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Re: Betting on your life expectancy with an SPIA

Sure, but don't purchase the SPIA until you are at least age 75 and you can hedge it by requiring a term certain return of principal. That may lower the return paid to you but should still be worth it, if you believe you will outlive the 20 year guarantee period. These hedges can be useful in some ...
by Frugal Al
Wed Mar 04, 2015 4:41 pm
 
Forum: Investing - Help with Personal Investments
Topic: Betting on your life expectancy with an SPIA
Replies: 18
Views: 1544

Re: ...it is madness to risk losing what you need in pursuin

According to firecalc.com a 3.7% withdrawal rate succeeded in 99% of historical scenarios with many of them leaving a a hefty legacy. Why would someone go for an annuity? The difference between guaranteed and theoretical comes to mind. Some people have no legacy intent. Some people can't stand the ...
by Frugal Al
Mon Mar 02, 2015 4:58 pm
 
Forum: Investing - Theory, News & General
Topic: ...it is madness to risk losing what you need in pursuing wh
Replies: 46
Views: 4342

Re: ...it is madness to risk losing what you need in pursuin

To compare with SWR, USA Today got quotes of 3.79% and 3.63% payouts for an inflation adjusted annuity for a 65 year old man:http://www.usatoday.com/story/money/col ... y/1639119/ The USA Today article is a little old now. I'd still be surprised if that was for a single life payout in 2013. When I ...
by Frugal Al
Mon Mar 02, 2015 4:34 pm
 
Forum: Investing - Theory, News & General
Topic: ...it is madness to risk losing what you need in pursuing wh
Replies: 46
Views: 4342

Re: Help with retirement pension

For a 70-year-old at retirement age, based on the limited info you've provided, converting the pension to a commercially available annuity generally isn't the way to go. However, that assumes the pension is PBGC guaranteed and not in danger of getting a haircut due to underfunding, such as some mult...
by Frugal Al
Sat Feb 28, 2015 6:25 am
 
Forum: Investing - Help with Personal Investments
Topic: Help with retirement pension
Replies: 2
Views: 451

Re: How much is a pension worth?

TwoByFour wrote:A pension that includes COLA is a huge benefit to a retirement plan.

Did the OP state that this was a COLA'd pension? But you're correct, a COLA'd pension changes everything, assuming it actually delivers on its promises.
by Frugal Al
Fri Feb 27, 2015 2:03 pm
 
Forum: Investing - Help with Personal Investments
Topic: How much is a pension worth?
Replies: 23
Views: 3524

Re: How much is a pension worth?

What is the OP's current age? It's very difficult to value something that might not even be around very long, given the current trend in DB plan terminations. This Single Premium Immediate Annuity ("SPIA") calculator has been recommended here in the past. You can enter either lump sum inve...
by Frugal Al
Fri Feb 27, 2015 8:58 am
 
Forum: Investing - Help with Personal Investments
Topic: How much is a pension worth?
Replies: 23
Views: 3524

Re: Immediate Pension Benefit Offering

I figure that I can invest the lump sum in an IRA of Vanguard's standard four-fund portfolio (probably 70/30 or 60/40 stocks/bonds). I'll probably double the money before 12/23. I'm generally not a fan of long time horizons and non-COLA'd annuities. I think you're on the right track, but I don't th...
by Frugal Al
Thu Feb 26, 2015 7:22 am
 
Forum: Investing - Help with Personal Investments
Topic: Immediate Pension Benefit Offering
Replies: 8
Views: 1063

Re: Yes, another Pension / Lump Sum dilemma !

It doesn't matter how many income streams it --matters what the total the steams equal. Your right, but my point is, and according to the OP, the 3 current streams more than cover his needs. These 3 sources of COLA pensions will cover essential living expenses with a little left over. Adding yet an...
by Frugal Al
Mon Feb 23, 2015 4:32 pm
 
Forum: Investing - Help with Personal Investments
Topic: Yes, another Pension / Lump Sum dilemma !
Replies: 15
Views: 1283

Re: Yes, another Pension / Lump Sum dilemma !

If you take the IRA option you will be forced to take increasingly large RMDs that you probably won't need. Use a RMD calculator to see if this is an issue. I also like the predictable steady stream of income. No worries about managing that extra investment, taking RMDs etc. Taking RMD's needn't be...
by Frugal Al
Mon Feb 23, 2015 8:52 am
 
Forum: Investing - Help with Personal Investments
Topic: Yes, another Pension / Lump Sum dilemma !
Replies: 15
Views: 1283

Re: Yes, another Pension / Lump Sum dilemma !

Is the payout shown below for the 20 year Certain and Continuous a good rate? If my math is correct, it gives about a 6.6% annual return. Although the "payout rate" is about 6.6% and can serve as a useful number to compare like annuities, the rate of return on a cash flow stream is time d...
by Frugal Al
Mon Feb 23, 2015 4:58 am
 
Forum: Investing - Help with Personal Investments
Topic: Yes, another Pension / Lump Sum dilemma !
Replies: 15
Views: 1283

Re: Pfau: Four Risks of Retirement Income

I thought that there were inflation-adjusted SPIAs, although there was some disagreement about whether the cost for the adjustment made sense. However, I'm not easily finding any tables for anything other than simple SPIAs, without any COLA. Last month I was checking current payout rates for inflat...
by Frugal Al
Tue Feb 17, 2015 4:08 pm
 
Forum: Investing - Theory, News & General
Topic: Pfau: Four Risks of Retirement Income
Replies: 31
Views: 4338

Re: Pension Withdrawal Options

I do like the "3-legged stool" of SS, pension, and savings that is becoming rare these days. I like the three legged stool concept as well, but I'm only willing to pay so much for it. The pension is not a screaming deal. I was generous in my IRR calculation of 4.2%, going out 33 years, as...
by Frugal Al
Tue Feb 17, 2015 9:15 am
 
Forum: Investing - Help with Personal Investments
Topic: Pension Withdrawal Options
Replies: 10
Views: 905

Re: Pension Withdrawal Options

This pension amount is actually a very small portion of the overall retirement portfolio--about 10%. That combined with the relatively low anticipated expenses (as compared to potential income), and the low imputed rate of return make the argument for the non-COLA pension rather weak, in my opinion ...
by Frugal Al
Mon Feb 16, 2015 8:52 am
 
Forum: Investing - Help with Personal Investments
Topic: Pension Withdrawal Options
Replies: 10
Views: 905

Re: Pension Withdrawal Options

It's very difficult to provide suggestions with limited info, and there's not nearly enough info here. What is your current age (and spouse's?) and age at retirement, longevity expectancy, other retirement assets, Social Security strategy, health of pension plan, legacy intent, anticipated retiremen...
by Frugal Al
Sun Feb 15, 2015 7:10 am
 
Forum: Investing - Help with Personal Investments
Topic: Pension Withdrawal Options
Replies: 10
Views: 905

Re: "Retiring in a Low-Return Environment"

2% is too low when CPI adjusted annuities for 65 yr olds pay ~4%... I agree 2% is too low, but please show me where I can get a CPI (truly) adjusted annuity with a 4% payout, 65 year old, male? Not to mention that a 100% joint survivorship, inflation indexed, annuity won't come close, which many re...
by Frugal Al
Fri Jan 30, 2015 10:25 am
 
Forum: Investing - Theory, News & General
Topic: "Retiring in a Low-Return Environment"
Replies: 71
Views: 7347

Re: Pension plan lump sum for low balance?

I'll add that it can be a lump sum or an immediate annuity after I leave. Wow, what monthly amount did they offer for the immediate annuity at such a young age, probably around $20/month--hardly worth the administrative fees. I agree with Gill. It's such a small amount, both in absolute size and in...
by Frugal Al
Mon Jan 26, 2015 3:33 pm
 
Forum: Investing - Help with Personal Investments
Topic: Pension plan lump sum for low balance?
Replies: 11
Views: 706

Re: Decision time- lump sum vs pension

The subject pension does not offer a compelling payout, at about a 6.8% rate, resulting in a 4.75% IRR through age 86, or 5.6% through age 91. However, the return is nearly guaranteed and the OP has no legacy intent. The OP has adequate other assets with which to assume more risk if desired, and SS ...
by Frugal Al
Tue Jan 20, 2015 10:35 am
 
Forum: Personal Finance (Not Investing)
Topic: Decision time- lump sum vs pension
Replies: 12
Views: 1132

Re: Feedback please: Lump Sum vs Pension

But, one recent comment suggests that the Wiki article is still incomplete, it does not address the reality that this is a very long term decision. The part that is a long term decision is the decision to NOT take the lump sum. Once the pension annuitization is decided, little can be done to change...
by Frugal Al
Tue Jan 20, 2015 9:47 am
 
Forum: Personal Finance (Not Investing)
Topic: Feedback please: Lump Sum vs Pension
Replies: 8
Views: 793

Re: A quick poll--pension annuity vs. lump sum

We recently wrote a Wiki article to answer exactly this question: https://www.bogleheads.org/wiki/Lump_sum_vs_pensionL. The Wiki is a OK, if a bit basic. The "Fair Choice" section is misleading, poorly worded, and has some incorrect information in it. The choice is neither fair, nor unfai...
by Frugal Al
Sun Jan 18, 2015 2:04 pm
 
Forum: Personal Finance (Not Investing)
Topic: A quick poll--pension annuity vs. lump sum
Replies: 62
Views: 3860

Re: A quick poll--pension annuity vs. lump sum

This is really a question that is very dependent upon the specific pension payout situation (health of plan sponsor, payout rate, term until vested retirement, COLA or non-COLA, etc.), health of the prospective pensioner and survivorship, the percentage of the retirement portfolio the pension repres...
by Frugal Al
Sat Jan 17, 2015 11:02 am
 
Forum: Personal Finance (Not Investing)
Topic: A quick poll--pension annuity vs. lump sum
Replies: 62
Views: 3860

Re: Milevsky's got me thinking immediate annuity????

Why annuitize more of your retirement income when you are not maximizing the value of the inflation indexed annuity you already have: Social Security. Your $3200/month SS will be worth about $4224/month if deferred to age 70. That plus your $1800 pension will provide over $6k/month in income, with t...
by Frugal Al
Wed Jan 14, 2015 9:38 am
 
Forum: Personal Finance (Not Investing)
Topic: Milevsky's got me thinking immediate annuity????
Replies: 28
Views: 2502

Re: Is a Sub-4% SWR a Boglehead Quirk?

555 wrote:Currently for $1M you can buy an inflation-indexed annuity (SPIA) paying
inflation-indexed $40k/yr for a 65 year old couple...

What insurance company currently has a joint life SPIA, with a 4% payout rate that is truly indexed for inflation, at age 65?
by Frugal Al
Sun Jan 11, 2015 6:36 am
 
Forum: Investing - Theory, News & General
Topic: Is a Sub-4% SWR a Boglehead Quirk?
Replies: 177
Views: 10800

Re: Pension Lump vs Annunity?

G$$ is right that we really don't have enough info in this thread. In another thread you were trying to figure out how to bridge the income gap created by taking SS at age 70. You also pointed out you've got about a $1.3 million portfolio, and about $6k/month expenses. Is there a reason you've start...
by Frugal Al
Fri Dec 05, 2014 10:46 am
 
Forum: Personal Finance (Not Investing)
Topic: Pension Lump vs Annuity?
Replies: 14
Views: 1427

Re: PBGC guarantees 401(k) rollovers to pensions

Definitely an interesting concept. It seems that it would introduce adverse selection into the pension pool, as those with anticipated, above average, longevity would be eager participants. Still, being able to buy wholesale is often a good thing. Unfortunately, right now, wholesale prices aren't so...
by Frugal Al
Wed Nov 26, 2014 1:35 pm
 
Forum: Investing - Theory, News & General
Topic: PBGC guarantees 401(k) rollovers to pensions
Replies: 8
Views: 820

Re: Pension buyout offer - Accept or reject

I agree that you have to look at the true "return/yield" without return of principle....however, at the same time, it is a benefit to have some locking-in of part of your portfolio, so you're not dependent 90% upon your stock and bond portfolio and 10% on some SS. I would assign some (sma...
by Frugal Al
Sat Nov 22, 2014 5:11 pm
 
Forum: Personal Finance (Not Investing)
Topic: Pension buyout offer - Accept or reject
Replies: 46
Views: 8201

Re: Pension buyout offer - Accept or reject

For comparison, the 2006 PPA long-term high quality corporate bond discount rate (segment 3) is currently about 5%, close to what #Cruncher got. I suspect the lookback month Boeing is using is from late 2013, for the current plan year, which would put the long segment rate around 5.5%, and then mor...
by Frugal Al
Fri Nov 21, 2014 1:15 pm
 
Forum: Personal Finance (Not Investing)
Topic: Pension buyout offer - Accept or reject
Replies: 46
Views: 8201

Re: Pension buyout offer - Accept or reject

Should one factor in the risk of never being able to claim the pension - death before eligibility. Then there is no payout. In cases where the pension is a large part of a retirement portfolio, longevity is suspect, and there is a legacy intent, the actuarial present value can certainly play a role...
by Frugal Al
Thu Nov 20, 2014 8:53 am
 
Forum: Personal Finance (Not Investing)
Topic: Pension buyout offer - Accept or reject
Replies: 46
Views: 8201

Re: SIMPLE IRA Help for my business

If someone contributes $100, you contribute $100. If someone contributes $14,500, you match that up to a maximum of 3% of their salary. Correct, but the max annual employee contribution to a Simple IRA is $12,000 in 2014, and $12,500 in 2015. So the match would be 3% of employee income, with a cap ...
by Frugal Al
Sat Nov 15, 2014 8:55 am
 
Forum: Personal Finance (Not Investing)
Topic: SIMPLE IRA Help for my business
Replies: 8
Views: 878

Re: David Stockman interview

The problem is that there's no evidence indicating that interest rates must revert upward to some historical mean. In fact, most of the current studies I've seen on the global supply and demand for capital indicate that real interest rates could be low for a long time. The global rates of investmen...
by Frugal Al
Fri Nov 14, 2014 4:19 pm
 
Forum: Investing - Theory, News & General
Topic: David Stockman interview
Replies: 7
Views: 1098

Re: How often do you change your car's oil?

It's for my f-I-l who just drives locally but upgraded to a new car since the old one was starting to become unreliable after 20 years of driving it. The new car is a Subaru Impreza running on 5W-20 full synthetic, the dealer was telling him to change it every 6K but after being questions about the...
by Frugal Al
Tue Nov 11, 2014 2:38 pm
 
Forum: Personal Consumer Issues
Topic: How often do you change your car's oil?
Replies: 168
Views: 13366

Re: How often do you change your car's oil?

I now see you say "New York" as your location. Change the oil once a year before the first hard freeze. That would be this coming Thursday. So it comes down to just 3 more days to change it? :D I doubt we have to get that exact about it. Actually I do the same thing on vehicles that only ...
by Frugal Al
Tue Nov 11, 2014 2:22 pm
 
Forum: Personal Consumer Issues
Topic: How often do you change your car's oil?
Replies: 168
Views: 13366

Re: How often do you change your car's oil?

Although we are 4 pages into it, I still don't have the right answer. Let me ask another question: A car is driven 3,500 miles a year, the trips are of short duration (less than 20 minutes of continuous driving) with occasional long distance highway driving, the motor is filled with synthetic oil t...
by Frugal Al
Mon Nov 10, 2014 11:43 am
 
Forum: Personal Consumer Issues
Topic: How often do you change your car's oil?
Replies: 168
Views: 13366

Re: How often do you change your car's oil?

I drive my 1994 Buick about 1000 miles/yr. It just passed smog, so I'm good to go for another two years. Oil change? Let me check. The little sticker says I was due 2 years ago, or (based on mileage) 3000 miles from the last change, which would be next year? It gets confusing. Last time I took it t...
by Frugal Al
Sun Nov 09, 2014 7:44 am
 
Forum: Personal Consumer Issues
Topic: How often do you change your car's oil?
Replies: 168
Views: 13366

Re: How often do you change your car's oil?

I get oil sample analysis done after every oil change so I have a pretty good idea about what's going on inside. I'm all for doing a UOA periodically, but unless you have a reasonable suspicion that something is awry, getting one at every oil change seems excessive for a passenger vehicle. I unders...
by Frugal Al
Fri Nov 07, 2014 3:13 pm
 
Forum: Personal Consumer Issues
Topic: How often do you change your car's oil?
Replies: 168
Views: 13366

Re: How often do you change your car's oil?

Delete duplicate.
by Frugal Al
Fri Nov 07, 2014 3:08 pm
 
Forum: Personal Consumer Issues
Topic: How often do you change your car's oil?
Replies: 168
Views: 13366

Re: Oil change costs--dealer vs other

Dodecahedron, you're doing fine if you have a trustworthy dealer do your oil a couple time a year and check things over for a reasonable price. I would add that just because a dealer has been trustworthy in the past, doesn't mean they will always be trustworthy--so it does pay to be cognizant of the...
by Frugal Al
Fri Nov 07, 2014 9:59 am
 
Forum: Personal Consumer Issues
Topic: Oil change costs--dealer vs other
Replies: 35
Views: 2925

Re: Pension lump sum offer - am I thinking clearly?

Sonicendeavor, Cruncher's numbers are correct, given the info you've provided. At >6% implicit IRR over reasonable longevity, it would be hard to recommend NOT keeping the pension. One concern that you still haven't addressed is your wife's age and anticipated longevity, and you're not choosing any ...
by Frugal Al
Fri Nov 07, 2014 9:18 am
 
Forum: Personal Finance (Not Investing)
Topic: Pension lump sum offer - am I thinking clearly?
Replies: 32
Views: 2614

Re: Pension lump sum offer - am I thinking clearly?

While it's not necessary to preserve all the principal by taking out only the interest every year, it would be a pretty bad idea to plan to be broke by the average life expectancy of age 83. My FIL who lived to 97 and his older brother who lived to 101 would probably agree. We don't know the antici...
by Frugal Al
Thu Nov 06, 2014 2:13 pm
 
Forum: Personal Finance (Not Investing)
Topic: Pension lump sum offer - am I thinking clearly?
Replies: 32
Views: 2614

Re: Lump Sum vs Pension

No real beneficiaries other than my wife. Pension is covered by PBGC. The pension will not be a significant portion of my retirement. What is your SS claiming strategy? What is your anticipated longevity? What percent is the pension of your anticipated retirement? I'd say if the pension is more tha...
by Frugal Al
Wed Oct 29, 2014 4:01 pm
 
Forum: Personal Finance (Not Investing)
Topic: Lump Sum vs Pension
Replies: 15
Views: 1529

Re: Pension Early Buyout Offer

A safe return is 3.05% today... Of course that's the 30 year rate, and we're talking perhaps 50 years here. I get nervous at those time horizons--too many things can happen. The last I saw the credit spread for an investment grade (not "risk free") 50 year tranche was about +1.4%. Then ag...
by Frugal Al
Tue Oct 28, 2014 4:21 pm
 
Forum: Personal Finance (Not Investing)
Topic: Pension Early Buyout Offer
Replies: 20
Views: 2066

Re: Annually Recalculated Virtual Annuity

Nisi, it's generally not like you to comment on something you haven't read, although I do admit the mortality credit issue crossed my mind as well. This is basically just using laddered TIPS to fund the "annuity." We need to keep in mind that the purest definition of an annuity is just a s...
by Frugal Al
Tue Oct 28, 2014 2:44 pm
 
Forum: Investing - Theory, News & General
Topic: Annually Recalculated Virtual Annuity
Replies: 9
Views: 984

Re: How often do you change your car's oil?

This topic does get beat to death. I think everyone can save some time and just read jimb's, Johno's, BigOil's, and Wolkenspiel's posts--oh and of course this post as well. In jimb's post, I read it more as not to ignore one's oil, rather than changing it out excessively (based on the type of drivin...
by Frugal Al
Tue Oct 28, 2014 1:35 pm
 
Forum: Personal Consumer Issues
Topic: How often do you change your car's oil?
Replies: 168
Views: 13366

Re: Lump Sum vs Pension

Some good advice above. Given that the OP says they'll need this pension in 6 or 8 years, I'm making the assumption this will be a significant part of their retirement planning. The IRR needed is about 5.72% per year, over 40 years. I would not look at historical returns on a balanced portfolio and ...
by Frugal Al
Mon Oct 27, 2014 2:42 pm
 
Forum: Personal Finance (Not Investing)
Topic: Lump Sum vs Pension
Replies: 15
Views: 1529

Re: lump sum now vs pension later?

Thanks for agreeing with me, cherijoh :D . A very close approximation could be calculated using today's interest rates and a mortality table, but we don't know what interest rates would be at age 55 for the OP, or if the age 55 lump option would even be available. The pension could be in the hands o...
by Frugal Al
Thu Oct 23, 2014 4:45 pm
 
Forum: Personal Finance (Not Investing)
Topic: lump sum now vs pension later?
Replies: 45
Views: 4666

Re: lump sum now vs pension later?

You mention that you don't really need the money. That being the case my initial hunch is that you should take the lump sum. Annuities provide a nice floor income for retirement security. If you don't need that, then maybe it makes sense to take the lump sum and shoot for the moon. Plus, it will si...
by Frugal Al
Thu Oct 23, 2014 3:50 pm
 
Forum: Personal Finance (Not Investing)
Topic: lump sum now vs pension later?
Replies: 45
Views: 4666

Re: lump sum now vs pension later?

The point of the analysis is to decide whether taking the lump sum is the prudent financial decision (and for most people it isn't). Once the lump is taken, it becomes a moot point -- but it still could have been a bad decision. If anyone would sincerely like help with any of this, I'm happy to pro...
by Frugal Al
Thu Oct 23, 2014 8:30 am
 
Forum: Personal Finance (Not Investing)
Topic: lump sum now vs pension later?
Replies: 45
Views: 4666

Re: lump sum now vs pension later?

If one wants to use the lump sum opportunity to take on more risk, one can certainly do so. But a financially disciplined investor doesn't just take more risk on the fly. I don't think anyone is suggesting anyone "just take more risk on the fly." The fact is it is very difficult to measur...
by Frugal Al
Wed Oct 22, 2014 2:32 pm
 
Forum: Personal Finance (Not Investing)
Topic: lump sum now vs pension later?
Replies: 45
Views: 4666

Re: lump sum now vs pension later?

Cruncher, Uber, and g$$, I did want to share what does seem to be a reasonable application of a mortality adjusted IRR, and that would be if the the prospective pensioner and spouse had widely disparate health/longevity, and perhaps the necessity to compare term insurance vs survivorship options. Mi...
by Frugal Al
Sat Oct 18, 2014 10:20 am
 
Forum: Personal Finance (Not Investing)
Topic: lump sum now vs pension later?
Replies: 45
Views: 4666

Re: lump sum now vs pension later?

#Cruncher, as you pointed out, your example exagerates the issue because you've got the entire population dying off within such a short time span in a tight distribution. It's this application of mortality rates, plus any change in applicable segment rates, that would alter the intermediate age PV a...
by Frugal Al
Sat Oct 18, 2014 6:25 am
 
Forum: Personal Finance (Not Investing)
Topic: lump sum now vs pension later?
Replies: 45
Views: 4666

Re: lump sum now vs pension later?

And I agree with G$$ that we are terrible at guessing our own life expectancy and we are equally bad at guessing the future of the yield curve as well as the level of investment return that we can achieve. Good explanation, ubermax. I'd add that we are equally terrible in guessing at inflation, and...
by Frugal Al
Fri Oct 17, 2014 10:53 am
 
Forum: Personal Finance (Not Investing)
Topic: lump sum now vs pension later?
Replies: 45
Views: 4666
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