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12-23-2015, 08:19 PM
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#81
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Recycles dryer sheets
Join Date: Jul 2013
Posts: 271
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12-23-2015, 08:45 PM
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#82
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Thinks s/he gets paid by the post
Join Date: Feb 2006
Posts: 4,872
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__________________
“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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12-24-2015, 07:24 AM
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#83
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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: 36,266
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nun, I think he is probably talking about the fact that payouts increase about 2% a year for reduced longevity. For example, the payout rate for a 61 yo male is 6.12% and the payout rate for a 60 yo male is 5.99% so John thinks this is a great thing since 6.12% is ~2% more than 5.99%.
What he is totally overlooking is that all it means is that his premium is paid back to him over a shorter period assuming his longevity is the same so I don't see what the big deal is.
One could even argue that the increase is inadequate. Let's say that a 60 year old would be expected to live to be 90. With 0% interest that would mean a payout rate of 3.33% (1/30). A year later, let's say the 61 year old is expected to live to 90 1/4. With 0% interest that would mean a payout rate of 3.42% (1/29.25). The payout rate increases 2.7% for longevity.... so an only 2% increase is a inadequate.
__________________
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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12-24-2015, 07:47 AM
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#84
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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
nun, I think he is probably talking about the fact that payouts increase about 2% a year for reduced longevity. For example, the payout rate for a 61 yo male is 6.12% and the payout rate for a 60 yo male is 5.99% so John thinks this is a great thing since 6.12% is ~2% more than 5.99%.
What he is totally overlooking is that all it means is that his premium is paid back to him over a shorter period assuming his longevity is the same so I don't see what the big deal is.
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Yes that's the assumption I was making too and as you say the 2% annual increase just drops out of the actuarial calculation, but in that case a lot of the OP's statements are confused. I hope that the OP has a plan for inflation! It might not be a big issue if most the income comes from SS or equities.
I'm usually an advocate for a liability matching approach, but I worry that the OP isn't really planning that well or understanding how to best incorporate an annuity into a retirement plan. Given today's rising interest rate environment t it seems strange to buy a deferred life time annuity. I'd either look into buying a series of shorter term annuities or just wait a few 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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12-24-2015, 07:53 AM
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#85
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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: 36,266
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Quote:
Originally Posted by nun
Yes that's the assumption I was making too and as you say the 2% annual increase just drops out of the actuarial calculation. I hope that the OP has a plan for inflation! It might not be a big issue if most the income comes from SS or equities.
I'm usually an advocate for a liability matching approach, but I worry that the OP isn't really planning that well or understanding how to best incorporate an annuity into a retirement plan.
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+1 (and I occasionally wonder if he is an annuity agent troll but I don't think he is).
__________________
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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12-24-2015, 08:07 AM
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#86
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Moderator
Join Date: Oct 2010
Posts: 10,657
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Quote:
Originally Posted by nun
Given today's rising interest rate environment t it seems strange to buy a deferred life time annuity. I'd either look into buying a series of shorter term annuities or just wait a few years.
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Since the only realistic way out of massive debt that various governments have built-up is to inflate, and the only way for interest rates to go now is up, I'd steer well clear of annuities now. The idea that a "base inflation rate" is covered at 2% means little if inflation takes off again.
I understand someone not wanting to risk money needed in the next five (or so) years in equities or bond funds since they'll both tank together and you'd need to sell low to keep spending afloat. I'm glad I have access to a guaranteed income fund (an insurance product in my 401k) that keeps up with true inflation (which I believe is higher than the official CPI).
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12-24-2015, 09:26 AM
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#87
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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 sengsational
Since the only realistic way out of massive debt that various governments have built-up is to inflate, and the only way for interest rates to go now is up, I'd steer well clear of annuities now. The idea that a "base inflation rate" is covered at 2% means little if inflation takes off again.
I understand someone not wanting to risk money needed in the next five (or so) years in equities or bond funds since they'll both tank together and you'd need to sell low to keep spending afloat. I'm glad I have access to a guaranteed income fund (an insurance product in my 401k) that keeps up with true inflation (which I believe is higher than the official CPI).
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I'm not one for market timing, but it certainly seems like a bad time to lock in any interest rates......except on debt. An annuity might well be right for some retirees, but I'd be averaging into them right now, because rates look as if they will be rising, rather than buying an lifetime SPIA or a deferred annuity. I also don't know how stocks and bonds will perform in the next 10 years. Looking at certain numerological indicators you might be pessimistic about both stock and bond returns. So this all argues for the standard approach of diversification, rebalancing and having enough of a buffer to avoid selling low. SS and annuities are ways to provide guaranteed income floors, but keep something in the markets too so you have the change to get some gain and personally I like rental income.
__________________
“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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Re: I purchased a lower-priced annuity that works for me!
05-05-2016, 04:14 PM
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#88
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Dryer sheet wannabe
Join Date: Jun 2015
Location: Fort Lupton
Posts: 12
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Re: I purchased a lower-priced annuity that works for me!
In February, I purchased an Integrity Insurance deferred fixed annuity that starts paying on 5/1/2018, shortly after I hit 60! Instead of using nearly my entire nest egg, I purchased a smaller policy with about half of my assets. Although I initially thought that Integrity Insurance won't sell a policy to somebody younger than 60, in reality this insurer requires that the policy be purchased further in advance than the other insurers that Vanguard offers. So keep this in mind when requesting annuity quotes on Vanguard's website!
My annuity has a 6.6% yield. Of course, there's a chance that the Fed will be able to raise interest rates in the future and an annuity purchased at that time will perform better. However, according to my calculations, I'm better-off purchasing a policy today, while there's more money in my IRA, than I am by waiting for interest rates to rise! Also, I feel better knowing that I've taken steps to fund my retirement now!
Although there are a number of replies stating that I'm too young for an annuity, I ran the numbers and, if I purchase a policy that starts paying at my full retirement age, it pays 25%/mo less than my policy does! In other words, I'll draw-down my IRA and, in exchange, have less long-term income! Note that my IRA is nearly 100% invested in the Vanguard Prime Money Market fund and, for my calculations, I used 0% interest.
Since I'm a retired software engineer, I've written several financial calculators to help me make investing decisions. One of them simulates fixed monthly withdrawals from an account that earns a fixed annual income (interest). The interest is accrued monthly, after the monthly payout was withdrawn. This calculator shows that, if I left the money in my IRA instead of purchasing the annuity, my IRA needs to earn 5.3%/year in order to match the annuity's payout and last until I'm age 90, which is a bet that I refuse to take! In this scenario, my IRA balance drops to $0, shortly after I'm 90.
Of course, I'm going to be tapping my IRA for income to supplement the annuity until I hit my full retirement age. However, once my Social Security starts, I'll stop withdrawing money from my IRA and leave the balance for later in life. Thanks to my annuity, at my full retirement age I'll have 29% more income and a substantial balance in my IRA!
In summary, my annuity will help me thrive until my full retirement age, gives me a big income boost, and leaves me with a substantial IRA balance for later in life! I like this plan much better than my earlier one!
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05-05-2016, 06:31 PM
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#89
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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: 36,266
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I hope it works out for you.
__________________
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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05-05-2016, 08:22 PM
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#90
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: May 2005
Posts: 17,205
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Quote:
Originally Posted by JohnSwanson
In February, I purchased an Integrity Insurance deferred fixed annuity that starts paying on 5/1/2018, shortly after I hit 60! Instead of using nearly my entire nest egg, I purchased a smaller policy with about half of my assets. Although I initially thought that Integrity Insurance won't sell a policy to somebody younger than 60, in reality this insurer requires that the policy be purchased further in advance than the other insurers that Vanguard offers. So keep this in mind when requesting annuity quotes on Vanguard's website!
My annuity has a 6.6% yield. Of course, there's a chance that the Fed will be able to raise interest rates in the future and an annuity purchased at that time will perform better. However, according to my calculations, I'm better-off purchasing a policy today, while there's more money in my IRA, than I am by waiting for interest rates to rise! Also, I feel better knowing that I've taken steps to fund my retirement now!
Although there are a number of replies stating that I'm too young for an annuity, I ran the numbers and, if I purchase a policy that starts paying at my full retirement age, it pays 25%/mo less than my policy does! In other words, I'll draw-down my IRA and, in exchange, have less long-term income! Note that my IRA is nearly 100% invested in the Vanguard Prime Money Market fund and, for my calculations, I used 0% interest.
Since I'm a retired software engineer, I've written several financial calculators to help me make investing decisions. One of them simulates fixed monthly withdrawals from an account that earns a fixed annual income (interest). The interest is accrued monthly, after the monthly payout was withdrawn. This calculator shows that, if I left the money in my IRA instead of purchasing the annuity, my IRA needs to earn 5.3%/year in order to match the annuity's payout and last until I'm age 90, which is a bet that I refuse to take! In this scenario, my IRA balance drops to $0, shortly after I'm 90.
Of course, I'm going to be tapping my IRA for income to supplement the annuity until I hit my full retirement age. However, once my Social Security starts, I'll stop withdrawing money from my IRA and leave the balance for later in life. Thanks to my annuity, at my full retirement age I'll have 29% more income and a substantial balance in my IRA!
In summary, my annuity will help me thrive until my full retirement age, gives me a big income boost, and leaves me with a substantial IRA balance for later in life! I like this plan much better than my earlier one!
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Why would you compare an investment option with one that earns 0% interest?
If you compared it with a mid to long term bond fund I would think that the annuity is not as attractive... or might be worse....
But, what is done is done and you seem happy with it...
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05-05-2016, 10:05 PM
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#91
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Moderator Emeritus
Join Date: Apr 2011
Location: Conroe, Texas
Posts: 18,645
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Quote:
Originally Posted by JohnSwanson
In February, I purchased an Integrity Insurance deferred fixed annuity that starts paying on 5/1/2018, shortly after I hit 60! Instead of using nearly my entire nest egg, I purchased a smaller policy with about half of my assets. Although I initially thought that Integrity Insurance won't sell a policy to somebody younger than 60, in reality this insurer requires that the policy be purchased further in advance than the other insurers that Vanguard offers. So keep this in mind when requesting annuity quotes on Vanguard's website!
My annuity has a 6.6% yield. Of course, there's a chance that the Fed will be able to raise interest rates in the future and an annuity purchased at that time will perform better. However, according to my calculations, I'm better-off purchasing a policy today, while there's more money in my IRA, than I am by waiting for interest rates to rise! Also, I feel better knowing that I've taken steps to fund my retirement now!
Although there are a number of replies stating that I'm too young for an annuity, I ran the numbers and, if I purchase a policy that starts paying at my full retirement age, it pays 25%/mo less than my policy does! In other words, I'll draw-down my IRA and, in exchange, have less long-term income! Note that my IRA is nearly 100% invested in the Vanguard Prime Money Market fund and, for my calculations, I used 0% interest.
Since I'm a retired software engineer, I've written several financial calculators to help me make investing decisions. One of them simulates fixed monthly withdrawals from an account that earns a fixed annual income (interest). The interest is accrued monthly, after the monthly payout was withdrawn. This calculator shows that, if I left the money in my IRA instead of purchasing the annuity, my IRA needs to earn 5.3%/year in order to match the annuity's payout and last until I'm age 90, which is a bet that I refuse to take! In this scenario, my IRA balance drops to $0, shortly after I'm 90.
Of course, I'm going to be tapping my IRA for income to supplement the annuity until I hit my full retirement age. However, once my Social Security starts, I'll stop withdrawing money from my IRA and leave the balance for later in life. Thanks to my annuity, at my full retirement age I'll have 29% more income and a substantial balance in my IRA!
In summary, my annuity will help me thrive until my full retirement age, gives me a big income boost, and leaves me with a substantial IRA balance for later in life! I like this plan much better than my earlier one!
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Good luck! How have you accounted for paying taxes? Remember, you will have to start puling RMD's at 70 1/2 and those will be taxable. Earning 0% interest (before fees) on a large IRA balance doesn't seem like a good idea to me.
__________________
*********Go Astros!*********
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