Cute Fuzzy Bunny said:
Wow, nice little temper fit there. ... And I never said you sold annuities, I said we had annuity sales people pitching to us here, and the frickin guy who posted right above yours confirms that he does in fact sell annuities.
CFB, I'm sorry for my misunderstanding, however given that your post addressed my post it looked like you were calling me an annuity salesman (you did make it plural) and I don't like being lied about. My misunderstanding was especially upsetting since I had already stated that I wasn't and you seemed to be ignoring that.
Cute Fuzzy Bunny said:
But heres a taste, let me know if you want more.
- You use small numbers in your calcs, under 100k. Firecalc fails more often with small portfolios than large ones. Plug in some multi million dollar numbers and you get a different result.
I used small numbers ($100k portfolio) after I checked to ensure that it was scalable. Here let me show you from FIRECalc:
$100k portfolio provides $3386/yr W/D that is 100% historically successful with residuals quoted from FIRECalc - "The range was $72 to $634,124, with an average of $181,113."
$1,000K portfolio provides $33,860/yr W/D that is 100% historically successful with residuals quoted from FIRECalc - "The range was $716 to $6,341,236, with an average of $1,811,134. "
$10,000K portfolio provides $33,8600/yr W/D that is 100% historically successful with residuals quoted from FIRECalc - "The range was $7,165 to $63,412,361, with an average of $18,111,338."
Looks pretty scaleable to me, do you need higher numbers?
Cute Fuzzy Bunny said:
But heres a taste, let me know if you want more.
- You dont account for taxes. Annuities are usually taxed as ordinary income while investors often get the benefits of capital gains rates
You are correct that I don't do the taxes in this example, however I have read on this board where people with a pension look at it as if it is a part of the bond allocation of their portfolio and that seemed like a reasonable thing to do. If the same was done for an annuity two cases exist; the first is where we have a taxable account and the second is a tax defered account.
In the first case the taxes would be greater on the income from the bonds if it produced the same W/D schedule. There are two reasons for this 1) for the bonds to provide any inflation protection some of the taxable income has to remain in the portfolio. 2) Not all of the annuity payment is taxable as some of it is a return of principle.
In the second case the taxes would be less on the annuity (given the same W/D schedule) because not all of the annuity payment is taxable as some of it is a return of principle.
Both of these treatments are favorable to the annuity.
Cute Fuzzy Bunny said:
But heres a taste, let me know if you want more.
- You brush aside survivorship and inheritance issues on one side of the equation without accommodating them on the other. If I didnt want to leave money (like the case in an annuity), I could consume principal from the investment portfolio at a rate that would exhaust it at some point very late in my life, substantially increasing my spendable income in earlier years when I'm likely to actually appreciate it.
Actually I addressed both. If you will remember my example for the couple uses two annuities, one for each spouse, to provide the W/D amount that matched FIRECalc's 100% historically successful W/D amount in order to provide what in essence amounts to a 50% spousal benefit on the death of either spouse. Doing this also left about 1/3 of the portfolio not in the annuities which could be left to grow untouched (even untaxed depending on what it is invesed in or if it is in a tax deferred/free account) to provide for an inheritance. When I put my example (including this $34575 still in a portfolio) back into FIRECalc, FIRECalc showed a residual ("The range was $34,575 to $1,274,044, with an average of $416,137.") larger than what was left just using FIRECalc on the original $100K ("The range was $72 to $634,124, with an average of $181,113.") .
To this you replied (among other things) that 2 can live as cheaply as one and you would need a 100% spousal benefit. I then pointed out that if more income was needed that the 1/3 of the portfolio not in annuities could be used for that purpose and that there was even enough there to buy another inflation adjusted immediate annuity large enough to replace the lost income if that was how one wanted to obtain the replacement income. Now granted having to replace the income of the dead spouse's annuity would cut into any inheritance ultimately provided.
BTW I have noticed there are single posters here also and for a single person there is no survivorship issue and a single person will leave more inheritance with my annuity example.
Cute Fuzzy Bunny said:
But heres a taste, let me know if you want more.
- None of the apples to apples annuity options produce the same amount of income on the annuity side. Its less. In some cases (survivorship and CPI indexing) it can be a LOT less. Your example used small example numbers, so figuring out if the income level produced by an annuity would be satisfactory for someone to live on was not explored. I see few people concerned about having too MUCH income in retirement.
In my example we have three cases 1) both spouses live the entire 40 yr term used in the $100k FIRECalc run 2) one of the spouses dies earlier and 3) both spouses die earlier. I responded to 1) above, but let me recap; the yearly W/D is the same for my example and the $100k FIRECalc run and the residual portfolio (not even counting the annuities) is greater in my example than the $100k FIRECalc run. I also talked some to 2) above also and here results depend on your choice of replacing the income or not. There are alot of different cases that could be explored by changing the date of the death of the first spouse and changing the amount of income replaced so I will look at some end points. Setting the date of the first spouse's death at the day after the first annuity payment (probably the worst case from a math POV) you give up either the equal income stream (by leaving the new $34575 portfolio alone) and retain your higher residual portfolio
OR you can maintain the income stream by invading the $34575 portfolio (note: by buying another annuity that pays the same as the one remaining inforce at this early time your portfolio would be almost entirely spent on annuities). But you don't bive up both. Case 3) depends on what you did in case 2).
Yes my example used $100k starting out but as I showed above it is scalable. If the FIRECalc run shows you need $10M to provide the inflation adjusted W/D over 40 yrs that meets your needs then you just multiply my numbers by 100 and it works the same except all the numbers are 100x larger.
Cute Fuzzy Bunny said:
But heres a taste, let me know if you want more.
- Your assumption that CPI = inflation, when I pointed out (in my dataless assertions) that such is not the case for a lot of people.
I use CPI because FIRECalc and the annuities use CPI and this keeps the comparison "apples to apples".
Cute Fuzzy Bunny said:
But heres a taste, let me know if you want more.
- Your usage of a couple thats 60 years old...short time horizon = larger annuity payouts. Not sure if you noticed, but this is an EARLY retirement board, not AARP.
Yes I did use a couple that is 60 yo and I think the example still provides value. Also, I only looked at this one example so I don't know where what I saw in my example falls apart due to a younger age. BTW I have seen posts on this board from people 60 and older and I expect that many of the posters younger than 60 plan on living past 60 (otherwise your concerns with a survivor benefit are pointless).
Are you saying that no one can post ideas that may work better for 60 yos than for 45 yos?
Cute Fuzzy Bunny said:
So in summary, a retirement age inconsistent with the topic of early retirement, small numbers more likely to cause a failure of a non-annuity example, no attention paid to the tax situation, assumption that cpi=inflation, no attention paid to whether the income produced would be satisfactory since its less than one could get with self investment.
A bunch of issues you didnt address.
I did address all of these issues both above as a recap and in my previous posts.
Cute Fuzzy Bunny said:
And you still, for the third time, havent shown an annuity that pays as well as a Wellesley or Target Retirement Income type fund, which is roughly 4% a year paid out and roughly a 4% annual principal adjustment...which is well in excess of the average CPI. And you still have all that money left over at the end!
Yes I did, here I'll do the math for you. The inflation adjusted immediately annuity combination I used in my example pays $3386/yr on $65425 ($100,000-$34575) invested which equals 5.175% inflation adjusted.
Cute Fuzzy Bunny said:
Show me the "belittling". You're the one that was flapping his gums about my working wife, although I had ER'ed for 3.5 years before marrying her.
The "belittling" I was refering to was you making up stuff about me quoted here:
Straight from the mouths of people who have already acknowledged that they sell annuities. Gotcha.
Apparently the annuity outfits pay well enough that the sales people are willing to troll retirement boards
I have already apologized for apparently misunderstanding you. I also already told you that my comment about your wife's job being like an annuity was just an obsevation not a dig but you seem to not take apologies well either.