Variable Annuity as part of PP

[portart]

HB said it could be appropriate in some cases to allocate a portion of your portfolio in an annuity for some guaranteed income. I bought one back in 2009 for a third of my money. It grows 7% a year compounded off the top line (not what you cash it in for but the amount that is used for computation of your yearly income). I bought it for $750k and now it's computation value is close to $1.1 so, as an example, if I decided to start taking income now, it would be 55K a year. This means in 15 years the principle would be gone but you continue to collect it until death. Considering PP hasn't grown in three years, it's an area where I see some positive income growth. I was wondering if this was a good move or not since everyone trashes annuities. I would never do with all my money since there would not be money left to transfer to heirs.  If I add SS to this, will have $75 to $80k a year before having to tap into cashing in PP in the retirement acct. I am 65 right now so I am projecting starting this next year.

[dualstow]

I take it you meant to make the topic title "...as part of VP" ?

[Pointedstick]

Considering PP hasn't grown in three years [...]

Are you sure about that?

[portart]

http://finance.yahoo.com/echarts?s=PRPF ... =undefined;


Check this chart of PRPFX from to 2011 to 2013

[portart]

If you have a portfolio heavy with income (annuity and social security), does it make sense to stay with a conservative 4X25 PP with the rest of your money?

[smurff]

HB said it could be appropriate in some cases to allocate a portion of your portfolio in an annuity for some guaranteed income. I bought one back in 2009 for a third of my money. It grows 7% a year compounded off the top line (not what you cash it in for but the amount that is used for computation of your yearly income). I bought it for $750k and now it's computation value is close to $1.1 so, as an example, if I decided to start taking income now, it would be 55K a year. This means in 15 years the principle would be gone but you continue to collect it until death. Considering PP hasn't grown in three years, it's an area where I see some positive income growth. I was wondering if this was a good move or not since everyone trashes annuities. I would never do with all my money since there would not be money left to transfer to heirs.  If I add SS to this, will have $75 to $80k a year before having to tap into cashing in PP in the retirement acct. I am 65 right now so I am projecting starting this next year.

An annuity is a good idea provided it is only a portion of your overall assets, you pick a great insurance company the first time (that is likely to be around for the rest of your life, maybe another 40years) so you won't be tempted to squander assets through switching companies, and you are aware of the different types of annuities and their potential limitations along with their benefits.  I think lots of the criticism about annuities was related to people not  abiding by all that, plus investing in them without the net worth to justify them (as in, they invested their entire savings of $7000 in an annuity at the age of 40 because cousin Jake's brother-in-law is an insurance agent and said it was okay).

I suspect that Harry Browne might have considered an annuity as something like a late life income stream--sort of what a salary would be for those of us younger than retirement age, but without the job-related work.  As such it would not be part if the PP, but like real estate (which also produces an income stream) might be considered part of a well-organized and well-planned VP.

[Pointedstick]

http://finance.yahoo.com/echarts?s=PRPF ... =undefined;


Check this chart of PRPFX from to 2011 to 2013

PRPFX is not the PP. It's a high-expense mutual fund that roughly approximates an older version of the PP that's partially out of date (due to the swiss francs) and optimized for inflation (due to the higher precious metals exposure and reduction in long bonds). I would never own PRPFX, especially if I was close to retirement, because then I would lose the ability to make withdrawals from cash--one of the key benefits of the PP.

[portart]

Are you saying you wouldn't own any part of your portfolio in PRPFX. Up until 2011, it was the number one mutual fund out of all of them. Of course now it's been flat and it's five star rating has be dropped to four. As some point, who knows when, inflation and commodity stocks will again make a push.

[Pointedstick]

Are you saying you wouldn't own any part of your portfolio in PRPFX. Up until 2011, it was the number one mutual fund out of all of them. Of course now it's been flat and it's five star rating has be dropped to four. As some point, who knows when, inflation and commodity stocks will again make a push.

Correct. I have never and would never own PRPFX. I can build the portfolio myself for a much lower cost and use the cash as my emergency fund before retirement. Add in the warts of the fund (swiss francs, stock picking, not a lot of long bonds) and I just don't see any really compelling reason to own it besides simple convenience.

[Libertarian666]

I have a Swiss franc fixed annuity as a significant part of my portfolio. It pays a minimum of least 2% annually, which didn't sound like much when I bought it but is pretty nice now!
I'm not planning to start drawing from it until I have to, at least in this interest rate environment.