Annuities?

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Cortopassi
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Annuities?

Post by Cortopassi » Thu May 17, 2018 9:06 am

I did a search on the forum and found a few hits on annuities, and I know when I reviewed stuff for technovelist it opened my eyes...interested if anyone has considered rolling part/all of their portfolio into an annuity at some point, or has already done so?

As an example, using Schwab's calculator (I am 51(today...)), my goal is to retire at 60, and wanting $6k income/month, I need to fund with 1.08M (I assume immediately and not when I am 60).

That is nearly doable. Add a bit more if I want COL increases, and then throw in SS starting at 62 or 65, and I would have >100k/year income for the rest of my life.

Assuming no major expenses at least for a while, we would likely be able to bank half or more of that per month as additional savings, say in a PP.

Why is this a good/bad idea? Thanks.
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Re: Annuities?

Post by mathjak107 » Thu May 17, 2018 10:02 am

immediate annuities work very well as a proxie for some of the money in your bond and cash portion . it is not something that i would ever consider using in place of a balanced portfolio by itself .

they can pay out more cash flow than you can safely pull on your own from cash and bonds because they have something you can't . dead bodies . those who die pay for those who live .

but the higher cash flow is not a sub for a good balanced portfolio.

the question always comes up , if i can get 5.50% cash flow from a immediate annuity today why would i want 4% from a balanced portfolio?

the answer is because they are very different .

because with the 5.50% draw when you die you have zero left . with your own investing at 4% inflation adjusted , your draw eventually can be greater than 5.50% when you calculate off the original balance . remember we are adding the rate of inflation on to that 4% draw every year . the annuity is fixed at that 5.50%. in 11 years at 3% inflation your inflation adjusted draw already exceeded the 5.50% draw .

typically at 4% inflation adjusted and a 60/40 mix , you would have more than you started with 90% of the time left over to go with that inflation adjusted 4% draw and 2x what you started with 67% of the time left over just under average outcomes . so besides inflation adjusting you should be taking raises too

the reality is under average outcomes you can draw 6.50% and still have money left over .

so there is a lot more you can get with your own investing both in draw when you take raises as well as balance left over.

it is like looking at a stocks dividend without looking at the total return and performance. so it isn't just about the draw rate anymore than it is just about the dividend . is a 5% dividend better than a 3% dividend if the 3% dividend stock had a total return of 2x the 5% payer ? of course not , so there is your answer .

the annuity is best used as a proxy for some cash and bonds , not your equities investing.
Last edited by mathjak107 on Thu May 17, 2018 5:14 pm, edited 2 times in total.
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Cortopassi
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Re: Annuities?

Post by Cortopassi » Thu May 17, 2018 10:59 am

Thanks, mj. Makes sense.
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Re: Annuities?

Post by ochotona » Thu May 17, 2018 11:29 am

The trick is to buy an immediate fixed annuity and and not pay excessive fees. This site might be worth a look. Variable annuities are trash.

https://www.immediateannuities.com/
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Re: Annuities?

Post by Cortopassi » Thu May 17, 2018 11:59 am

ochotona wrote:
Thu May 17, 2018 11:29 am
The trick is to buy an immediate fixed annuity and and not pay excessive fees. This site might be worth a look. Variable annuities are trash.

https://www.immediateannuities.com/
That's the site I was calculating from, thanks. The surety of an annuity sure still is attractive, but I see mathjak's points, and I do question choosing a company to give everything I own to at one time and hope they don't blow up in the next 30 years.
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Re: Annuities?

Post by mathjak107 » Thu May 17, 2018 1:58 pm

i saw on line vanguard has a fee to buy immediate annuities . there should be no fees . the rate is the deal like a cd. they are middlemen so they charge . try immediateannuities.com
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ochotona
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Re: Annuities?

Post by ochotona » Thu May 17, 2018 2:31 pm

I may annuitize just enough to meet basic expenses, and I would split it up between several issuers.
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mathjak107
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Re: Annuities?

Post by mathjak107 » Thu May 17, 2018 3:11 pm

i would only buy immediate annuities and stay away from any deferred annuities . variable or fixed annuities can be very tricky and difficult to understand .

they sound so good on the surface with their guarantees but you really do not actually get the guarantees the way you think . if you want to know why i will be happy to illustrate it for you
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Re: Annuities?

Post by europeanwizard » Fri May 18, 2018 1:59 am

ochotona wrote:
Thu May 17, 2018 2:31 pm
I may annuitize just enough to meet basic expenses, and I would split it up between several issuers.
Aside from the wisdom of buying annuities, that's actually quite clever, great suggestion.
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Re: Annuities?

Post by mathjak107 » Fri May 18, 2018 3:10 am

you should check rates at vanguard with their service fee and see if the rates are any higher offsetting that fee from the traditional immediate annuities which have no other fee's . they are like buying a cd and any fees are built in .if you like the deal that is your deal .

personally i stopped doing business with vanguard because of some of their policies and poor customer service so i pulled my money from them .
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Re: Annuities?

Post by sophie » Fri May 18, 2018 6:59 am

I'm with ochotona - planning to annuitize part of my retirement account so that between social security and the annuity, I'll have a regular "paycheck" that will be enough to meet basic expenses. I was thinking it would be too risky to have to remember to transfer money over from investments on a regular basis. It's the sort of thing that can become a problem as you get older.

Not planning to diversify though. The money tagged for annuitization is at TIAA CREF. What I might do is a series of two or three fixed annuities, depending on how much extra an inflation-indexed annuity would cost.
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Re: Annuities?

Post by mathjak107 » Fri May 18, 2018 7:05 am

it would be poor financial sense to ever buy any annuity before delaying taking ss first .

there is no commercial annuity that you can buy that would pay as much , be cola adjusted and pass to a spouse that would be as good as what you would get from ss for the cost of laying out the ss amount you are not collecting from 62 to 70.

it is the best value in an annuity you can buy . annuities should only be considered after you delay taking ss . it is a terrible deal in comparison taking early ss and then buying a commercial annuity product.

cola adjusted annuities are the worst deals out there and the main reason you never want to use annuities in isolation . keep in mind your personal cost of living is very different from the adjustments the cpi gives you . there is little in common between your cost of living and a price index which has most of the items not applying to you or the way you buy or even your location .

you want your inflation protection in growth vehicles .
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