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Re: money's worth ratio (MWR) of life annuities

New Evidence on the Money's Worth of Individual Annuities link - http://business.illinois.edu/ormir/AER%20December%201999.pdf So what's the difference between 85% and 95%? Most of it seems to be the discounting assumption. That paper is the same one I linked to earlier in this discussion. It shows ...
by magellan
Mon Sep 22, 2014 2:45 pm
 
Forum: Investing - Theory, News & General
Topic: Are SPIA's fairly priced? - A quick and dirty analysis
Replies: 75
Views: 3393

Re: Break-even point for HSA account

It's amazing how much variability there can be from employer to employer, with respect to the costs, incentives, etc. when choosing the HDHP plan. There can also be huge variation in the quality of the coverage from plan to plan, even among plans offered by the same insurer. Consumers know to look ...
by magellan
Sun Sep 21, 2014 4:15 pm
 
Forum: Personal Finance (Not Investing)
Topic: Break-even point for HSA account
Replies: 8
Views: 782

Re: Are SPIA's fairly priced? - A quick and dirty analysis

They take the risk of unlucky sequence of events if they continue to invest their small savings. This is a great point. IMO, if you NEED it at 65, the choice shouldn't be between an annuity and a risky portfolio, but rather between an annuity and another safe alternative like a CD or TIPS ladder. T...
by magellan
Sun Sep 21, 2014 1:54 pm
 
Forum: Investing - Theory, News & General
Topic: Are SPIA's fairly priced? - A quick and dirty analysis
Replies: 75
Views: 3393

Re: Are SPIA's fairly priced? - A quick and dirty analysis

In my view the problem is garbage in equals garbage out. You dont know the actual mortality table the insurance company is using. Thus its hard to have much validity. ...I plan to buy at age 80 IF im in good health and just basic needs... I agree in general and my guess is we've both approached thi...
by magellan
Sun Sep 21, 2014 11:33 am
 
Forum: Investing - Theory, News & General
Topic: Are SPIA's fairly priced? - A quick and dirty analysis
Replies: 75
Views: 3393

Re: Are SPIA's fairly priced? - A quick and dirty analysis

Thanks for the link. Interesting that also noticed the extreme sensitivity to interest rates. Yes it is. Although IMO it's more precise to say it's an extreme sensitivity to how the credit risk is priced, as opposed to a sensitivity to the absolute level of interest rates. Specifically the result i...
by magellan
Sun Sep 21, 2014 10:03 am
 
Forum: Investing - Theory, News & General
Topic: Are SPIA's fairly priced? - A quick and dirty analysis
Replies: 75
Views: 3393

Re: Are SPIA's fairly priced? - A quick and dirty analysis

How does one calculate the benefit received from mortality credits for buying a SPIA? Is there a graph or table? There is. See Table #2 on page 4 of this great paper from Milevsky from 2006. Here's a snippet of the table: Age 70 -> 138 (bp) Age 75 -> 237 Age 80 -> 414 Age 85 -> 725 So let's assume ...
by magellan
Sun Sep 21, 2014 9:42 am
 
Forum: Investing - Theory, News & General
Topic: Are SPIA's fairly priced? - A quick and dirty analysis
Replies: 75
Views: 3393

Re: Are SPIA's fairly priced? - A quick and dirty analysis

Longevity is unknown, and this is what drives the "cost" of either. And, in either case "this cost" is higher if we get hit by the probervial truck at an early age. The opposite is also true. There, I ran the numbers. :) IMO, you've completely missed the point of this thread. As...
by magellan
Sun Sep 21, 2014 8:36 am
 
Forum: Investing - Theory, News & General
Topic: Are SPIA's fairly priced? - A quick and dirty analysis
Replies: 75
Views: 3393

Re: Are SPIA's fairly priced? - A quick and dirty analysis

IMO, the decision to purchase an annuity is in fact worthy of a breakeven analysis. For many, the question isn't whether or not to buy an annuity, but WHEN to buy it. The answer to this question depends on the overhead cost of the annuity and the value of the annuity's mortality credits. The optimal...
by magellan
Sat Sep 20, 2014 8:59 am
 
Forum: Investing - Theory, News & General
Topic: Are SPIA's fairly priced? - A quick and dirty analysis
Replies: 75
Views: 3393

Re: Are SPIA's fairly priced? - A quick and dirty analysis

To me the boundary between thinking of buying an annuity as a break-even investment exercise versus as paying a company to accept our longevity risk is the difference between financial sophistication and the lack of it. I think perhaps you've misunderstood the OP's intent. As framed in the initial ...
by magellan
Sat Sep 20, 2014 8:44 am
 
Forum: Investing - Theory, News & General
Topic: Are SPIA's fairly priced? - A quick and dirty analysis
Replies: 75
Views: 3393

Re: Are SPIA's fairly priced? - A quick and dirty analysis

I tried to work through this problem a few years back in this thread . Along the way, I came across this 1999 research paper by Mitchell, et al. that took a crack at the problem and here's what they found: This paper presents new evidence on the expected discounted value of payments for annuity poli...
by magellan
Fri Sep 19, 2014 11:38 pm
 
Forum: Investing - Theory, News & General
Topic: Are SPIA's fairly priced? - A quick and dirty analysis
Replies: 75
Views: 3393

Re: The Annuity Puzzlement

It is a significant MISNOMER to call any sort of do it yourself scheme an "annuity". This is because you cannot get any MORTALITY CREDITS which come from pooling risk over a few thousand people of the same age... I prefer the term 'life annuity', which I think I learned from bobcat2. Life...
by magellan
Thu Sep 18, 2014 6:04 pm
 
Forum: Investing - Theory, News & General
Topic: The Annuity Puzzlement
Replies: 92
Views: 5725

Re: The Annuity Puzzlement

Can you say how you came up with the age of 80 where the balance tips in favor of life annuities? I would have thought that mortality credits might kick in as a major factor before that (e.g., ages early to mid-70s). Especially, when only trying to secure a base level of income, adding enough to so...
by magellan
Thu Sep 18, 2014 11:50 am
 
Forum: Investing - Theory, News & General
Topic: The Annuity Puzzlement
Replies: 92
Views: 5725

Re: The Annuity Puzzlement

For everyone else, they are a valid retirement investment consideration in either the SPIA or longevity (deferred) annuity forms. I agree they are a valid consideration for many retirees, especially later in retirement, at which point it's much easier to distill out the great longevity insurance pr...
by magellan
Thu Sep 18, 2014 12:53 am
 
Forum: Investing - Theory, News & General
Topic: The Annuity Puzzlement
Replies: 92
Views: 5725

Re: The Annuity Puzzlement

Of course they are riskier than TIPS or Treasuries, so is everything else. :oops: Right. However TIPS are not riskier than TIPS, and they're generally the recommended alternative to a life annuity for generating a safe income stream. My feeling is that for most retirees, as long as space is availab...
by magellan
Thu Sep 18, 2014 12:41 am
 
Forum: Investing - Theory, News & General
Topic: The Annuity Puzzlement
Replies: 92
Views: 5725

Re: The Annuity Puzzlement

While there may have been testimony to that effect, this is simply untrue. The insurance subs were not endangered and were not liable for the parent's debt. It'd be helpful if you could provide some links to back up your contention that AIG's insurance subs were not endangered. Based on everything ...
by magellan
Thu Sep 18, 2014 12:17 am
 
Forum: Investing - Theory, News & General
Topic: The Annuity Puzzlement
Replies: 92
Views: 5725

Re: The Annuity Puzzlement

AIG's insurance subsidiaries, which were responsible for paying out on the annuities and life insurance policies, were not endangered. Only the parent company needed to be bailed out. AIG's insurance subsidiaries most certainly would have been in danger had AIG gone under. During the AIG bailout he...
by magellan
Wed Sep 17, 2014 5:51 pm
 
Forum: Investing - Theory, News & General
Topic: The Annuity Puzzlement
Replies: 92
Views: 5725

Re: Which generator do you have?

... I use batteries at night, and don't run the generators... This comment didn't get much attention, but IMO it's a really important part of a good blackout strategy. We have a pair of auto jump-start power packs that each deliver 50 watts for 4 hours (19Ah batteries), along with a Black & Dec...
by magellan
Thu Sep 04, 2014 1:19 pm
 
Forum: Personal Consumer Issues
Topic: Which generator do you have?
Replies: 127
Views: 7517

Re: Which generator do you have?

I'm not aware of any NEC requirement that furnaces be hard wired. Perhaps there is, on the theory 'why would you want to unplug a furnace - what if your kids unplug it and your pipes freeze'. I'd guess they are normally hardwired because it's a few bucks cheaper, and most people don't want to unplu...
by magellan
Thu Sep 04, 2014 11:31 am
 
Forum: Personal Consumer Issues
Topic: Which generator do you have?
Replies: 127
Views: 7517

Re: Which generator do you have?

I'd have so much regret not going with an automatic whole house kickover generator, and then have to shell out thousands cause I fried a component, or heaven forbid myself! There's no doubt that an oversized fully automatic whole-house approach is less complicated for the average homeowner. The que...
by magellan
Thu Sep 04, 2014 11:01 am
 
Forum: Personal Consumer Issues
Topic: Which generator do you have?
Replies: 127
Views: 7517

Re: Which generator do you have?

I'm curious - how do you "plug-in" the furnace? Most furnaces are wired into your service panel. Assume you have a transfer switch? An $85 single circuit transfer switch is probably the simplest safe way to do it. In an emergency, the simplest way to do it without opening up the breaker p...
by magellan
Thu Sep 04, 2014 10:17 am
 
Forum: Personal Consumer Issues
Topic: Which generator do you have?
Replies: 127
Views: 7517

Re: Which generator do you have?

Also, just as another data point. My forced hot water heating system with 5 zone values and one circulator pump draws about 475 watts sustained and less than 2k watts at startup. I've read that a good 2000 watt generator can just about run an oil or gas fired forced hot water heating system. The blo...
by magellan
Thu Sep 04, 2014 9:42 am
 
Forum: Personal Consumer Issues
Topic: Which generator do you have?
Replies: 127
Views: 7517

Re: Which generator do you have?

Your breaker panel should tell you; in general, if it's running on a 20A or less 110 breaker, it should run on a 2kW generator (there are a couple of caveats depending on the details - some motors aren't inverter happy, and you could have a higher than normal starting surge). IMO, breaker size is o...
by magellan
Thu Sep 04, 2014 9:35 am
 
Forum: Personal Consumer Issues
Topic: Which generator do you have?
Replies: 127
Views: 7517

Re: Which generator do you have?

I'm mostly concerned about starting surge (plus I'm also a bit skeptical of the ratings). I should also warn you that I'm an electrical engineer, so I'm probably a bit overly conservative of this. But the starting surge can be 4-5X the running power requirement. And your meter probably won't notice...
by magellan
Wed Sep 03, 2014 7:16 am
 
Forum: Personal Consumer Issues
Topic: Which generator do you have?
Replies: 127
Views: 7517

Re: Which generator do you have?

I've got a 5kW DeWalt portable gasoline that is our main backup generator. Got a 30 Amp transfer switch that it plugs into. I can have it up and running in about 5 minutes. I can run the essentials (well pump, refridge, freezer, oil burner), but need to switch those things in and out. I can run one...
by magellan
Tue Sep 02, 2014 8:14 am
 
Forum: Personal Consumer Issues
Topic: Which generator do you have?
Replies: 127
Views: 7517

Re: How to safely sell a big ticket item online

IMO, for big ticket items, there are a few easy to follow guidelines that can help eliminate much of the risk of fraud. Whether you're a buyer or a seller, if the counter-party agrees to abide by these, the chances they're going to commit a blatant fraud, like passing a bad check or selling you some...
by magellan
Wed Aug 27, 2014 11:50 pm
 
Forum: Personal Consumer Issues
Topic: How to safely sell a big ticket item online
Replies: 42
Views: 2540

Re: Banking on VPN or off for Man in the Middle issue?

I'm not doing anything illegal or questionable, but even normal sites like Netflix and YouTube bog down when I'm running "naked". I'm convinced that my ISP is responsible foe this; hence, I run VPN 100% of the time. I've noticed the same thing. When youtube bogs down when I'm watching a v...
by magellan
Mon Aug 25, 2014 1:56 pm
 
Forum: Personal Consumer Issues
Topic: Banking on VPN or off for Man in the Middle issue?
Replies: 12
Views: 1303

Re: Changes to T-Mobile's pay-as-you-go plan

FYI, you can still see the refill expiration date and gold status on your phone using the tmo app. Within that app on the phone, everything appears to show up correctly, although the app doesn't try to calculate minutes/texts available, it just shows the costs. The 'minutes' and ''messages' shown un...
by magellan
Mon Aug 25, 2014 11:32 am
 
Forum: Personal Consumer Issues
Topic: Changes to T-Mobile's pay-as-you-go plan
Replies: 8
Views: 1547

Re: Changes to T-Mobile's pay-as-you-go plan

I have also seen an question answered if you switch between plans your gold rewards now resets and you must fill another $100 to get the year expiration. I saved my expiration dates as I have four accounts. Sounds like a call into T-mobile is in order. I will be curious how long we get to keep rene...
by magellan
Mon Aug 25, 2014 10:18 am
 
Forum: Personal Consumer Issues
Topic: Changes to T-Mobile's pay-as-you-go plan
Replies: 8
Views: 1547

Changes to T-Mobile's pay-as-you-go plan

T-Mobile has changed their pay-as-you-go plan and it now has a $3 per month minimum fee. The new pay-as-you-go plan does include 30 minutes or texts per month, then calls are $.10 a minute and texts are $.10 each. So the minimum annual cost for light users on T-Mobile has gone from $10 to $36. Also,...
by magellan
Mon Aug 25, 2014 8:50 am
 
Forum: Personal Consumer Issues
Topic: Changes to T-Mobile's pay-as-you-go plan
Replies: 8
Views: 1547

Re: No room on your Windows hard drive? Cleanup Update files

Why did it take hours to destroy the drive? One whack with a sledgehammer should have done it. :) I wouldn't trust a software erase anyway. +1. Actually, +3 or +4. It's too much fun to only hit it once. My favorite secure wipe "toolkit" consists of a sledge hammer, a masons chisel, a pair...
by magellan
Sat Aug 23, 2014 1:29 pm
 
Forum: Personal Consumer Issues
Topic: No room on your Windows hard drive? Cleanup Update files
Replies: 49
Views: 3635

Re: No room on your Windows hard drive? Cleanup Update files

Another way to free up a good chunk of disk space is to disable hibernation. With hibernation enabled, windows keeps a file on the system drive that's the same size as your system's ram. If you don't use hibernation you can disable it and reclaim the disk space. Even if you do use hibernation someti...
by magellan
Sat Aug 23, 2014 9:57 am
 
Forum: Personal Consumer Issues
Topic: No room on your Windows hard drive? Cleanup Update files
Replies: 49
Views: 3635

Re: Enough retirement income to avoid Medicaid

But while you are considering your feelings about subsidies, you might consider that almost everyone is now getting healthcare subsidies. The average family with an employer plan gets about a $4000 per year subsidy through tax deductions. The ACA expanded subsidies to non-employer insurance. The el...
by magellan
Sat Aug 23, 2014 8:58 am
 
Forum: Personal Finance (Not Investing)
Topic: Enough retirement income to avoid Medicaid
Replies: 30
Views: 3026

Re: Enough retirement income to avoid Medicaid

If you don't want Medicaid and you don't want a subsidized ACA plan, then you can just go directly to any health insurance provider and buy a plan. All plans sold today are ACA compliant whether on or off the exchange. Although this is true, be sure to visit healthcare.gov so you'll know what's on ...
by magellan
Sat Aug 23, 2014 8:20 am
 
Forum: Personal Finance (Not Investing)
Topic: Enough retirement income to avoid Medicaid
Replies: 30
Views: 3026

Re: Kick toe heater efficiency

My comments assume you're asking about hydronic toe kick heaters that get tied into a forced hot water heating system. Our house is around 17 years old and we have three of these, all in areas where we couldn't or didn't want to use baseboard heaters for one reason or another. Our units are all labe...
by magellan
Fri Aug 22, 2014 2:23 pm
 
Forum: Personal Consumer Issues
Topic: Kick toe heater efficiency
Replies: 10
Views: 810

Re: Simplisafe Home Security Systems

IMO, these low cost wireless systems can offer a great tradeoff in terms of effectiveness and cost. By all accounts, they have a good track record against the most likely threat, which is a low-skilled non-professional criminal. OTOH, many of these systems don't encrypt their wireless transmissions,...
by magellan
Thu Aug 21, 2014 2:46 pm
 
Forum: Personal Consumer Issues
Topic: Simplisafe Home Security Systems
Replies: 34
Views: 2471

Re: Why would anyone buy a deferred income annuity?

... but I notice that you don't seem to give much value to the mortality credits between say 70 and 85. I'm confused by this. Based on the SSA calculator it looks to me that at 70 a male has about a 50% chance of making it to 85. For me that seems like the mortality credit have kicked in pretty wel...
by magellan
Sun Aug 10, 2014 5:31 pm
 
Forum: Investing - Theory, News & General
Topic: Why would anyone buy a deferred income annuity?
Replies: 59
Views: 4800

Re: Why would anyone buy a deferred income annuity?

Maybe TIPS will pay more then too, but they have no mortality credits. Annuities from non-government sources and "safe real retirement income" are not related. Do you only have "safe real retirement income" sources? My view is that a two bucket approach to retirement funding may...
by magellan
Sun Aug 10, 2014 8:00 am
 
Forum: Investing - Theory, News & General
Topic: Why would anyone buy a deferred income annuity?
Replies: 59
Views: 4800

Re: Why would anyone buy a deferred income annuity?

Do you have a citation for your 15% figure? As I understand it, a cost between 10-20% is pretty well accepted by folks that study this stuff. Here's a link: http://business.illinois.edu/ormir/AER%20December%201999.pdf This paper presents new evidence on the expected discounted value of payments for...
by magellan
Sun Aug 10, 2014 7:35 am
 
Forum: Investing - Theory, News & General
Topic: Why would anyone buy a deferred income annuity?
Replies: 59
Views: 4800

Re: Why would anyone buy a deferred income annuity?

The criticism implies that annuities are nothing but flawed. How about some diversification of various risks using a variety of products in spite of their known flaws? As I tried to show in my post above, if the goal is a relatively safe real retirement income, these products just can't do the job ...
by magellan
Sat Aug 09, 2014 2:10 pm
 
Forum: Investing - Theory, News & General
Topic: Why would anyone buy a deferred income annuity?
Replies: 59
Views: 4800

Re: Why would anyone buy a deferred income annuity?

The volatility of annual inflation between the time you purchase the DIA and start receiving income is irrelevant. There is no analogy to sequence of returns risk for SWR. Sequence of returns arises only because you are taking withdrawals. There are no withdrawals during the period in question here...
by magellan
Sat Aug 09, 2014 7:09 am
 
Forum: Investing - Theory, News & General
Topic: Why would anyone buy a deferred income annuity?
Replies: 59
Views: 4800

Re: "Russan Gang Amasses Over A Billion Stolen Passwords"

I do have unique passwords for every site except the ones I don't care about, and I do check my financial accounts often. Reusing passwords for sites you don't care about is sort of bad manners. It causes grief for website owners and users at the other sites where you reused credentials. Following ...
by magellan
Wed Aug 06, 2014 8:39 am
 
Forum: Personal Consumer Issues
Topic: "Russan Gang Amasses Over A Billion Stolen Passwords"
Replies: 87
Views: 7676

Re: What counts as "income" for PPACA subsidies?

So, what would I do in my case? Anyone have an idea? I could be mistaken, but I think you could do ROTH IRA conversions each year, in an amount sufficient to increase your income just above the medicaid limit. With such a low income, the tax on the roth conversions should be smaller than the value ...
by magellan
Tue Aug 05, 2014 1:24 pm
 
Forum: Personal Finance (Not Investing)
Topic: What counts as "income" for PPACA subsidies?
Replies: 143
Views: 25184

Re: Window Wells Filling / Contractor Question

This is a long shot, but is there any way to redirect some of the water that's coming off the roof before it reaches the ground? In a previous home, we solved a "wet basement after torrential rain" problem by installing a gutter and placing the downspouts far away from the wet side of the ...
by magellan
Tue Aug 05, 2014 1:16 pm
 
Forum: Personal Consumer Issues
Topic: Window Wells Filling / Contractor Question
Replies: 12
Views: 836

Re: Why would anyone buy a deferred income annuity?

There's also explicit public back stop to insurance company obligations at the state level, though one has to be aware of the details and even within the limits it's state credit risk, unlike TIPS which is federal risk. This mistaken understanding of how state guaranty programs work is very common,...
by magellan
Tue Aug 05, 2014 11:21 am
 
Forum: Investing - Theory, News & General
Topic: Why would anyone buy a deferred income annuity?
Replies: 59
Views: 4800

Re: Why would anyone buy a deferred income annuity?

I agree with the OP. For most, the lack of inflation protection makes these products unworkable. The problem is that you can't create an guaranteed income by simply plugging in an average for inflation. Inflation is highly volatile. This is exactly analogous to using average portfolio return to choo...
by magellan
Tue Aug 05, 2014 8:13 am
 
Forum: Investing - Theory, News & General
Topic: Why would anyone buy a deferred income annuity?
Replies: 59
Views: 4800

Re: Central AC replacement decision

IMO, the optimal install cost vs SEER tradeoff depends on personal preference and usage patterns. Do you use setbacks or prefer a set-it-and-forget-it approach? Do you like to open the windows when it's coolish or would you rather just have the system keep your home comfortable without any input fro...
by magellan
Sun Aug 03, 2014 8:56 am
 
Forum: Personal Consumer Issues
Topic: Central AC replacement decision
Replies: 54
Views: 4056

Re: Surge protectors

If the blender plug mates with countertop receptacles, then household wiring will and must provide more than sufficient power even if wires were 1930 vintage. In a perfect world that's true, but the OP doesn't know the condition of the wiring and there are several things that could prevent it from ...
by magellan
Wed Jul 30, 2014 1:45 pm
 
Forum: Personal Consumer Issues
Topic: Surge protectors
Replies: 41
Views: 3642

Re: Surge protectors

There is nothing unusual about the power rating of this blender. It is 1500 watts which is less than the typical counter-top microwave, toaster oven or hair dryer. It should operate fine on a typical 15 amp circuit assuming there are no other high power devices on the same circuit operating at the ...
by magellan
Tue Jul 29, 2014 11:28 pm
 
Forum: Personal Consumer Issues
Topic: Surge protectors
Replies: 41
Views: 3642

Re: Surge protectors

One other thought. If you're not comfortable sticking multi-meter probes into a live outlet, another option is to get a $25 kill-a-watt device. These are sometimes available to borrow for free at town libraries. Since the kill-a-watt is rated for 15 amps, I wouldn't plug the blender into it. That'll...
by magellan
Tue Jul 29, 2014 11:53 am
 
Forum: Personal Consumer Issues
Topic: Surge protectors
Replies: 41
Views: 3642

Re: Surge protectors

As others have pointed out, this appliance pushes the limits of normal home kitchen wiring. However, IMO, it's also possible that this behavior is alerting you to a dangerous problem in the wiring of the circuit you're using. I wouldn't ignore this and I would strongly encourage you to do the work n...
by magellan
Tue Jul 29, 2014 11:12 am
 
Forum: Personal Consumer Issues
Topic: Surge protectors
Replies: 41
Views: 3642
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