Vanguard quietly adds longevity annuities

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Re: Vanguard quietly adds longevity annuities

Post by nisiprius »

Beliavsky wrote:We don't know what future inflation is going to be, but 2% is more likely than 0%. If insurance companies are reluctant to offer inflation-indexed annuities, annuities with payments that annually increase at a 2 or 3% rate could be a good alternative. Is there a name for an immediate annuity with payments that are contractually fixed but increasing over time? Is there a decent market in such "graduated annuities"?
Yes, in fact they are MUCH more common than CPI-indexed SPIAs. Usually you have a choice of 1%, 2%, 3%, 4%, or 5%.

I think--too lazy to check--Vanguard's longevity provider actually does offer fixed percentage increases on longevity annuities--starting when payments begin. And as others have noted if you get 3% per year after payment begin and you want to allow 3% per year for inflation BEFORE payments begin, you can just multiply the purchase amount by 1.8.

But it still speaks of the question of what you're paying the insurance company for. The risk isn't inflation, the risk is that inflation over 20 years might be different from your estimate, and as I noted earlier, historically, the value of $1 after 20 years is uncertain by nearly a factor of five--historically, the value of a dollar left under a mattress for 20 years has ranged anywhere from $0.30 to $1.42. That's a meaningful amount of risk.

If your best estimate is that you need $1,000/month in today's dollars, then in order to handle the downside you need to buy a longevity annuity that pays $3,300 a month twenty years from now--knowing that there is a chance that you are buying 4.8 times as much as you need!
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Re: Vanguard quietly adds longevity annuities

Post by steve_14 »

I'm still confused as to why anyone would buy a deferred annuity. Much better IMO to buy an immediate annuity if and when you need it. The supposed benefit of the deferral (cheaper b/c you might not live long enough to get the benefits) just doesn't translate into a better product in practice. All you get is additional risks and complexity.
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Re: Vanguard quietly adds longevity annuities

Post by Cut-Throat »

Every time I start looking at annuities, I end up reaching the same conclusion:

A bogelhead that has managed to amass a substantial Nest egg can probably do better by investing in a low cost balanced index fund and taking a
VPW withdrawal from it.
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Re: Vanguard quietly adds longevity annuities

Post by ResearchMed »

steve_14 wrote:I'm still confused as to why anyone would buy a deferred annuity. Much better IMO to buy an immediate annuity if and when you need it. The supposed benefit of the deferral (cheaper b/c you might not live long enough to get the benefits) just doesn't translate into a better product in practice. All you get is additional risks and complexity.
I haven't looked into them yet (but will).

However, I'm assuming the difference between buying a deferred annuity vs an SPIA *later* would be gathering up the mortality credits over the years.
And yes, that would include the risk that we'd become one of those mortalities that benefit others.

But it's the pooled risk, and in this case also those mortality credits, that make true insurance (for some unknown and potentially huge cost - auto liability, house burning down, etc.) something that one can't fully quite re-make entirely on one's own.
[At best, someone truly wealthy doesn't need to pay premiums to have an insurer cover those costs IF they occur. That's not quite the same as "self insuring", as there's no pooling of risks, costs, and premiums.]

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Re: Vanguard quietly adds longevity annuities

Post by ResearchMed »

Cut-Throat wrote:Every time I start looking at annuities, I end up reaching the same conclusion:

A bogelhead that has managed to amass a substantial Nest egg can probably do better by investing in a low cost balanced index fund and taking a
VPW withdrawal from it.
I wondered about that, too, especially after coming across some reasonable variable withdrawal strategies that seemed likely to "work" - but no guarantee.

Having at least a floor of SPIAs or deferred annuities (or maybe some of each) plus SS is seeming to have a better expected outcome.

I was *really* startled running the Fidelity retirement planner (the one that so far seems to best allow us to account for the "things" WE are likely to need) how very different the expected value was by including the software's choice of annuitizing (or choosing a few percentages of our own choosing).

It was a HUGE different total over our expected lifespans.

I'll need to review calculations using other models, and my own pencil and back of the envelope, but it was a huge difference, and it also allows a lot more money to use earlier, because we wouldn't be worrying about not having a sufficient floor for "much later" (by saving "too much now", etc.), should we be that fortunate.

RM
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Re: Vanguard quietly adds longevity annuities

Post by nisiprius »

ResearchMed wrote:...I was *really* startled running the Fidelity retirement planner (the one that so far seems to best allow us to account for the "things" WE are likely to need) how very different the expected value was by including the software's choice of annuitizing (or choosing a few percentages of our own choosing)...
I recall that as well, and since--like Vanguard--Fidelity offers SPIAs but you have to work to find out about them. So, I don't think SPIAs are a big money-maker for them and I don't think they baked any bias into the FRIP. The other eye-opener, and I wonder if you tried this... was how little difference percentage stock allocation made. In fact, it was bizarre. I like a conservative allocation. I ran the FRIP. It came back that with the data I'd entered there was an X% chance of running out of money before age Y, and suggested that I correct that by increasing stock allocation pretty sharply. I made the exact change it suggested and ran it again, with virtually no change in the probability of portfolio exhaustion.

In other words, using an income annuity was an effective thing to do, and fiddling with stock allocation was not.
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Re: Vanguard quietly adds longevity annuities

Post by Cut-Throat »

ResearchMed wrote: I wondered about that, too, especially after coming across some reasonable variable withdrawal strategies that seemed likely to "work" - but no guarantee.
The real problem with most annuities is that there is also no guarantee.
Especially when this discussion has involved trying to estimate inflation over the next 20 years, as most annuities don't provide for inflation protection.

So annuities hint at a guarantee, but when you start looking under the covers, it just doesn't exist.
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Re: Vanguard quietly adds longevity annuities

Post by SpaceCowboy »

Cut-Throat wrote:Every time I start looking at annuities, I end up reaching the same conclusion:

A bogelhead that has managed to amass a substantial Nest egg can probably do better by investing in a low cost balanced index fund and taking a
VPW withdrawal from it.
All depends on how substantial a nest egg. If you've amassed 40x times annual spending, you can do whatever you want. If you've only got 25x, you should probably annuitize at least a portion. The earlier you retire, the more likely you should annuitize a portion as well. Otar's zones are a useful tool for determining when annuitization should be considered.
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Re: Vanguard quietly adds longevity annuities

Post by Cut-Throat »

rrppve wrote:All depends on how substantial a nest egg. If you've amassed 40x times annual spending, you can do whatever you want. If you've only got 25x, you should probably annuitize at least a portion. The earlier you retire, the more likely you should annuitize a portion as well. Otar's zones are a useful tool for determining when annuitization should be considered.

Well, I don't know. The 'conventional' wisdom around here, has been not to annuitize until age 80. At age 80 my VPW withdrawals will be over 6.5%.
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Re: Vanguard quietly adds longevity annuities

Post by ResearchMed »

nisiprius wrote:
ResearchMed wrote:...I was *really* startled running the Fidelity retirement planner (the one that so far seems to best allow us to account for the "things" WE are likely to need) how very different the expected value was by including the software's choice of annuitizing (or choosing a few percentages of our own choosing)...
I recall that as well, and since--like Vanguard--Fidelity offers SPIAs but you have to work to find out about them. So, I don't think SPIAs are a big money-maker for them and I don't think they baked any bias into the FRIP. The other eye-opener, and I wonder if you tried this... was how little difference percentage stock allocation made. In fact, it was bizarre. I like a conservative allocation. I ran the FRIP. It came back that with the data I'd entered there was an X% chance of running out of money before age Y, and suggested that I correct that by increasing stock allocation pretty sharply. I made the exact change it suggested and ran it again, with virtually no change in the probability of portfolio exhaustion.

In other words, using an income annuity was an effective thing to do, and fiddling with stock allocation was not.
Yes, that, too.

It really was the ANNUITIZING that made a noticeable difference, and as soon as I allowed the modeling to get above a pittance of annuitizing, it made a HUGE difference. Enough to really, really matter. That assumes the modeling has some basis in reality, of course, so we need to look into this.

But this matches some of the more recent writings (I'm forgetting which retirement income writers, but several, I think) that adding in annuities makes a big difference.
(Okay, they are all probably using the same software :shock: so it's still only as good as the modeling, etc.)

But it matches my non-expert, top-of-my-head thinking over several years that if we knew there was a reasonable floor (even if eating tuna casserole, which we happen to like, and isn't cat food, at least not the pre-packaged type), we could indeed indulge more while we were healthy enough to check off some of those travels... And also enjoy our main hobby.

I'm guessing we'll slowly ladder some SPIAs and also some deferred annuities, due to the inflation, etc., and then spend more of the remaining while we can enjoy it. And if "the market" doesn't cooperate, well, then, fewer trips. We can be very happy at a little B&B an hour away, too.
But if we CAN take those cruises, spend those weeks abroad, so much the better.

And all of this is especially relevant for those who do not have heirs to consider. That would definitely add a trade-off.

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Re: Vanguard quietly adds longevity annuities

Post by ResearchMed »

Cut-Throat wrote:
ResearchMed wrote: I wondered about that, too, especially after coming across some reasonable variable withdrawal strategies that seemed likely to "work" - but no guarantee.
The real problem with most annuities is that there is also no guarantee.
Especially when this discussion has involved trying to estimate inflation over the next 20 years, as most annuities don't provide for inflation protection.

So annuities hint at a guarantee, but when you start looking under the covers, it just doesn't exist.
Right.

But that was what was mentioned earlier, about guesstimating some sort of inflation factor by purchasing, say, twice the amount of deferred annuity for age 85 as one thinks.
And then there's the fact that we probably won't be trotting around the globe at age 85 or 90, although we have relatives who are able to do that.
We'd prefer to take those trips sooner rather than later, especially given a couple of medical scares that made us think we'd already "waited too long".

In my mind, it's ALL smoke and mirrors, given the vagaries of "the market", so nothing is exact anyway, not even close.

It's more likely to be a matter of keeping tabs on the totals (current assets plus future through annuities), and adjusting up or down.
Rinse and repeat.

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Re: Vanguard quietly adds longevity annuities

Post by steve_14 »

Cut-Throat wrote:
rrppve wrote:All depends on how substantial a nest egg. If you've amassed 40x times annual spending, you can do whatever you want. If you've only got 25x, you should probably annuitize at least a portion. The earlier you retire, the more likely you should annuitize a portion as well. Otar's zones are a useful tool for determining when annuitization should be considered.

Well, I don't know. The 'conventional' wisdom around here, has been not to annuitize until age 80. At age 80 my VPW withdrawals will be over 6.5%.
Depends on your needs. If you're in good health at 80, don't have a bequest motive, and wish to spend more in some way (maybe more travel), I can see dancing with the devil (that's my low opinion of the life insurance industry) with a portion of your nest egg. I'd prefer not to if I don't have to.
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Re: Vanguard quietly adds longevity annuities

Post by Cut-Throat »

ResearchMed wrote:But it matches my non-expert, top-of-my-head thinking over several years that if we knew there was a reasonable floor (even if eating tuna casserole, which we happen to like, and isn't cat food, at least not the pre-packaged type)
The option of delaying S.S. to age 70 should be considered first before buying any annuity. It is inflation protected and will pretty much eliminate any fear of eating sub-par.

Keep in mind, the number 1 goal of annuities is making money for the insurance company. They don't like inflation protected ones, because it makes them very unattractive, and they can't play 'hide the ball' as easy.
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Re: Vanguard quietly adds longevity annuities

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Cut-Throat wrote:
ResearchMed wrote:But it matches my non-expert, top-of-my-head thinking over several years that if we knew there was a reasonable floor (even if eating tuna casserole, which we happen to like, and isn't cat food, at least not the pre-packaged type)
The option of delaying S.S. to age 70 should be considered first before buying any annuity. It is inflation protected and will pretty much eliminate any fear of eating sub-par.

Keep in mind, the number 1 goal of annuities is making money for the insurance company. They don't like inflation protected ones, because it makes them very unattractive, and they can't play 'hide the ball' as easy.
Yup, we waited.
DH started collecting when 70.
He suspended (hope that's the right terminology so someone special doesn't pounce!) earlier, so I could collect spousal at my FRA, and then switch to my own benefits when I hit 70.
(It was rather a shock - a NICE shock - when those checks started arriving, sort of falling from the heavens, given that DH is still just about at his peak earnings. That immediately became our new "travel budget" each year, and we haven't actually caught up spending it yet. Hard work, but someone's got to do it :D )

We do not have any bequest motive, other than "whatever is left" going to a very few special people and some charities/non-profits. But we've supported some of them plenty over the years.

Yes, annuities - any insurance - makes money for the insurer. Same for auto or homeowners' insurance, but that doesn't cause us to object and avoid purchasing the insurance. We just look for the most suitable policies for "us", at the best pricing we can find.
Ditto annuities when the time comes.

RM
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Re: Vanguard quietly adds longevity annuities

Post by SpaceCowboy »

Cut-Throat wrote:Well, I don't know. The 'conventional' wisdom around here, has been not to annuitize until age 80. At age 80 my VPW withdrawals will be 6.5%
That's because that's when the mortality credits start kicking in. This is why the longevity annuities are interesting, because approximately 50% of your cohort will pass before age 85.
Also for comparison, an 80 year old male will get 11% from an immediate annuity.
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Re: Vanguard quietly adds longevity annuities

Post by Cut-Throat »

rrppve wrote:That's because that's when the mortality credits start kicking in. This is why the longevity annuities are interesting, because approximately 50% of your cohort will pass before age 85.
Also for comparison, an 80 year old male will get 11% from an immediate annuity.
But that's the problem, you can't compare. Because that 11% probably does not provide Inflation protection and 100% Spousal Support.

And at first glance, the 11% seems like a very good deal (Which is what the insurance companies want you to think). And then you start looking 'Under the Covers'.
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Re: Vanguard quietly adds longevity annuities

Post by thx1138 »

nisiprius wrote: In other words, using an income annuity was an effective thing to do, and fiddling with stock allocation was not.
Indeed. Success rates for a portfolio at a reasonable withdrawal rate (meaning success rates better than say 70%) are surprisingly invariant to AA. In fact for historical periods a 30 yr retirement success rate is nearly the same with anything from a 75/25 to 25/75 allocation. And the success rate for a 100% stock/0% bond is only very slightly lower. You have to go all the way down to 0 stock and 100 bond to see the success rate appreciably drop for SWR in the 3 to 4% range.

As someone (perhaps it was even you) observed before once you get to an unreasonable withdrawal rate (success is getting low) then everything favors a very high stock allocation as it increases the likelihood of winning the lottery. You still lose almost all the time, but it will increase your success rate from say 20% at 50/50 to say 30% at 100/0.

As the thread appears to be about degrade into the usual standard annuity tropes and misconceptions ("its all variable, we can know nothing", "insurance companies are out to screw you", "won't somebody please think about the children") it is again worth mentioning a simple thing. Annuities are insurance. Like all insurance don't buy too much or too little. It costs money, it is a service and not an investment but it may be a service worth paying for. An individual by definition can not pool risk. The standard rule of thumb for all insurance is self insure if you can, otherwise be sure to get what you need.
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Re: Vanguard quietly adds longevity annuities

Post by SpaceCowboy »

Cut-Throat wrote:
rrppve wrote:That's because that's when the mortality credits start kicking in. This is why the longevity annuities are interesting, because approximately 50% of your cohort will pass before age 85.
Also for comparison, an 80 year old male will get 11% from an immediate annuity.
But that's the problem, you can't compare. Because that 11% probably does not provide Inflation protection and 100% Spousal Support.

And at first glance, the 11% seems like a very good deal (Which is what the insurance companies want you to think). And then you start looking 'Under the Covers'.
True not inflation adjusted or joint life. 8.6% quote for joint life where both are 80 without inflation adjustment.
VPW's success depends on the ability to reduce spending, potentially significantly, in bad times. If you are able to do this, you may well be in the large enough nest egg category that it doesn't really matter what you do.
There is no free lunch, but annuities are the only way to access mortality credits which makes a lot of sense if you are willing to leave no bequest behind. They are simply a tool that allow you to export a risk, longevity, to someone else.
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Re: Vanguard quietly adds longevity annuities

Post by Cut-Throat »

rrppve wrote: VPW's success depends on the ability to reduce spending, potentially significantly, in bad times.
If you follow the 'Age in Bonds' rule, you won't have to reduce spending significantly in bad times.
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Re: Vanguard quietly adds longevity annuities

Post by Kalo »

Hope I'm not hijacking the thread, but this has made me think of something. I've read threads that discuss lowering stock allocation at retirement and then increasing it during retirement. Has anyone ever analyzed taking more annuity than one needs for expenses, and investing (dollar cost average) the remainder back into the stock market (or a blended fund)? Taking advantage of mortality credits and putting the benefit back into the market for one's heirs, or for oneself if needed.

Every discussion I read always revolves around figuring out how much one needs to live on, without mentioning the possibility that one could continue to invest some portion of this income stream.

If one can annuitize a portion of one's portfolio and take the rest of their income requirements from investments, can't one also annuitize more than what one needs, and put the rest back into investments?

Kalo
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Re: Vanguard quietly adds longevity annuities

Post by rnitz »

One of the problems I've had analyzing annuities (and following these discussions) is that they combine multiple disparate factors, confusing the issues, rather than keeping them separate and distinct. The issues I think should be separated are:

1. Longevity insurance (i.e. mortality credits),
2. Investment aspects of annuities, and
3. Inflation insurance.

I think most of us agree that longevity insurance (SPIA) is good option for most retirees that "are on the bubble", if it can be purchased with low fees (with delaying SS the best of the current various choices). It solves the "problem" of living a long life by combining risk with those that have the "advantage" of dying early.

On investment aspects of annuities, I agree with the previous poster that suggested that most bogleheads can invest just as well as insurance companies, with less overhead to boot. Deferred annuities unfortunately combine some of this "investment" along with the mortality credits that make them difficult to separate and value (thus the suggestion to just delay and ladder your annuity purchases).

The problem child is inflation insurance. I'm having trouble seeing how insurance (combining many different participants to average out risk) helps solve the inflation problem. Do some people not care about inflation? And can you combine them with people that do care, and give the latter a real benefit? This doesn't make sense to me. I'm guessing that the reason that there aren't many options for inflation adjusted annuities is that if they price them to reflect the enormous risk, very few people would buy them. Insurance companies love to make money - if they could do this with inflation prediction they'd jump all over it.

How would you price/estimate future inflation with the following 10 year annual history of inflation?
1.5%
3.3
0.8
0.7
1.7
1.0
1.0
1.3
1.3
1.6

Of course, I've cherry picked this as that's the US inflation from 1956 to 1965. After a 7 year gap, the next 10 years of inflation (1973-1982) was:
6.2%
11.0
9.1
5.8
6.5
7.6
11.3
13.5
10.3
6.2

As an insurance company, how would you price this risk? Yes as a consumer I'd love to be insured against this, but at what price?
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Re: Vanguard quietly adds longevity annuities

Post by nisiprius »

rnitz wrote:...Yes as a consumer I'd love to be insured against this, but at what price?...
First, the insurance company doesn't have to take any inflation risk themselves, they can buy TIPS and let the Treasury take it. If they think they can do better themselves, well, they're big boys, and risk is their business.

Second, "at what price" is sort of a red herring. You've demonstrated that there's a pretty big risk. If there's a pretty big risk, then it will cost a pretty big amount to insure against it.

It costs what it costs, and the alternative is taking on that pretty big risk yourself.

All your estimates of how much you will need in retirement are real-dollar estimates. It doesn't make sense to say "I need $5000/month if there is low inflation but hey, I can get by on $1500/month if it turns out that the twenty years between now and then are like any of the three high-inflation periods since 1913. " It's not a detail, it's bigger than a lot of the other risk factors we worry about. It's not like the difference between $1,500 and $5,000 is a "nice to have."
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Re: Vanguard quietly adds longevity annuities

Post by dodecahedron »

nisiprius wrote:
rnitz wrote:...Yes as a consumer I'd love to be insured against this, but at what price?...
First, the insurance company doesn't have to take any inflation risk themselves, they can buy TIPS and let the Treasury take it.
If at age 65 I buy a deferred inflation adjusted annuity slated to begin at 85, it seems to me that a sizable component of their exposure is not something they can insure against with TIPS, since those only run out to 30 years.
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Re: Vanguard quietly adds longevity annuities

Post by SpaceCowboy »

In addition to TIPS, the insurance companies are also able to hedge annuity longevity risk and inflation risk through the sale of life insurance. In general, the insurance companies are long life insurance and high inflation, as was mentioned above, reduces the life insurance payments in real dollars.
It looks like I'm in the minority believing that eventually the market will offer an inflation adjusted from purchase longevity annuity, but I do believe it will happen. It may not happen until inflation rises and more people are interested in purchasing inflation protection.
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Re: Vanguard quietly adds longevity annuities

Post by Frugal Al »

rrppve wrote:In addition to TIPS, the insurance companies are also able to hedge annuity longevity risk and inflation risk through the sale of life insurance. In general, the insurance companies are long life insurance and high inflation, as was mentioned above, reduces the life insurance payments in real dollars.
It looks like I'm in the minority believing that eventually the market will offer an inflation adjusted from purchase longevity annuity, but I do believe it will happen. It may not happen until inflation rises and more people are interested in purchasing inflation protection.
You're making the assumption the insurance companies aren't already counting on inflation oriented gains for other hedges, and it's not easy to change a megacorps product mix.
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Re: Vanguard quietly adds longevity annuities

Post by dhodson »

Given that the other insurance products available have either few, no, or poor inflation adjusted products and that many of those products have been around for a long time, I don't think good ones are right around the corner.
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Re: Vanguard quietly adds longevity annuities

Post by thx1138 »

dodecahedron wrote:
nisiprius wrote:First, the insurance company doesn't have to take any inflation risk themselves, they can buy TIPS and let the Treasury take it.
If at age 65 I buy a deferred inflation adjusted annuity slated to begin at 85, it seems to me that a sizable component of their exposure is not something they can insure against with TIPS, since those only run out to 30 years.
I honestly don't see how this is an issue. Create a rolling TIPS ladder. Yep, at the end of the ladder you have reinvestment risk as interest rates may be lower at that point. Absolutely no difference from the reinvestment risk of a nominal ladder, and nominals also only go out to 30 years.

This "inflation protection would be too expensive" seems to me complete and utter non-sense. We know exactly what the price for inflation insurance is, it is the inflation risk premium offered by nominal treasuries over TIPS when accounting for the forecast inflation rate. So what is this risk premium? Vanishingly close to zero.
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Re: Vanguard quietly adds longevity annuities

Post by grayfox »

To choose between a DIA and a SPIA, look at the cost of each.

60 years old in 2014, wants guaranteed CPI-adjusted $4000 per month income for life starting at age 70 in 2024.
These numbers are approximate and/or estimates.

1. Purchase a DIA with CPI-U adjustment.
Risk of unexpected inflation for 2014-2024. All money is gone immediately.
Cost = $552,000

2. Put amount of money in 10-YR zero-coupon Treasury, YTM = 2.60%. Then buy SPIA when Treasuries mature.
Risk of unexpected inflation for 2014-2024. No money is gone until 2024.
Cost for SPIA = $738,462. (I couldn't get an actual quote, so estimated 6.5% payout rate.)
You would need to put about $571,000 into zero-coupon Treasury in 2014.
Cost = $571,000

The DIA is cheaper option, but the money is gone for good.
The zero-coupon, then SPIA costs more than DIA, but you have your money for 10 years.

3. A third option would be to buy 10-YR TIPS (YTM=0.19%) and then purchase SPIA. This would remove the risk of unexpected inflation over the 10-years before you want your payment to start. I did a quick calculation and came up with a cost of $579,500, which is a little more than the zero-coupon Treasury would cost.
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Re: Vanguard quietly adds longevity annuities

Post by dhodson »

The thing is there are other investment options over a 10 year period. While not guaranteed, the likely return is a lot higher.
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Re: Vanguard quietly adds longevity annuities

Post by grayfox »

dhodson wrote:The thing is there are other investment options over a 10 year period. While not guaranteed, the likely return is a lot higher.
That is the main idea. Other investments are not guaranteed, meaning you don't know how much you will end up with.

As an example, let's add option 4, invest in stock market for 10 years and then purchase SPIA. How much would it cost? i.e how much would you have to put into stock market today to be sure that you have $738,462 to purchase SPIA in 10 years.

I recall calculating that there is something like a 5% chance of showing a loss in stocks over 10 years.
So even if you put in exactly the needed amount $738,462, there is probably 5% chance you will come up short.

The worst 10-year total return for S&P 500 I found was 0.67 which was the 1929.08-1939.08.
In that case, $1,102,181 became $738,462 over 10 years.
If you want, to be 99.9% sure that you have enough, the Cost is probably well over a million dollars, more than double the cost of the DIA.
Even then, I doubt that anyone would be willing to guarantee that a stock investment will be more than $X in 10 years.
dhodson
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Re: Vanguard quietly adds longevity annuities

Post by dhodson »

well the guarantee you are talking about is only as good as the insurance company's ability to pay.
LongerPrimer
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Re: Vanguard quietly adds longevity annuities

Post by LongerPrimer »

For night reading read the prospectus. :idea:
Either or both, vanguard or Jackson, state in the prospectus, that for the income riders, You buy index futures. It's too early Saturday morning for me to 're-research this, I got to water the plants, not fall back to sleep. :moneybag
thx1138
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Re: Vanguard quietly adds longevity annuities

Post by thx1138 »

@grayfox - thanks for running those numbers. Unless you've got a significant math error in there the savings you get with the DIA hardly seems worth it. If anything the TIPS + SPIA looks the most favorable to me for providing true inflation protection at not that much more cost.
Mitchell777
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Re: Vanguard quietly adds longevity annuities

Post by Mitchell777 »

I never liked any type of annuity. Then I read some of the posts here and a SPIA seems like it may be a viable option for me around 70+, but only if things go bad for me financially in the next decade. I do not like the longevity annuity mostly because I must depend on the insurer that is rated highly today to be solvent in a couple decades. At least with the SPIA with payments beginning immediately if the insurer has problems down the road I have rec'd at least some of my money. I know there may be some protection if the insurer has problems but I do not want to deal with that uncertainty when I'm 80
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Cut-Throat
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Re: Vanguard quietly adds longevity annuities

Post by Cut-Throat »

Mitchell777 wrote:I never liked any type of annuity. Then I read some of the posts here and a SPIA seems like it may be a viable option for me around 70+, but only if things go bad for me financially in the next decade. I do not like the longevity annuity mostly because I must depend on the insurer that is rated highly today to be solvent in a couple decades. At least with the SPIA with payments beginning immediately if the insurer has problems down the road I have rec'd at least some of my money. I know there may be some protection if the insurer has problems but I do not want to deal with that uncertainty when I'm 80
Agreed!.... It seems to me, that all annuities sell a false sense of security. (Mostly because they rarely address Inflation, or if they do, there's a Cap on it). And if you are 30% in Bonds or Less, your only real threat is Inflation anyway. For Bogleheads, that have made it this far 'On their Own', they would probably fare far better in a Target Retirement Income Fund and use VPW for the Withdrawal method. I think I'm going to "Bet on Myself".
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dodecahedron
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Re: Vanguard quietly adds longevity annuities

Post by dodecahedron »

In principle, it seems to me that a variable annuity based on a low-cost TIPS fund vehicle (like Vanguard's short term TIPS fund) would work very well. The fact that they are variable annuities based on a fund of third-party custodied assets, all TIPS, would remove concerns about the insurance company's future insolvency. TIAA-CREF's variable annuity based on their TIPS account may be the closest thing to what I have in mind, but their TIPS fund fees seem high for a security that should require no due diligence research about the issuers' credit and I don't understand all the smoke and mirrors about "Assumed Income Rates."

Also, QLAC does not permit variable annuities (for reasons I can't discern), so this would have to be an immediate variable annuity if done inside a qualified retirement account.

I am hoping for more innovation in this industry down the road!
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