Who has/will have annuity?

[Bestwifeever]

2B, interesting answer! I will post 1 or 2 of the articles I read soon. I wish there was an instructional article that would show, in detail, how to construct your own annuity type investment. Is it as simple as laddering fixed income products?

Here is a link to Brewer's diy annuity in response to an early discussion about annuities:

http://www.early-retirement.org/forums/f28/how-replicate-equity-indexed-annuity-eia-34656.html

 

[donheff]

I keep going back and forth considering how to withdraw the TSP: SEPP, IRA,annuity, some combination thereof?

Khan: are you thinking of rolling your TSP over into another IRA? I just did the opposite - rolled an old IRA into the TSP. The TSP's rates are the lowest in the universe. And while the selection of funds may not be ideal, it seems adequate for a portion of a portfolio. IIRC, the SPIA they contracted for is inflation protected but only to 3%/year. If you were interested in inflation protection one from Vanguard (up to 10%) or similar might be a better alternative.

 

[chinaco]

I might take a small percentage of our portfolio and buy a joint survivor annuity. But If I buy it would be around age 65... provided interest rates are favorable.

The combination of the annuity, small pension, and SS will form a minimum income base.

 

[Khan]

Khan: are you thinking of rolling your TSP over into another IRA? I just did the opposite - rolled an old IRA into the TSP. The TSP's rates are the lowest in the universe. And while the selection of funds may not be ideal, it seems adequate for a portion of a portfolio. IIRC, the SPIA they contracted for is inflation protected but only to 3%/year. If you were interested in inflation protection one from Vanguard (up to 10%) or similar might be a better alternative.

I likely won't roll the TSP to an IRA; I might roll an IRA to the TSP; decisions, decisions.

 

[cashflo2u2]

You are still a newbie on the forum. There are some of us (most actually) who are totally "do it yourselfers" (DIY). We will argue about the many ways to determine your SWR and whether Guyton and Bernicke are applicable. Annuities address many psychological issues you mentioned but ultimately you have to decide whether you believe in your ability to beat the insurance company returns over the long term.

The argument of letting the insurance company take care of you sounds nice and comforting. Unfortunately, they make a significant profit investing the way most of this forum advocates and paying a lower return to the people they have given their guarantee to.

You need to read some of the "best of" threads. You need to read some of the boglehead forum.

An annuity is simple and easy. An annuity makes lots of money for the person selling it and the company issuing it. You can ususally do better on your own unless you live to be 100.

I think you put your finger on it. It is a psychological issue and I am a psycho. Why else would I be compulsively running Monte Carlo and Firecalc? I guess I need to address that issue before I move forward with any further investment decisions.

 

[ERD50]

Well, the concept of an annuity is actually very attractive to me. The realities that keep me from getting one have been covered by others in other threads.

1) Risk of default of the annuity provider over a possible 50 plus year time frame?

2) After the provider takes their cut (which I don't begrudge them), the numbers don't look too good.

I plan to take a look when I'm 75 or so - shorter time frame to be concerned about, and who knows, the numbers may be different then. I won't close the door on the concept.

It's really pretty simple if you are willing to go to all of the trouble. ....

This does not give you "longevity insurance" since your ladder will run out while the SPIA would pay if you lived forever and the insurance company remained solvent. The secret is to buy enough extra years where you feel comfortable you won't live that long. Go for 110 if you feel lucky.

Thanks 2B - That's a good approach to the longevity issue. I never thought of it that way before, but if you take an age past the max that you reasonably might expect to live to, your self-funded annuity might look better than a 'guaranteed forever' annuity. You end up factoring in a longer age for yourself (the company can use medians), but your expenses are much lower. I'd have to run the numbers to see if it is enough to overcome the personal age limit versus median, but it at least gives you a reasonable means for comparison.

-ERD50

 

[packrat44]

Presently receiving 3 moderate sized pensions (2 COLAd; 1 semi-COLAd) with delayed SS in 6 years. DW will receive a small non-COLA pension in 10 years with early SS in 7 years. The present pensions cover the majority of our "needs". When everything kicks in we will be receiving enough to cover all our "needs" and all our "reasonable wants" without taping into our portfolio. Therefore, I do not see an annuity in our future. However, if our investments end up in the crapper and interest rates are good, I may look at a small annuity for her when in the '80s since I elected my pensions without SB.

 

[bbbamI]

I've got two small ones. I keep telling myself that the reason is...diversification.

 

[kumquat]

I'm in a bit of a different situation since I'm in Canada, but:

1. We have RRSP's which (I think) are similar to IRA's (no tax on accumulation, full tax on withdrawal).
2. We are encouraged to buy an annuity (equivalent to your SPIA, I think, X bucks gets you x bucks/month until death) with the RRSP money
3. RRSP's have other options but you have to elect the option by age 71.
4. At 71, if I am healthy and interest rates are reasonable, I may buy one with my RRSP money. I expect,at that time my RRSP money will be enough to keep me in the nursing home or geezer villa for the rest of my life
5. My non RRSP money (60-70%) will still be there to make my ungratefull kids very happy.
6. My RRSP money is < 20% of my retirement stash.

I think the kids will like it too. It means that I won't have to spend their inheritance on nursing homes or whatever.

FWIW, DM converted her RRSP money into a fixed annuity (SPIA?) when she turned 69 in 1982. Died in 1992, not a good longevity risk, but had 10 years of ~9% withdrawals (rates 20% in early 80's) and a death benefit. The heirs can't whine too much

 

[Rob]

I have a whopper of an annuity

I've been a teacher in overseas schools my whole adult life, and finally at 61, I'll semi-retire (6 weeks). I have been in a few schools that contributed into TIAA-CREF, and during the rest of the time, I contributed myself. As a result, I have about 90% of my money in TIAA-CREF as an after-tax contribution.

Because I was always too busy to really pay attention to what I was contributing to, but knew I trusted TIAA-CREF, only within the last couple years have I been aware of the fact that most of my money has been going into an after-tax annuity that I have only two choices- either get a transfer pay-out annuity over 9 years and a day or accept a lifetime payout.

Since I am single and have no heirs, and the rest of my family is doing very well, I am the perfect candidate for an annuity. Why do I actually like this in the end? FIRST-I take comfort in the fact that I have a "salary" (COLA of about 2%) coming in for the rest of my life. If I kick the bucket in a couple years, then that is the gamble. However, it does motivate me to live a very healthy lifestyle. I actually feel I'm being paid to be healthy. It might sound stupid, but it works for me. SECOND- TIAA has the lowest costs of any insurance company in the business (therefore more payout), and geared for those in education and research. I like that. THIRD- this might be the most important for someone like me. Since I will have a comfortable retirement income coming in, I can afford to take more risks with my remaining $250,000 in stocks and real estate. Again- this pschology works for me, also.

Anyway- long winded comments to say- YES- I have an annuity.

Regards,
Rob

 

[kumquat]

Rob,

You may be one of the few people who fit an annuity (or an annuity fits them). Enjoy!

 

[2B]

Here is a link to Brewer's diy annuity in response to an early discussion about annuities:

http://www.early-retirement.org/forums/f28/how-replicate-equity-indexed-annuity-eia-34656.html

Brewer has a nice system. I tend to think in a lower labor form of equity indexed annuity. In a tax deferred account buy $100,000 in zero coupon bonds that will mature in 20 years. Their current price is $0.38 per dollar so the cost would be $38,000 for $100,000 in bonds that will mature in 2028. Buy $62,000 of Vanguard Total Stock Market Index.

You can't "lose" money if you wait until 2028. In 2028 you will receive your original investment back plus 62% market participation.

Also, please note that that this starts as a nominal 60/40 equity/bond portfolio but is not ever rebalanced.

 

[chinaco]

Insurance companies will be developing new annuity features and a variety of insurance products targeted at the retirement market.

You can see what large mutual fund companies are doing to tap into the market when decumulation occurs to help retirees manage their income.

You will soon see a number of new feature in annuties.

Life insurance will be the same way. There will be a number of features and riders available to help aging people sell off a variety of age/health related risks in conjunction with a life product that is used for wealth transfer to beneficiaries.

The innovation is just starting. Of course, it will come with a fee.

But one must remember, if it sounds too good to be true...

If you buy any of these items... stick with the strongest of companies. There are only maybe 10 companies in the world that I would consider buying a product from... conservative and strong! Those are words to survive by.

 

[youbet]

Brewer has a nice system. I tend to think in a lower labor form of equity indexed annuity. In a tax deferred account buy $100,000 in zero coupon bonds that will mature in 20 years. Their current price is $0.38 per dollar so the cost would be $38,000 for $100,000 in bonds that will mature in 2028. Buy $62,000 of Vanguard Total Stock Market Index.

You can't "lose" money if you wait until 2028. In 2028 you will receive your original investment back plus 62% market participation.

Also, please note that that this starts as a nominal 60/40 equity/bond portfolio but is not ever rebalanced.

Just to see if I'm understanding you 2B........ You can't lose nominal money, but you could lose real money. Right?

 

[ziggy29]

Insurance companies will be developing new annuity features and a variety of insurance products targeted at the retirement market.

You can see what large mutual fund companies are doing to tap into the market when decumulation occurs to help retirees manage their income.

You will soon see a number of new feature in annuties.

Wouldn't surprise me, especially now with so much fear in the air. No doubt there will be more marketing to people who are afraid of outliving their money in retirement. And really, that's the primary "insurance" some of these products provide. And some will come at a pretty high cost, but I guess everyone has to assess their own fear factor with respect to the prospect of outliving their money and decide what it's worth to them to avoid it. If it's worth so much to them that the fees are worth it *to them*, so be it.

The problem is that fearful times like now are the worst times to be paying a "fear premium" on your investments, because the premium is higher now for many products and investments than it would be when so many people didn't think the end was near.

 

[W2R]

The problem is that fearful times like now are the worst times to be paying a "fear premium" on your investments, because the premium is higher now for many products and investments than it would be when so many people didn't think the end was near.

I see your point, and think it is a good one, though I'd like to point out parenthetically that I don't actually know anyone who thinks the end is near. I do know people who think the market is down, that maybe we have entered a modest recessionary phase, and that their home value has dropped almost as much as it back did in the 80's. I haven't heard of anybody jumping out of skyscrapers over these perceptions, though.

 

[ziggy29]

I see your point, and think it is a good one, though I'd like to point out parenthetically that I don't actually know anyone who thinks the end is near.

Well, when I say "the end is near," I don't mean in the literal "end of the world as we know it" sense but more a sense that things are going to be really bad for quite a few years. Maybe we hang out in different places, but I know a lot of die-hard gold bugs who seem to think the dollar is rapidly going to zero, oil prices are going to infinity, and that guns and ammo are the best investments moving forward. So I hear more than my share of "we're all doomed" kind of talk. I'm just a little weary of the foilhattery.

Funny thing is, contrarian that I am where market sentiment is concerned, the more I hear it, the better I think it will end.

 

[73ss454]

Yeah, I hear that Vanguard is coming out with a new weapons and ammo fund.

 

[W2R]

Well, when I say "the end is near," I don't mean in the literal "end of the world as we know it" sense but more a sense that things are going to be really bad for quite a few years. Maybe we hang out in different places, but I know a lot of die-hard gold bugs who seem to think the dollar is rapidly going to zero, oil prices are going to infinity, and that guns and ammo are the best investments moving forward. So I hear more than my share of "we're all doomed" kind of talk. I'm just a little weary of the foilhattery.

Funny thing is, contrarian that I am where market sentiment is concerned, the more I hear it, the better I think it will end.

I'm like that, too!

I don't happen to know anyone at all who is investing in gold, though I know a few who wish they had a couple of years ago! I know some who are pouring everything into target retirement funds and just not looking at the market much any more because they are disgusted. I guess many/most of the Southern men that I know have always had a huge personal stockpile of many dozens of guns, and I know at least one who is putting off buying yet another gun for his arsenal because right now he has other uses for his money. (Fine with me, because I don't like guns one bit though I do like freedom to own them). Lots of complaints about gas prices down here, more than anything, and a lot of reminiscing about the gas lines back around 1980.

 

[Midpack]

Funny thing is, contrarian that I am where market sentiment is concerned, the more I hear it, the better I think it will end.

Me too...

 

[ziggy29]

Yeah, I hear that Vanguard is coming out with a new weapons and ammo fund.

I was thinking "Fidelity Select Survivalism" here.

 

[cjking]

I'm provisionally planning to buy an annuity when life-expectancy is 15 years or less and the income stream it generates (some of which is capital return) is equivalent to what I would have got if I'd invested myself and only taken income without running down capital. (Not sure if these two conditions are in conflict, it's to far in the future for me to be bothered to analyse.)

I am a big fan of the principle behind annuities, and I don't agree their benefits can be replicated by an investor working in isolation.

An annuity invested in a equity fund (in the UK where I am) might (at best) cost 0.75% per year where a direct investment in a similar fund might (at best) cost 0.3%. Over a 15 year period I can live with that difference. In fact if I choose an annuity that allows investment in risky assets I'm more likely to choose to be 100% in a unitised property fund, and I can't actually get that any cheaper as a directly held investment.

If I invest in an annuity, assuming I'm over the age of 70, I get a significantly enhanced income in the form of mortality bonuses as the capital of recently deceased annuitants is redistributed to the survivors. I'm perfectly comfortable with the quid-pro-quo that my capital will similarly get shared out when I go. This extra income over and above anything your own capital generates while you are alive is something you simply cannot get without buying an annuity.

(For the sake of balance I should point out than annuities are as unpopular in the UK as they seem to be on this board, I must be some sort of oddball to like them so much.)

 

[CuppaJoe]

....
(For the sake of balance I should point out than annuities are as unpopular in the UK as they seem to be on this board, I must be some sort of oddball to like them so much.)

Hello CJKing, and welcome. No, you are not at all an oddball among those who have posted less than 10 times on this board.

 

[cashflo2u2]

cjking, as one oddball to another, welcome aboard.

 

[Craig]

Vanguard

I've recently considered buying a Vanguard life annuity, with inflation protection, for a relative who may need steady income with no worries about managing the funds ... rate was 4.45% in the last week, for a female age 50. Considering it.