What percentage of your assets have you annuitized / do you plan to annuitize ?

[arebelspy]

+1

If you start taking the payments at 62 and invest it with a modest 5% annual return, you'd have about $89,000 extra after the 54 months (4.5 years).
If you then switch to drawing the interest only from that $89,000, combined with your reduced SS payment, the net maybe the same as if you waited for the higher SS payments. And you (or your heirs) would have the $89,000 principal.
I concluded this after reading the old thread:
http://www.early-retirement.org/forums/f28/social-security-pays-to-delay-says-scott-burns-23317.html

I've come to a similar conclusion on my personal pension, which is reduced 4%/yr before age 60. I've calculated that a 60% payout at age 50 is the best balance (investing it until age 65, most likely) will leave me with about the same yearly amount and more principal.

 

[justplainbll]

Quote:
Originally Posted by Sirka

+1

If you start taking the payments at 62 and invest it with a modest 5% annual return, you'd have about $89,000 extra after the 54 months (4.5 years).

What pays 5% after tax?

 

[Midpack]

You are right on about the two camps. It would be interesting to do a poll, I am in [-]SIRE[/-] camp. Wait it should be FIRE camp with some pension but no health care.

Tongue in cheek I see but FWIW http://www.early-retirement.org/forums/f28/which-are-you-will-you-be-sire-or-fire-46680.html

 

[kaudrey]

My federal pension will be my annuity when I first retire. I project it will be a little less than 1/2 my retirement income needs. SS, about 8 years after retirement, will add a bit more, of course.

 

[Sirka]

Tongue in cheek I see but FWIW http://www.early-retirement.org/forums/f28/which-are-you-will-you-be-sire-or-fire-46680.html

FIRE, If it's only two camps

 

[TECTOPCAT]

My annuity is Social Security.

same-will not buy annuities and I will take my pension in lump sum, annuity payments work out to about 5% and nothing when I die for heirs, unless you are one of those who have no discipline annuities usually benefit the annuity seller much more than the buyer.

 

[unclemick]

My annuity is Social Security.

And my non-cola pension.

And when I put put on my super duper 'cheap SOB' hat - I can still cover my core expenses but after 18 years of ER - I won't unless I have to.

heh heh heh - cause I'm not getting any younger and plan to party on til I croak.

40%

 

[FreeAtLast]

I think I might purchase one if I end up in a ALF to pay the monthly fee.

 

[obgyn65]

So last week I met with an advisor from a major bank. It was the first time in my life I met with an advisor to discuss annuities. He agrees that 1) annuities are not for everyone 2) annuatizing some of my assets makes sense in my case (no SS, small pension, high NW, no heir, very conservative with investments). I am thinking of testing the concept, investing 100k this year to buy laddered longevity annuities - and see what happens...

 

[haha]

So last week I met with an advisor from a major bank. It was the first time in my life I met with an advisor to discuss annuities. He agrees that 1) annuities are not for everyone 2) annuatizing some of my assets makes sense in my case (no SS, small pension, high NW, no heir, very conservative with investments). I am thinking of testing the concept, investing 100k this year to buy laddered longevity annuities - and see what happens...

Could you describe just what a group of laddered longevity annuites would look like?

Thanks, Ha

 

[obgyn65]

Yes of course, sorry for short message or for typos, as I am writing from my iPhone. Laddered longevity annuities = one with $33k premium starting payouts when / if I reach the age of 65, the next one (same $33k premium) when I turn 75, and the last one (same premium) starts paying out when / if I reach 85.... My spreadsheet shows a clear benefit in my case. Again, not true for everyone. Does this help, Ha?

Could you describe just what a group of laddered longevity annuites would look like?

Thanks, Ha

 

[haha]

Yes of course, sorry for short message or for typos, as I am writing from my iPhone. Laddered longevity annuities = one with $33k premium starting payouts when / if I reach the age of 65, the next one (same $33k premium) when I turn 75, and the last one (same premium) starts paying out when / if I reach 85.... My spreadsheet shows a clear benefit in my case. Again, not true for everyone. Does this help, Ha?

Yes, thank you OBG. One more question if you have time- is the payout at each of these ages fixed when you pay the premium, or does it respond to events and conditions yet to come?

Ha

 

[obgyn65]

Apologies again for short post, having a break here. still on iPhone.... Yes, payment is fixed when I pay the $33k premium this year. Taking the example above, the 3 annuities at 20, 30 or 40 years would payout about $400, $900, and $3,000 monthly respectively (but no cola and this is before tax). Insured by the state also like other "normal annuities" - up to $200k or $300k, not sure. I hope this helps.

Yes, thank you OBG. One more question if you have time- is the payout at each of these ages fixed when you pay the premium, or does it respond to events and conditions yet to come?

Ha

 

[obgyn65]

Well I have decided to take the plunge. A couple of online calculators have an increase in "success rate" with such an annuity. Will keep you posted if this decision is worth it in the medium and long term (if I live until when the annuity starts the monthly payments ).

 

[MasterBlaster]

Before you decide on an annuity (SPIA) or not you need to define the problem that you are trying to solve....

If you decide that always having a baseline standard of living (no matter what) is more important than managing a portfolio for better payouts. Some of us here will not optimize the (spending) utility of our portfolio's because we have to plan for longevity risk. Longevity risk almost always means leaving money on the table when you pass (perhaps gobs of money).

The other issue is that if you are managing your own portfolio, you just might want to have some conservative investments in there (perhaps bonds) to insure that a down market doesn't wipe out your livelihood. However if you had an annuity to cover a basic living standard, then the risk level (and potential upside payout) of the remaining nest-egg could be substantially higher. In addition the remaining nestegg could be spent down (somewhat) more aggressively because your basic living standard is covered by the annuity. It just may be that with an annuity covering your downside then, that overall you can then outperform what a nestegg-only portolio could do in terms of usable cashflow during your lifetime.

It just may be that your usable cash-flow, and peace-of-mind is greater if you can cover basic living standards.

And lastly, The annuity referred to here is a low-cost Single Payment immediate annuity (SPIA), not some high fee deferred variable annuity plan that gets poor reviews on this forum.

 

[Midpack]

Before you decide on an annuity (SPIA) or not you need to define the problem that you are trying to solve....

If you decide that always having a baseline standard of living (no matter what) is more important than managing a portfolio for better payouts. Some of us here will not optimize the (spending) utility of our portfolio's because we have to plan for longevity risk. Longevity risk almost always means leaving money on the table when you pass (perhaps gobs of money).

The other issue is that if you are managing your own portfolio, you just might want to have some conservative investments in there (perhaps bonds) to insure that a down market doesn't wipe out your livelihood. However if you had an annuity to cover a basic living standard, then the risk level (and potential upside payout) of the remaining nest-egg could be substantially higher. In addition the remaining nestegg could be spent down (somewhat) more aggressively because your basic living standard is covered by the annuity. It just may be that with an annuity covering your downside then, that overall you can then outperform what a nestegg-only portolio could do in terms of usable cashflow during your lifetime.

It just may be that your usable cash-flow, and peace-of-mind is greater if you can cover basic living standards.

And lastly, The annuity referred to here is a low-cost Single Payment immediate annuity (SPIA), not some high fee deferred variable annuity plan that gets poor reviews on this forum.

+1.

And this is a bad time to buy an annuity if you can wait, though I realize not everyone can. Don't take my word for it.

If you buy an annuity today, the currently ultra-low interest-rate environment will depress the payout you receive. (It's not a perfect analogy, but it's somewhat akin to buying a long-term bond with a very low coupon. Rates may go up in the future, but you'll be stuck with your low payout.) The average fixed annuity rate plunged from 5.55% to 3.94% between December 2008 and December 2009, according to National Underwriter. That negative rate environment is why financial planner Harold Evensky flatly stated in a recent video interview that it's a bad time to buy an annuity, even though he thinks the vehicle will be an extremely important part of retirement planning in the future.

The Error-Proof Portfolio: For Annuities, Timing Is Key

 

[Finance Dave]

good luck, although I agree now is not the best time. Wondering if you can go to CDs for 12-18 months to see what happens.

 

[jdw_fire]

+1.

And this is a bad time to buy an annuity if you can wait, though I realize not everyone can. Don't take my word for it.

If you buy an annuity today, the currently ultra-low interest-rate environment will depress the payout you receive. (It's not a perfect analogy, but it's somewhat akin to buying a long-term bond with a very low coupon. Rates may go up in the future, but you'll be stuck with your low payout.) The average fixed annuity rate plunged from 5.55% to 3.94% between December 2008 and December 2009, according to National Underwriter. That negative rate environment is why financial planner Harold Evensky flatly stated in a recent video interview that it's a bad time to buy an annuity, even though he thinks the vehicle will be an extremely important part of retirement planning in the future.

The Error-Proof Portfolio: For Annuities, Timing Is Key

over on BH it seems that some feel that waiting for higher interest rates wont buy you that much. the rational is that 1) you will be pulling from your FI portion of your AA to buy the annuity. 2) when interest rates go up the value of your FI goes down so even though you can get a bigger payout/$ spent on the SPIA, if you wait for higher interest rates you will have fewer $ to spend on said annuity. 3) on top of that, to get the same spendable $ you would get from the annuity if you bought right now you will have to start spending out of your portfolio (the FI part for an apples to apples comparision) which is invested currently at a low rate so you will be depleting that part of your portfolio and therefore will have even fewer $ to buy the SPIA in the future.

 

[Midpack]

Not discounting these risks, but how are 1 and 3 different? And if I could add to 2...

over on BH it seems that some feel that waiting for higher interest rates wont buy you that much. the rational is that 1) you will be pulling from your FI portion of your AA to buy the annuity. 2) when interest rates go up the value of your FI goes down so even though you can get a bigger payout/$ spent on the SPIA, if you wait for higher interest rates you will have fewer $ to spend on said annuity. However, for a given $/year payout, the cost decreases the older the annuitant is, at any given interest rate. Example: Joint Life Income annuity - $1K/mo begin age 60 = $224,958 cost. Begin age 62 = $215,549. 3) on top of that, to get the same spendable $ you would get from the annuity if you bought right now you will have to start spending out of your portfolio (the FI part for an apples to apples comparision) which is invested currently at a low rate so you will be depleting that part of your portfolio and therefore will have even fewer $ to buy the SPIA in the future.

 

[jdw_fire]

Not discounting these risks, but how are 1 and 3 different? And if I could add to 2...

Originally Posted by jdw_fire
over on BH it seems that some feel that waiting for higher interest rates wont buy you that much. the rational is that 1) you will be pulling from your FI portion of your AA to buy the annuity. 2) when interest rates go up the value of your FI goes down so even though you can get a bigger payout/$ spent on the SPIA, if you wait for higher interest rates you will have fewer $ to spend on said annuity. However, for a given $/year payout, the cost decreases the older the annuitant is, at any given interest rate. Example: Joint SPIA $1K/mo begin age 60 = $224,958 cost. Begin age 62 = $215,549. 3) on top of that, to get the same spendable $ you would get from the annuity if you bought right now you will have to start spending out of your portfolio (the FI part for an apples to apples comparision) which is invested currently at a low rate so you will be depleting that part of your portfolio and therefore will have even fewer $ to buy the SPIA in the future.

1) is a loss of FI principle value due to interest rates rising and 3) is a loss of FI principle value due to spending principle. your addition to 2) is correct so i think the thought on BH is all these make it a wash, i.e. not advantagous to wait on interest rates

 

[Midpack]

1) is a loss of FI principle value due to interest rates rising and 3) is a loss of FI principle value due to spending principle. your addition to 2) is correct so i think the thought on BH is all these make it a wash, i.e. not advantagous to wait on interest rates

Let's say there's not a consensus on that by any means, on BH or anywhere else. Wade Pfau had a blog exploring the hypothesis, but by his own admission that thought has not been fully developed yet...he has not concluded anything. We've had this difference of opinion before...

 

[jdw_fire]

Let's say there's not a consensus on that by any means, on BH or anywhere else. Wade Pfau had a blog exploring the hypothesis, but by his own admission that thought has not been fully developed yet...he has not concluded anything. We've had this difference of opinion before...

"the thought on BH" i was referring to in my last post was the thought i brought up earlier in

over on BH it seems that some feel that waiting for higher interest rates wont buy you that much. the rational is that 1) you will be pulling from your FI portion of your AA to buy the annuity. 2) when interest rates go up the value of your FI goes down so even though you can get a bigger payout/$ spent on the SPIA, if you wait for higher interest rates you will have fewer $ to spend on said annuity. 3) on top of that, to get the same spendable $ you would get from the annuity if you bought right now you will have to start spending out of your portfolio (the FI part for an apples to apples comparision) which is invested currently at a low rate so you will be depleting that part of your portfolio and therefore will have even fewer $ to buy the SPIA in the future.

where i said "over on BH it seems that some feel that waiting for higher interest rates wont buy you that much." i didnt say there was a consensus. i am sorry i was unclear.

i look forward seeing results from further analysis.

 

[Midpack]

i look forward seeing results from further analysis.

Me too, cheers.