That was my understanding as well, with a caveat; you don't have enough to retire "risk free".
Point well taken even if I don't consider annuities risk free.
That was my understanding as well, with a caveat; you don't have enough to retire "risk free".
Of course. I didn't mean to imply he was correct in that view, just that his point was there was a risk of inadequate investment return in equities but not annuities.Point well taken even if I don't consider annuities risk free.
the TSP calculator points to a 1.6% SWR for me. That's much lower than what I get with FIRECalc. Uh-Oh.
I haven't checked in years, but Vanguard used to have an annuity calculator on their website. They're probably still selling them (annuities, not calculators) but you might have to talk to a rep.
Would you mind sharing what parameters you inputted when you obtained the 1.6% output? I'd like to double check that I'm using this tool correctly.
Joint life with spouse
Increasing payments
No cash refund
50% survivor benefit
Ages: 37 and 37
Sure it does. It's no different than SS. The longer you wait to start, the less years it is expected to pay out, thus resulting in higher monthly payments.Age obviously makes a big difference.
Well, that settles that. i am glad that most American companies offer their goods and services as a gift to mankind.The companies that offer them are in it to make money.
Well, that settles that. i am glad that most American companies offer their goods and services as a gift to mankind.
Whew! I'm glad you warned me, I'll stay away from those capitalist annuity hawkers.
Ha
BTW, it's simple to calculate the return on any fixed-payment, life guaranteed SPIA just by using the XRR function on Excel. No charts needed...
Well, that settles that. i am glad that most American companies offer their goods and services as a gift to mankind.
Whew! I'm glad you warned me, I'll stay away from those capitalist annuity hawkers.
Ha
At this point, I'm not interested in non-inflation adjusted annuities since they leave too much risk on the table for my taste.
You DO KNOW that "inflation-adjusted" annuities are actuarily-based, right? The payments are below those of non-cola annuities, but yes, you get a "bump" every year. All you have to do is live til about age 90 to "beat the system"........
Actually there is, sort of. In the event an insurer goes into receivership, state insurance regulators step in and take control of the insurer, and if the insurer's assets are insufficient to pay benefits, state guaranty funds would typically make up the difference.
The state guaranty funds are replenished based on future assessments made against the solvent insurers.
While I'm not a big fan of annuities for a number of reasons, the fact is that they are relatively safe given the regulation of the insurance industry and the backstop of the state guarantee funds. Perhaps a small notch below an FDIC insured CD.
At this point, I'm not interested in non-inflation adjusted annuities since they leave too much risk on the table for my taste.
I think there is a really big problem with the annuity insurance... it only covers principal. Here is an example: say you invest $100k in SPIA to get $250/month (=3%*100k/12), cola-adjusted. Presumably you choose a highly rated company and it won't fail soon, but 30 years into the future, who knows... So, after 30 years, say inflation was at 3%. Your $250 has now become $606.82/month. If the company fails, all you get back is $100k. To get $606.82/month from that $100k, you'd need to get a cola-adjusted SPIA at the time to return 7.3% (7.3%*100k/12~606.82)... (and if company fails, likely it will happen in a recession kind of environment)
I have thought about annuities as a back up (to my back ups, to... blah, blah, belt, suspenders... blah, blah). It occurred to me that one might play the game of building in inflation protection by purchasing annuities at intervals instead of buying one large inflation-protected annuity. ...
No, it doesn't work the way you think it does. In the event the insurer went into receivership you would get the contractual benefits ($606.82/month in your example) and it would continue to inflate each year based on the provisions in the contract. You would receive the same benefit that you would receive if the insurer was not troubled, but if the insurer's assets were insufficient to pay the contractual benefits then the state guaranty fund would pay for the difference.
Thanks. Do you have any links confirming this by any chance?
From what I was finding on the state-run websites, they talk about coverage up to some max (e.g. 300k) in terms of "present value" at the time of the failure. So, in my example, I assumed present value would not be $300k, but much more (given the $606.82 inflation protected monthly payment). And so if they determine my max is $300k, they would either return $300k or start payments based on $300k investment at the time of failure, i.e. max covered present value (which would effectively reset monthly payments back to $250, assuming the same rates at the time)...
How COLA pensions or variable annuities are treated by state guaranty associations is a mystery to me. It was one of the questions I had when I spent several weeks and made literally a dozen phone calls and emails to Hawaii association and got no response. I eventually talked to a lawyer that worked for the insurance commissioner, but he wasn't an expert. I'd be interested in seeing a link also.
I have thought about annuities as a back up (to my back ups, to... blah, blah, belt, suspenders... blah, blah). It occurred to me that one might play the game of building in inflation protection by purchasing annuities at intervals instead of buying one large inflation-protected annuity. This plan would have the following (potential) benefits:
...