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

[FIRE'd@51]

That is only if the 62 yo male drops at 81.4. If he lives to 100 the IRR is much higher and if he drops at 70 it is negative.

Understood. I was responding to the 19.4 years MichaelB used in his calculation.

 

[justplainbll]

That is only if the 62 yo male drops at 81.4. If he lives to 100 the IRR is much higher and if he drops at 70 it is negative.

That's what the insurance / death gamble aspect of an annuity is about.

 

[easysurfer]

That's what the insurance / death gamble aspect of an annuity is about.

Kinda like both the car dealer and the buyer smiling and saying to oneself "sucker" after the negotiations.

 

[Alan]

pb4uski.......

Very clear. Thanks.

+1

 

[Sirka]

obgyn65,

It is difficult to think of yields of life contingent immediate annuities because the annuitant could die tomorrow and the insurer makes no payments

+1

SS will be my annuity, this is why I will take SS at 62 (almost sure). If I postpone taking it, I would be spending from portfolio and if I die, that money would be gone. That would leave less money for DW!

 

[Huston55]

+1

SS will be my annuity, this is why I will take SS at 62 (almost sure). If I postpone taking it, I would be spending from portfolio and if I die, that money would be gone. That would leave less money for DW!

Is that correct?

What SS does lower earning spouse get upon death of higher earning spouse, if higher earning spouse is already collecting SS?

What if higher earning spouse is not yet collecting SS?

 

[obgyn65]

Thank you, pb4uski, for taking the time to post a thorough and clear answer. Your point below has also been noted. Thank you.

but an annuity may well be appropriate in your case where your SS will be low as a result of working abroad. I would probably wait for interest rates to rise, but whether you buy now or wait, it would pay to shop around.

 

[obgyn65]

Thank you, Khufu, I will have a look at that website.

Esplanner, from esplanner.com. This lets me compare many different scenarios including annuities and SS early, at Full Retirement Age and with Delayed Retirement Credits.

 

[pb4uski]

+1

SS will be my annuity, this is why I will take SS at 62 (almost sure). If I postpone taking it, I would be spending from portfolio and if I die, that money would be gone. That would leave less money for DW!

But what if you and/or DW live to be 90? or 100?

 

[oldphd]

Would be interested to know what percentage of your assets have you annuitized / do you plan to annuitize.

I'm hoping we'll have enough income from SS and pension income to cover our essentials, or at least come close. That will allow us to invest the rest. At this point I'm still working, but not sure how long. For my situation there is a pension that is currently being earned whose value will depend a lot on whether I stop work tomorrow or work a couple of more years.

 

[Sirka]

Is that correct?

What SS does lower earning spouse get upon death of higher earning spouse, if higher earning spouse is already collecting SS?

What if higher earning spouse is not yet collecting SS?

I am not sure, except when the money is spent, it is no longer available. My wife is 3 years younger with pension and will also take SS at 62. She believes a bird in hand is better then 2 or more in the bush; can't predict how they will fix the SS shortfall. Any thoughts on that?

 

[Sirka]

But what if you and/or DW live to be 90? or 100?

We hope to live that long, that is why we need to preserve assets. My estimate shows, that DW pension with COLA and my SS benefit will cover our expenses. So DW SS at 62 will be a bonus and hopefully cover inflation.

 

[Khufu]

Thank you, Khufu, I will have a look at that website.

Esplanner is not a free program. I found it to be by far the best financial planning software I could find. It was developed by an economist who wrote about it in the book, "Spend 'Til The End," which is a good introduction.

 

[Khufu]

Is that correct?

What SS does lower earning spouse get upon death of higher earning spouse, if higher earning spouse is already collecting SS?

What if higher earning spouse is not yet collecting SS?

1. Lower earning spouse inherits higher earning spouse's SS Primary Insurance Amount (benefit.)

2. Can still claim the widow's benefit if not remarried.

 

[Khufu]

SS will be my annuity, this is why I will take SS at 62 (almost sure). If I postpone taking it, I would be spending from portfolio and if I die, that money would be gone. That would leave less money for DW!

Unless you have good reason to expect to die early you are reducing your lifelong SS payments substantially. For example, if you delayed SS from Full Retirement Age until 70 your payments would subsequently be 132% of the FRA amount. For the life of both you and your wife. COLA'ed.

The way to cover the risk of dying early is term life insurance. By the way, Esplanner would estimate how much term life insurance you would need to protect the survivor's standard of living in the case of an early death. I have no connection to Esplanner, by the way, but I find it's the only way to do estimate the amount of life insurance, among other benefits.

 

[Khufu]

She believes a bird in hand is better then 2 or more in the bush; can't predict how they will fix the SS shortfall. Any thoughts on that?

Unlike any other govt agency, such as Defense, SS is fully funded for the next 25 years or so. At that point the SS Trust Fund, which has been funded by the increased payroll taxes beginning in 1983, will be depleted as it was designed to be. The SSA makes three projections of future GDP every year. All three levels of GDP growth are below the post-war average of GDP growth. Under the highest estimated level of growth the Trust Fund is never depleted. Under the next highest estimated level of growth the Trust Fund is never depleted. Under the most pessimistic growth assumption the Trust Fund runs out as planned about 2037. But that assumes that no changes are made to the payroll tax. Any one of the following changes to the payroll tax would guarantee that the Trust Fund would never be depleted:

apply the payroll tax to all labor income, not just $106,800. Only high earners would pay more.

apply the payroll tax to sources of income not currently taxed such as dividends and capital gains. Since higher income earners collect most of the dividends and capital gains, middle income workers would not see an increase.

Even if the Trust Fund is actually depleted, SS would not be broke. Based on the payroll tax alone SS would still be able to pay 70% of future payments, including increases in future payments beyond COLA that are planned.

I don't worry about SS.

 

[Sirka]

Any one of the following changes to the payroll tax would guarantee that the Trust Fund would never be depleted:

apply the payroll tax to all labor income, not just $106,800. Only high earners would pay more.

Even if the Trust Fund is actually depleted, SS would not be broke. Based on the payroll tax alone SS would still be able to pay 70% of future payments, including increases in future payments beyond COLA that are planned.

I don't worry about SS.

I agree SS can be fixed, but they are looking at delaying the retirement till 70, which would be tough for most people and early retirement at 62 may be killed!

OTOH in ER I have used taxable assets until 62 and now I will let SS take over.

 

[Chuckanut]

When I read about how hard working people have been screwed out of their pensions by clever tactics, I do no feel safe trusting any big corporation with annuity money. If they can do it to their workers they can do it to their customers.

 

[haha]

I agree SS can be fixed, but they are looking at delaying the retirement till 70, which would be tough for most people and early retirement at 62 may be killed!

Good you give a link to any discussion of this change you mention?

Ha

 

[Khufu]

When I read about how hard working people have been screwed out of their pensions by clever tactics, I do no feel safe trusting any big corporation with annuity money. If they can do it to their workers they can do it to their customers.

I haven't been able to find examples of default on life annuities by insurance companies. Do you know of any?

There were two life insurance companies that went belly up in the 90s and the insured were paid off at 70 cents on the dollar. These are the only cases I have heard of.

So, I would venture that no one on this board knows anyone whose annuities has ever been in default. Now compare that to the number of people you know who have been severely impacted by the stock market or housing market losses of the past ten years. I myself know several people who have had to come out of or delay retirement.

So, in my opinion annuity issuer risk is for practical purposes, zero.

 

[Silver]

I haven't seen any discussion about short-term annunities (five year) being a fixed income strategy as part of a portfolio. We are currently considering this with a Sentinal annuity at 3.42%. Any thoughts on this?

 

[Huston55]

I haven't seen any discussion about short-term annunities (five year) being a fixed income strategy as part of a portfolio. We are currently considering this with a Sentinal annuity at 3.42%. Any thoughts on this?

Seems like the worst of all worlds.

You give up the $$$, lose the flexibility, lose any up-side potential, and get no mortality credit.

Have you considered other methods for guaranteeing 5 yrs of income?

 

[Silver]

Have you considered other methods for guaranteeing 5 yrs of income?

Yes....CD's, bonds, and money markets....none of which have guaranteed 3% interest for five years. I agree it's not great. But the alternatives seem just as bad or worse.

 

[arebelspy]

Seems like the worst of all worlds.

You give up the $$$, lose the flexibility, lose any up-side potential, and get no mortality credit.

Have you considered other methods for guaranteeing 5 yrs of income?

I donno, seems like a 5-year CD, with the downside of losing the principal if you die in the next 5 years (not a big deal if you have no one to leave the money to or no desire to). It's not a terrible idea, IMO.

 

[ripper1]

I am not sure, except when the money is spent, it is no longer available. My wife is 3 years younger with pension and will also take SS at 62. She believes a bird in hand is better then 2 or more in the bush; can't predict how they will fix the SS shortfall. Any thoughts on that?

my DW will also take SS at 62 instead of 66. If taken early it takes 14 years to break even. You never know how long one might live. Besides you could invest it and if you had waited you would never catch up.