use of annuity products and your own investing in retirement

[mathjak107]

lots of current research is being done on the benefits of utilizing low cost immediate annuity's and your own investing .

in most cases success rates are greatly improved by utilizing the higher cash flow from annuity's vs spending down your own cash and bonds .

jim otar , who is far from an annuity lover has another view of  how to fit them in .

http://www.thinkadvisor.com/2010/03/01/ ... ement-zone



famed retirement researcher dr wade pfau had another idea

http://www.forbes.com/sites/wadepfau/20 ... annuities/

[goodasgold]

Re privately funded annuities, they are tempting, but who guards the guardian? In my opinion, it is risky to hand over your portfolio in hope of endless future payouts. If anyone decides to go this route, it makes sense to spread your money among several annuity companies, in the hope that the collapse of one will not destroy your financial future.

In the long term, even Social Security will struggle to keep its head above water, so what hope can we have in the stability of private companies?

[mathjak107]

the states not only back them to some extent but they also require any insurer if asked , to take over the accounts of another.

so far  even through 2008 and including aig there have been zero default issues with annuities .

but what i would do is not only use a few different companies but ladder them so as you age and rates go up you really get a sweet cash stream.

if you think of a simple bucket system where you have a bucket of cash ,bonds and equity's  eventually you will deplete the cash and bonds and have to refill.

the much larger cash flow from these plans not only has a much bigger payment but it serves as a base forever . it reduces the need to keep selling off as much equity's.

don't forget as you spend down cash and bonds you have less working for you.

the single premium annuity (spia) get no reduction year after year.

your own investiing  take care of inflation adjusting .

a good idea may be locking in your non discretionary spending with the annuity and then use your own investing for inflation adjusting and wants in life .

[ochotona]

I am going to have to take a close look at that a year out from retirement... in a decade. I plan to defer SocSec until age 70, maybe I can get an immediate annuity to cover me from 65-69, then at 70.5 all of my RMDs kick in anyway, so I will have lots of income.

[mathjak107]

the problem with the short term annuity's is there are no mortality credits. the longer term annuity's pay way more out than you can get with bonds or cash because they invest in something you can't -dead bodies.

those who die pay for those who live.

you get none of that on these gic contracts which is what a short term annuity is. they are llike a cd from an insurer .

[Sam Brazil]

If technology, including medical technology, is improving at an exponential rate, then how much stock can we put in actuarial tables? Especially when it's the massive baby boom generation that could be living longer than expected? How will these companies keep their promises?

[mathjak107]

We have been living 1 year longer every 4 years since 2000.

Actuaries have this calculated in to both the annuity rates and life insurance rates for many years now.

If it wasn't for the fact healthier people tend to buy annuity products and the fact we are living longer mortality credits would be much higher since insurers pick up a lot of profits off those who die.

[Sam Brazil]

We have been living 1 year longer every 4 years since 2000.

Actuaries have this calculated in to both the annuity rates and life insurance rates for many years now.

But that's exactly what I mean...actuaries are assuming a linear increase lifespan (constant 1 to 4), while technology advances exponentially...if they're selling a massive number of policies now assuming linear, and it turns out exponential in the future, what then?

[Xan]

We have been living 1 year longer every 4 years since 2000.

Actuaries have this calculated in to both the annuity rates and life insurance rates for many years now.

But that's exactly what I mean...actuaries are assuming a linear increase lifespan (constant 1 to 4), while technology advances exponentially...if they're selling a massive number of policies now assuming linear, and it turns out exponential in the future, what then?

Government bailout, almost certainly.  When people had bought cars from a company that went under (GM), the government stepped in to honor the warranties.  I thought it was a terrible idea but there it is.

[Sam Brazil]

We have been living 1 year longer every 4 years since 2000.

Actuaries have this calculated in to both the annuity rates and life insurance rates for many years now.

But that's exactly what I mean...actuaries are assuming a linear increase lifespan (constant 1 to 4), while technology advances exponentially...if they're selling a massive number of policies now assuming linear, and it turns out exponential in the future, what then?

Government bailout, almost certainly.  When people had bought cars from a company that went under (GM), the government stepped in to honor the warranties.  I thought it was a terrible idea but there it is.

How would the government have the money to bail them out? We're talking about the massive baby boomer generation here...we haven't even figured how to fund that generation's Medicaid and Social Security without going broke, let alone how to pay for a massive insurance company bailout on top...plus Medicare and SS would be in the same predicament as the insurance companies because they also predicted mortality wrong.

I do think you're right, though. The government will have to do something, because the Baby Boomer cohort will demand it and have too much voting power to ignore. The government will probably increase taxes on other cohorts + go further into debt (to be paid off by other cohorts)...but my crystal ball gets hazy at that point because I can't figure out if that would mean inflation or deflation