gotten DW and I $563/month for as long as one of us was alive.
Now, at age 70, $100k would only get us $514/month.


The hit from reduced bond rates has far overcome our older age advantage of today.

 

[pb4uski]

But... what has that $100k that you didn't spend on a SPIA at age 60 grown to be today?

$100k invested in Vanguard Wellesley Admiral 10 years ago would be worth $196,796 today, and would give you a monthly benefit of $1,012 (almost twice as much) if you sold and used the proceeds to buy a SPIA, ignoring taxes like in a tax-deferred or tax-free account. If it was in a taxable account then it would be $937 a month after paying 15% capital gains tax on the $96k gain.

Of course, YMMV depending on what the money was invested in, your tax situation, etc. Feel better now?

 

[nun]

This is a very informative thread for people like me who are looking into investing in an Annuity.

I take a bit of issue applying the term "investing" to an annuity. Annuities are really insurance.....as investments they pretty much su@k. You'll only get 2% annual return as a single male age 65 living to age 83. There are far better investments out there, but they obviously carry more risk.