Should SPIAs be part of your AA?

[Richard4444]

teej: I did buy my annuities via Vanguard as their commission was 1% less than immediateannuities.com, so I emailed them today and asked how they competed against immediateannuities. I didn't want to do the whole create a password thing, give all my info, to receive a quote.

Rich

and here is their (Income Solutions) emailed response to me today:

All of your previous annuities purchased through the Income Solutions® platform through Vanguard reflected a one-time 2% commission. Now that Vanguard is no longer facilitating, you would work directly with us and all annuities would still reflect the same one-time 2% commission that is already factored into the quotes.

Rich

 

[Dawg52]

A positive aspect of spias is that they take the ability to blow yourself up due to poor decision making off the table. Watching the cognitive decline of some very sharp and accomplished people is making me think about this. I am not talking about dementia, just slow and steady erosion of decision making ability punctuated by health episodes. Current pricing and rates make the choice to buy a spia expensive, but I think you hedge more than longevity risk.

This sums up why I have thought about buying one. Like most.....its hard to pull the trigger tho.

 

[finnski1]

This sums up why I have thought about buying one. Like most.....its hard to pull the trigger tho.

Yeah. My emotional side looks at them all the time and my (hopefully) rational side talks myself out of it every time.

 

[ShokWaveRider]

To Answer the OP question. Yes, if you need to defer income to keep MAGI down for ACA. But only in a good interest environment. I would not buy one now.

 

[brewer12345]

This sums up why I have thought about buying one. Like most.....its hard to pull the trigger tho.

I am due a small pension down the road. The employer allows us to buy additional payouts with 401k money. Depending on pricing and investment performance over the next decade, I may choose to put a chunk into that option.

 

[Ebendana]

Risk vs reward

I am always a "worst case scenario" planner, when I had the chance in 2015 to take a lump sum pension payout, or lifetime income...I did the lifetime income. I did choose the 15 yr/certain/life payout option, just because I could not stomach the thought of dying early (I was only 56, but still) and having all that money go back to the company. Although my pension is only $2,000 per month and not indexed for inflation, if I live till normal life expectancy, the $460,000 lump sum would pay me out about $850,000. Worst case scenario, If I die early, my spouse/kids get a payout for the 15 years, which is about 75% of the lump sum. Having this peace of mind allows me to consider taking SS early, because between SS and pension it covers my basic expenses...the cash I have left is where my challenge is...where can I grow it safely to beat inflation risk? Overall, I figure I can always go and get some kind of part time job or scale down spending...I had thought of a SPIA for the cash, but I want more choice in case there are some big unexpected expenses in the horizon.

 

[BeachOrCity]

SPIA's sometimes get a bad rap. I think they can be good.
But in extreme low long long term rates like we have now, not a very good deal.
Only way I would buy one in this interest rate environment is if I was 70+ and wanted the longevity insurance aspect to be worth more.

Even at 70 years old today, a single male SPIA pays about 5.73%.
So you get your money back at 87.5 years of age if you live that long.....
At 100 years of age (if you live that long) you have gotten at 70% return over 30 years (about 2% per year).

The insurance companies have to invest conservatively (BONDS) with these and make a profit. Thats where all the money is going.

 

[bmcgonig]

SPIA's sometimes get a bad rap. I think they can be good.
But in extreme low long long term rates like we have now, not a very good deal.
Only way I would buy one in this interest rate environment is if I was 70+ and wanted the longevity insurance aspect to be worth more.

Even at 70 years old today, a single male SPIA pays about 5.73%.
So you get your money back at 87.5 years of age if you live that long.....
At 100 years of age (if you live that long) you have gotten at 70% return over 30 years (about 2% per year).

The insurance companies have to invest conservatively (BONDS) with these and make a profit. Thats where all the money is going.

Immediateannuities.com is quoting about 6.5%. Any idea why your quote is different? Also cannex is quoting about 6.3%.

 

[BeachOrCity]

Immediateannuities.com is quoting about 6.5%. Any idea why your quote is different? Also cannex is quoting about 6.3%.

You are correct, I must have fat fingered it.

Still life expectancy for a 70 year old male is 85.
Even with the slightly higher payout basically the annuity pays you back at average life expectancy....nothing more.

I guess if i was older, I would look at my own health and my family history and only take this bet if the outlook was for better than average.

 

[Markola]

I only invest in things I understand. OP, if you can read the SPIA documentation and understand it, you are a certified genius, so maybe you can talk me into putting my money in one.

 

[LRDave]

As I've mentioned in these threads before, we are strongly considering the TIAA Traditional lifetime income option. Comparing quotes for a monthly payout between immediate annuities.com vs. TIAA yield similar results, plus the TIAA Traditional annuity has increased its payout to annuitants 16 out of the last 25 years - not exactly COL adjustments but some hope of slowing down the erosion of spending power over a lifetime.

 

[pb4uski]

I only invest in things I understand. OP, if you can read the SPIA documentation and understand it, you are a certified genius, so maybe you can talk me into putting my money in one.

You may be thinking of other annuities, but SPIAs are as simple as it get... pay $x upfront and get $y per month for life.

Or for as long as one of the two of your lives or for a certain munber of years.... your choice.

 

[GravitySucks]

I bought a delayed single payment annuity, no COLA, no survivor, no garauntee return, and if I remember correct the contract was only 6 pages long. There was also a recorded interview asking if I had any known health issues and if I already had an annuity along with some other questions.
It was a very straight forward process.

I only invest in things I understand. OP, if you can read the SPIA documentation and understand it, you are a certified genius, so maybe you can talk me into putting my money in one.

 

[REWahoo]

I bought a delayed single payment annuity, no COLA, no survivor, no garauntee return, and if I remember correct the contract was only 6 pages long.

Contrast that 6 page SPIA contract to the "Intelligent Variable Annuity" contract I helped a friend review a few years ago. It was more than 75 pages in length.

 

[OldShooter]

Contrast that 6 page SPIA contract to the "Intelligent Variable Annuity" contract I helped a friend review a few years ago. It was more than 75 pages in length.

I looked at one of those from Thrivent just for grins. 208 pages of fine print. It was great fun to text search for words like "fee." There were fees to put money in, fees to take money out, annual fees, ... It was amazing.

I maintain that no one in the known universe had read and understood the whole thing. Each department contributed their stuff, then the pubs people assembled the document and the legal beagles put their chop on it. Certainly no salesperson could ever have understand what they were selling.

I'm with @markola; I only invest in things I understand and that's what I tell my Adult-Ed investing class students. Granted I might miss a wonderful deal somewhere among the incomprehensible products, but how many frogs would I have to kiss before I found that prince? And every kiss costs time and money. So my personal frog-kissing limit is zero.

 

[PatrickA5]

I bought a delayed single payment annuity, no COLA, no survivor, no garauntee return, and if I remember correct the contract was only 6 pages long. There was also a recorded interview asking if I had any known health issues and if I already had an annuity along with some other questions.
It was a very straight forward process.

Why would they care if you have any health issues? I would think the more health issues you have the better - from the insurance company's perspective.

 

[bmcgonig]

I only invest in things I understand. OP, if you can read the SPIA documentation and understand it, you are a certified genius, so maybe you can talk me into putting my money in one.

I understand the short SPIA contract much better than the combined financial statements of the 500 companies in the SP500 that we all might invest in, that's for sure.

Especially now that Tesla might join it [emoji4]

 

[Chuckanut]

Contrast that 6 page SPIA contract to the "Intelligent Variable Annuity" contract I helped a friend review a few years ago. It was more than 75 pages in length.

I hope he at least bought you a beer or two afterwards.

75 pages! Imagine if those guys had wrote War and Peace. You’d need a truck to get the book home.

 

[REWahoo]

I hope he at least bought you a beer or two afterwards.

He didn't but he had other issues at the time. After seeing all the fees in the VA his FA was trying to sell him he was so pissed he almost had another stroke (he'd had a mild one a few months earlier).

 

[GravitySucks]

Pretty sure is a legal requirement. I believe there was a case in NY years ago where a salesman sold an Annuity to someone that he knew had stage N cancer and that person died less than 2 weeks after signing. The question was something like "Have you been diagnosed with a probably fatal disease."

Why would they care if you have any health issues? I would think the more health issues you have the better - from the insurance company's perspective.

 

[teej1985]

and here is their (Income Solutions) emailed response to me today:

All of your previous annuities purchased through the Income Solutions® platform through Vanguard reflected a one-time 2% commission. Now that Vanguard is no longer facilitating, you would work directly with us and all annuities would still reflect the same one-time 2% commission that is already factored into the quotes.

Rich

That's good to know. For what it's worth, Blueprintincome.com shows the commission rate on all their quotes as well.

 

[RHONDAVE]

My ex employer is still offering what looks like a SPIA that is funded by my 414h? cash balance retirement account. I am undecided between my options for this account.


The guaranteed cash balance yield is 5% with annual dividends possible. 2019 dividend yield is going to be 3% and paid in 2020. I can keep this account until 4/1/27.


Member lifetime monthly payment option example:
1. Life Only - $3881 no cola, $3215 cola
2. Modified Cash Refund - $3637 no cola, $2955 cola (option 2 pays

lump balance to spouse if I croak) There are11 more options. The fund balance used to calculate monthly payments was $433537.


I am 66 in a few months and spouse will be 60 in a few months. My plan was to start SS in November. We have no income from wages now and all efforts to get rehired have not worked.



I also have problem seeing retirement fund balance go to $0.00.

 

[BeachOrCity]

My ex employer is still offering what looks like a SPIA that is funded by my 414h? cash balance retirement account. I am undecided between my options for this account.


The guaranteed cash balance yield is 5% with annual dividends possible. 2019 dividend yield is going to be 3% and paid in 2020. I can keep this account until 4/1/27.


Member lifetime monthly payment option example:
1. Life Only - $3881 no cola, $3215 cola
2. Modified Cash Refund - $3637 no cola, $2955 cola (option 2 pays

lump balance to spouse if I croak) There are11 more options. The fund balance used to calculate monthly payments was $433537.


I am 66 in a few months and spouse will be 60 in a few months. My plan was to start SS in November. We have no income from wages now and all efforts to get rehired have not worked.



I also have problem seeing retirement fund balance go to $0.00.

Those look like some nice payouts. Is the cola a true cola? I don’t know how a private pension can actuation do a real cola these days. I suspect it just may be automatic payment bumps?

 

[RHONDAVE]

Thanks, COLA is set at 2.5%
How to compare COLA vs No COLA?
Looks like No COLA wins @ 3881/mo.

 

[Chuckanut]

Thanks, COLA is set at 2.5%
How to compare COLA vs No COLA?
Looks like No COLA wins @ 3881/mo.

I am reminded when I looked at annuties over a decade ago. The payment reduction of the COLA'd annuity was so great that I had to live to my late 80's to break even, and this is without considering the loss of potential earnings on the extra money I was getting with the fixed annuity. For me at that time, they really were a lousy deal unless I had some way of knowing for certain that I would will live a very long time. Alas, my time machine is still broken.

Note to self: The next time you travel back in time to a year where time-travel technology has not yet been invented, bring plenty of spare parts.