Annuities anyone??

[Reido]

We are all presumably here due to interest in the PP.  I was wondering if anyone considered using the VP to buy annuities...  specifically, I was thinking inflation indexed immediate annuities.  Through Vanguard, I believe someone can get 4% per year guaranteed for life with inflation indexing.  This seems like a very promising investment at first, but I have identified a few problems with it.

1 - There is risk of failure of the corporation...  I know that states have guaranty's (sp?) which are supposed to Insure the companies if they fail, but I know there are limits of $100k for the accounts in most states.

2 - Risk inflation is over 10% - the annuity will only increase payments by a maximum of 10% per year.

3 - Loss of principal - this isn't really a risk, it's a guarantee - you won't get any of your money back in the end...  Tough.

Upsides:
1 - Income you can't outlive...  and it should retain it's purchasing power, or at least the majority of it.

2 - You should be able to decrease the risk to your investment if you have more than $100k to invest by buying multiple annuities with different corporations - none being more than the states guaranty limits.

3 - You don't need the principal once you're dead...  Your children would hopefully have access to the money you invested in the PP.

I haven't found a way to enter the PP into firecalc in a way which would reasonably allow for a prediction as to how much money you could extract and still run minimal risk of ruin...  anyone have any ideas?

Any thoughts??

[PP4me]

I found an answer for a withdrawl rates on portfolios without gold for any allocation of stocks, bonds and cash in 10% increments.  Interesting to see that you get a 98% success ratio with a 3% withdrawl rate on a portfolio with approximately 33% in stocks/bonds/cash.  Since gold typically gives a real return with a low correlation with the other asset classes, I would think it may give an increased success over a stock/bond/cash portfolio.

At a 4% withdrawl rate, you need at least 60% in stocks to get an 88% chance of success. At 4% you get about an 85% chance of success with 40/30/30 stock/bond/cash.  Again if gold's low correlation is a benefit, the chances of success would be greater.

It would be really interesting to see this study done on the 4x25 permanent portfolio. Here is a link to the study.
http://homepage.mac.com/j.norstad/finan ... rvival.pdf

I hope this is helpful.

PS. When I hear the word annuity, I run the other way.

[Reido]

That's very helpful!  Thanks!