Retirement Income: fixed income, systematic withdrawals or annuities?

[pb4uski]

....To answer the OP's question, if we had no pensions, I would definitely consider using a SPIA. I support the view that some baseline portion of retirement income needs to be "guaranteed." I had a lump sum option on my pension, but took the annuity mainly for that reason. I also think SS (10+ years from now) is highly uncertain, especially for people with other assets and income sources. I hope I'm wrong, but that seems to be the political reality.

While I agree, the catch is what percentage of that baseline should be guaranteed? Quicken Lifetime Planner projects that at retirement that SS and pensions will be about 60% of our living expenses when we begin SS, but that % will decline over time as the pension is not COLAed but the living expenses and SS are.

I think (and hope) that you are wrong on SS. There will be much needed tweaks if/when Washington gets the political courage to do so since someone will be unhappy, but I think they will ultimately act to allow the system to keep its promises.

 

[Cobra9777]

...the catch is what percentage of that baseline should be guaranteed?

Agree. I don't think there is a right or wrong answer. It's a very individual-specific risk decision. Our model starts at 50%, jumps to 65% with the start of SS, and then slowly declines from there. Personally, I would not be comfortable with less than 50%, or at least a dollar figure that was sufficient to cover bare-bones living expenses.

From a purely financial standpoint, I think withdrawing money from a balanced portfolio of stocks and bonds will outperform most SPIAs and pensions in the long run. After looking at rates and doing some basic TVM math, most SPIAs are pretty simple: they amortize the premium to zero over your actuarial life expectancy using a discount rate that is roughly equal to 10-year treasuries. My pension annuity is a little better than that, but not significantly. So why do it? In our case, we simply did not want all (or a large percentage) of our income dependent on market performance. Too many weird things can happen at the wrong time. There's also longevity risk. We were willing to pay a price to have someone else shoulder those risks.

 

[pb4uski]

I figure that I'm going to continue to dance with the girl that brought me to this ER dance and stay with total return and a healthy allocation of equities.

 

[vttlarry]

I have been retired for 30 months and my wife for 21 months. We are quite fortunate that my pension alone meets expenses ( thanks to no debt and family retiree health plan). SS will add cushion. I have about 18-24 months of expenses in savings.

 

[vttlarry]

Sorry, hit send by mistake. We view our ira as a self insured hedge in the absence of LTC insurance, and for any really big purchase we might want. Because of our situation, we do not anticipate withdrawals until RMD in about 12 years. If not for the pension, would probably withdraw dividends and a small amount as needed.