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Is there any income rider out there where the death benefit isn’t reduced by withdrawals/income? I don’t think so. I’m pretty sure you got the correct info above. I know Jackson has one, so I suspect there are others. Have your cake and eat it too. Take your withdrawals, and have all of them paid to the beneficiary too. I think that the question of "how much does the death benefit decline when income benefits are received" is of critical importance. And I expect that there is some diversity amongst policy forms and company practices. If the death benefit declines dollar-for-dollar as income benefits are received, I would regard that as "fair". If the death benefit doesn't decline at all (as Chardo mentioned above), that...

Bimmer, you are in a strange situation, and it does not speak well of these products that they are so difficult to parse, even with the advisor who sells them. It is not clear to me exactly how the death benefit interacts with the income based on what you said. If it were me, my next step would be to identify specific factual scenarios and ask them: if mother starts income on her birthday, then if account value drops to $80K due to withdrawals and poor market performance two years later, then she passes away, what is the death benefit? Then repeat the same for dad, then maybe for a few years later, then maybe for 10 years later after the account value is 0, etc.

Before I get laughed out of the room, let me explain the context. Wife and I are in our mid 30s with two daycare age kids. We are both high earners, saving $250k per year (when the kids age out of daycare this will rise to $300k per year). Our tax bracket for corporate bond interest is 48%. We have $1.7M in investments and the AA is roughly 90/10. We'd both like to FIRE in 10 years time, and so we need to start moving more assets into fixed income now to lower sequence of returns risk. Right now we're only putting $40k per year into fixed income via I and EE bonds. I'd like to supplement this with another $20k per year into fixed income. As I see it I have three options: 1. Internally shift my existing tax-deferred space (roughly $0.6M of ...

Stang70 wrote: ↑Thu Mar 16, 2023 3:25 pm

Can you specify what you mean by actuarially neutral in this context?

Part of the question might be, does the pension+supplement for each year from 57-62 have a similar lifetime value for someone who instead choses to forgo it by working an additional year (and will instead receive their slightly larger pension but later and fewer)?

As above, the early FERS option after reaching 30 years of service is superior, but one who keeps working to 62 accrues additional benefits that offset the lost value. If measured year by year, early FERS would look better until the 1.1 multiplier applies at age 62.

Are you trying to figure out whether to delay FERS or take it when retiring at age 57, or are you figuring out how much pension value you gain working from 57 to 62 so that you can see how much the extra comp is? The FERS would be immediate with no delay at 57. The examples are for someone who would not work from 57-62, but rather retiring at 57. Parts of the examples are likely misleading.....Trying to determine a yardstick of sorts to measure if the pension package at 57 (pension +supplement) for someone eligible (30 or more years) is roughly similar to a value had they retired at a later date (but without adding in the value added by working the additional years). The analytical result you're trying to reach is the same thing as asking ...

OTOH, you quickly lose FERS Supplement if you have a job that pays decently between 57 and 62. You are correct that the FERS supplement is means-tested (earned income) so the examples here are with no plans to work for income again. Personally I think it is somewhat of a wash and impossible to predict without making assumptions about inflation or rates of return that could be wrong, unless you are planning to get a job from 57 to 62 (or 65) that pays $150K plus per year. Some people do that. If you are planning to get a good paying job after retirement for 5 or even 10 years after MRA of course that's a plus. Not looking for total income replacement, instead investigating here the concept of whether the FERS pension system is setup to be a...

Are you trying to figure out whether to delay FERS or take it when retiring at age 57, or are you figuring out how much pension value you gain working from 57 to 62 so that you can see how much the extra comp is?

If a previous thread found the F Fund to be better, my first question would be whether it was just a survey of 1985-2021 or some similar period with falling rates.

Maybe I was scarred by bond oscillations in the 1990s, but the F fund always struck me as a poor compromise between risk and reward. Meanwhile, in the years of low interest rates, somehow the G fund managed to earn rates that trounced anything available among certificates of deposit. Some clever person might want to do an efficiency frontier chart (the hyperbola plotting CAGR vs. standard deviation) using G, F and mix of the two... until then, anecdotally, I much favor G over F. Thus, personally I only use the G fund, for that portion of TSP that isn't in equities. A sample allocation might be 30% C, 30% I, 30% S and 10% G. It's my fond wish that in the world outside of TSP, something like the G fund were available. Is there? I've not foun...

One thing that may not have been mentioned is that you could set up a three way meeting or conference call with you for your accountant to talk to your financial planner to decide what should be done. Something to keep in mind is that under the new rules if the disabled child inherits an IRA then they may be required to withdraw it all in 10 years which could put them into a very high tax bracket then. If you are dealing with a large amount of money in the 401k then this could be be a very important factor especially if the child does not inherit it for 20 years and it grows a lot by then. If this is a likely problem then that could make choosing the Roth an easier choice. I don't have a clue if there is some sort of trust or estate planni...

Previously I was purchasing Treasury securities with maturities from six to nine months based on YTM to prepare for a large cash outflow later in the year. My position was that credit spreads were narrow and, even if the Fed would raise rates a couple more times in the interim, the rates further out exceeded immediate short-term rates by a sufficient amount to justify minimal duration exposure. The bank failures have caused a dramatic decline in yields for maturities (as of yesterday) in the six-month to one-year range. I believe we are seeing both a reduction in expected Fed interest rate increases and a widening of credit spreads as market participants try to move out of banks into Treasury securities. I am now evaluating other items with...

Those are no good, very bad payout rates for an 82-year-old (comparing the annual payments vs the guaranteed base). Op can do more math, but it's basically going to say that the death benefit is probably the way to go.

The results from the first post will not hold up if expected returns from gold are reduced to 0% real. Gold has to have positive returns that exceed intermediate treasuries, e.g. because actual inflation exceeds expected inflation by a material amount over an entire study period (like 30 years). It's reasonable to imagine scenarios where gold at a 10% allocation helps. It's hard to reasonably expect gold returns in the future will support a 30-40% allocation on the efficient frontier.

Interesting read: https://seekingalpha.com/article/4562842-tips-performance-could-rival-s-and-p-500-over-next-decade Combining the base case Fed policy scenario above in combination with Research Affiliates’ historical data suggests we may see inflation in the coming decade closer to 4-5%. This would be considerably above the 2-3% that the Fed, consumers and investors expect. With TIPS real yields presently about 1.2%, TIPS nominal returns could be 5-6% per year. https://static.seekingalpha.com/uploads/2022/12/6/6555621-16703538108475764.png Which also references: https://www.advisorperspectives.com/articles/2020/07/20/the-remarkable-accuracy-of-cape-as-a-predictor-of-returns-1 https://www.advisorperspectives.com/images/content_image/data/...

What happens to the money when you pass away? If all assets are going to children or other natural persons, then reducing tax deferral and getting more Roth contributions is probably better, unless the kids have lower taxes (12% bracket or less). If much of the assets are going to charitable beneficiaries, then continue saving in tax-deferred balances and put a hold on Roth conversions. There's no point paying taxes you don't need to pay.

It's possible it's a better deal to start the income, then put the payments received in a savings account for heirs. The reason is that if the annuitization factor or payout ratio is favorable and multiplied by the guaranteed benefit base of $295K, the payout would be expected to result in more wealth over the remaining life expectancy. One factor here is that the annuitant can pay taxes at a potentially lower or similar rate to heirs and avoid some portion of the later tax bomb. A wrinkle is, as Stinky suggests, if the DB completely disappears or draws down rapidly after annuitization, there is a lot of risk if the annuitant passes away early. So that's why you need to figure out what happens to the DB if annuitization starts.

For a self-employed business earning $30k max annually owned by one person/no employees, S-Corp status seems overly complicated. Consider whether it makes sense to withdraw the election (IRS Form 8832) and change to a Sole Proprietorship (SP) for tax year 2023 where profits are reported on Schedule C on your Form 1040. With a SP, here is no need to run payroll or do a separate tax return on Form 1120 (which should reduce tax preparer fees) which should lower business expenses. How can a corporation be a disregarded entity? Another solution might be to liquidate the corporation, if there won't be much gain on the liquidation. My suggestion was for future tax years to consider filing with the IRS to withdraw the election to be taxed as an S-...

They are sold in increments of $1000. The (100) in parentheses is for $100,000 in securities as a minimum. You need to look down the quote list for ones that say (1) to go in increments of $1,000. You can access the different quotes for the specific bond you like if you click on Buy in Fidelity, then click "More Quotes - Depth of Book and Recent Trades." You can tap a radio button next to the ask quote with (1) as minimum to have that price automatically transfer to your order ticket below. If you have $15,234 to deploy, you will buy 15 increments of $1,000 and leave about $400 in your money market fund. You will buy at the ask price. The quotes are from the perspective of the dealer. The dealer has a low bid price to buy your bon...

I wonder about taking action based on this thread. (Or is that not recommended?) I have a 50/50 portfolio of Total Bond and Total US Stock. Very low expense (.05/.02) with a YTD (3/3/23) return of 3.5%. I added some rows to my tracking spreadsheet with IT funds to compare to the Total Bond portion of my allocation. I don't think that I have access to ETFs in my 401k, so the closest match I could find to the recommended (?) VGIT was the Vanguard Intermediate Treasury Fund (VFIUX; er 0.10). When I did a compare using Google Finance, VFIUX seemed to closely track VGIT, at least YTD. The returns YTD (3/3/23) were -0.51 and -0.46. The YTD returns are obviously lower when compared to Total Bond (0.47). Is that the expectation this year, current ...

Are you eligible to take loans while still working at the company? What is the interest rate, and how is it determined? Does it change after a certain number of years?

You can use a more complicated phone password rather than a pin.

And also, at the rate things are going with other providers (see LastPass), Keychain might be the least dirty shirt in the laundry.

One issue with the inflation adjustment phase of the study is the implicit assumption that inflation is constant and hence a flat reduction to the returns of the asset choices. However, if 1) inflation is volatile and 2) inflation in one period affects inflation and/or interest rates applicable in future periods, then the results of the post-inflation bond comparison are somewhat suspect. It would be hard to know by how much without having a tweaked Monte Carlo simulation to take into account these properties. Another question ripe for adjustment would be aftertax returns in a taxable account. The studies thus far seem applicable to tax agnostic allocation between stocks and bonds such as would be present in a retirement account or foundati...

sandan wrote: ↑Sat Mar 04, 2023 10:07 am

petulant wrote: ↑Fri Mar 03, 2023 1:32 pm One reasonable rule of thumb has been to defer in the 22% bracket but pay tax on the 12% bracket.

In a state without income tax (since the OP is only 33), I would also error on the side of using roth. Specifically, never get caught in a situation where the marginal tax rate doesn't touch the 22% rate.

Agreed--without a state income tax, it's even better to pay in the 12% bracket.

Have you tried searching other threads?

I caught his interview with Barry Ritholtz on Bloomberg MIB in November, which compelled me to make it through the first half of the book. Excited to give this one a listen and see if it motivates me to finish the second half.

alex_686 wrote: ↑Fri Mar 03, 2023 1:53 pm

petulant wrote: ↑Fri Mar 03, 2023 1:44 pm

student wrote: ↑Thu Mar 02, 2023 10:05 am This is good. You can use this as evidence that they are not substantially identical.

LOL! Goldman Sachs at it again.

Having worked with IRS auditors, alas no - not really. They specifically don’t look at the correlations between prices or returns.

But does Goldman Sachs know that?

See below article on similar topics. It's dated yesterday. https://awealthofcommonsense.com/2023/03/a-short-history-of-interest-rate-cycles/ Part of me wonders if Ben Carlson is lurking in this thread. Then again, I regularly wonder if quite a bit of the finance blogosphere is just riffing on BH threads. I'm not commenting about Ben Carlson here, but a number of financial bloggers who harvest ad revenue get some of their source material for free from BH. I even once noticed an academic study that may have been motivated by a BH posting. If what you say is true, then I imagine we would even see people starting to post links from BH to the blog posts, rather than the original BH threads, generating even more ad revenue for insights that star...

you've got direct indexing products, not just for individuals but also for institutions like pension funds. Just spitballing, I would guess everything together would be about 25%, but the best guess I could find was an estimate at 37%. I can't find the article again, but they basically reviewed trades after index changes were announced and tried to "gross up" the total assets tied to the index that would have been making those trades. One wonders if their estimate might have been exaggerated by traders trying to front-run index change transactions. This appears to be the latest copy of the working paper The Passive-Ownership Share Is Double What You Think It Is by Alex Chinco and Marco Sammon. https://www.alexchinco.com/double-wh...

student wrote: ↑Thu Mar 02, 2023 10:05 am This is good. You can use this as evidence that they are not substantially identical.

LOL! Goldman Sachs at it again.

One reasonable rule of thumb has been to defer in the 22% bracket but pay tax on the 12% bracket.

See below article on similar topics. It's dated yesterday.

https://awealthofcommonsense.com/2023/0 ... te-cycles/

Part of me wonders if Ben Carlson is lurking in this thread. Then again, I regularly wonder if quite a bit of the finance blogosphere is just riffing on BH threads.

Yes, I intentionally left out many details, because these threads often diverge in 100 different directions, losing focus on the original question. But I have indeed accounted for my spouse's social security (probably at age 62, based on opensocialsecurity), her pension, etc. As Blue456 mentioned, my goal is to achieve a constant standard of living over the remainder of our lives. Doing so requires spending down savings until social security kicks in. Other details are relevant. If you have other stock holdings, then on balance it might be fine to be 100% G Fund. If you don't, and given the time frame, I would think 20% C Fund and 80% G Fund would be a good idea. That's close to the L Income fund, but it's simpler in its exposures and you ...

OP, there is much in your 13-year plan that remains opaque to me. Obviously, you don't owe any explanations, but I am curious about the following items- If I understand your previous posts, your wife has a state pension & a Social Security benefit. Is she your age (57) or older/younger? Is she retired like you are or still working? I don't see any provision for income from her pension or Social Security. Assuming she is your age, have you run your combined SSA numbers through https://opensocialsecurity.com/ ? If you do an early/late split claiming strategy, when she claims SSA at 62 as the low earner, wouldn't that reduce your required bridge amount by a significant percentage each year? Even a fairly nominal $10-15K SSA benefit for DW...

As of 2021, 32% of equity mutual funds assets were index funds. Maybe it's up to over 50% by now. But that isn't a percentage of the market, it's a percentage of mutual funds . Also according to the ICI: Mutual funds and ETFs hold 32% of all US corporate equity. That's not what the chapter says. In the chapter, equity mutual funds are traditional mutual funds, not ETFs. That chapter treats ETFs separately. For example, it explains outflows from equity mutual funds as likely related to inflows to ETFs. 32% of traditional equity mutual funds might be indexed, but a much larger percentage of ETFs are indexed. If you combine ETFs and traditional mutual funds or otherwise count all '40 Act funds, passive is probably at the 56% cited by the arti...

Just as a factual matter, index funds do result in more centralized governance than active funds. Active funds were much more fragmented and competitive than index funds. There are only a handful of index fund providers, and the three largest ones control most of the market. Even the active funds that remain are trying to compete on costs by folding into larger fund complexes. Vanguard and Blackrock each separately control 10% or more of most U.S. companies (combining their active and passive fund shares). I am not aware of any mutual fund complex controlling 10% of most U.S. companies before the advent of index funds. Index funds are responsible for this by turning beta exposure into a commodity and removing all forms of competition except...

My source is the Investment Company Institute's 2022 Factbook : [graph snipped] As of 2021, 32% of equity mutual funds assets were index funds. Maybe it's up to over 50% by now. But that isn't a percentage of the market, it's a percentage of mutual funds . Also according to the ICI: Mutual funds and ETFs hold 32% of all US corporate equity. That's not what the chapter says. In the chapter, equity mutual funds are traditional mutual funds, not ETFs. That chapter treats ETFs separately. For example, it explains outflows from equity mutual funds as likely related to inflows to ETFs. 32% of traditional equity mutual funds might be indexed, but a much larger percentage of ETFs are indexed. If you combine ETFs and traditional mutual funds or oth...

I stopped taking it seriously when he said more than 50% of stock assets are in passive index funds. Totally wrong. His stat is from passive funds' share of all '40 Act funds. It does not include direct holdings by individuals and pension funds. '40 Act funds are less than half the market. Granted, some direct holdings are basically indexed. Even aggressive estimates including direct indexing estimates only put the number at 35-40%. But his stat is way off.

The longevity of ownership also transfers. So it’s long term. This is very helpful, thank you. Sat down and read every detail of trust agreement. It is very basic and clearly states irrevocable trust. There are a couple clauses that are interesting and might possibly help. First clause states that her parents as well as any other person may add funds, assets or property to trust at any time. I do not believe this is of any tax benefit. Second clause states: "We shall have the right, at any time exercisable in a non-fiduciary capacity, without the approval or consent of any person acting a fiduciary capacity, to acquire any property then held in the trust by substituting other property of an equivalent value on the date of substitution...

Is there any evidence that McQ's proffered estimating formula has errors of sufficient magnitude to affect any of the math in this thread?

It's worth $2200 and has an annual premium of $200. That will pay for less than a month's budget in retirement. Why bother figuring this out? Just surrender it and be done. Even if it's gangbusters and has an IRR of 9%, compared to saving the same money with an IRR of 7% in another portfolio, it would only be worth around $1500 more after 11 years. And that IRR differential isn't going to happen. So it's just not worth messing with.

But also note, it is likely Buffet is avoiding paying dividends and prefers buybacks to benefit his own tax situation. He plans to leave his wealth to a non-profit organization, most likely a 501(c)(3) private foundation. The restrictions on private foundations make it difficult to maintain control over a large corporation, so he would pretty quickly have to start selling shares if he donated them to a foundation while alive. If he had started that at age 80, he would already have less direct control by now. If he paid dividends, he would pay taxes and would have limitations on his ability to donate the dividends due to the 50/60 limitations and (for many years) the Pease limitations. So, to advance his own interests, he is holding the sto...

But also note, it is likely Buffet is avoiding paying dividends and prefers buybacks to benefit his own tax situation. He plans to leave his wealth to a non-profit organization, most likely a 501(c)(3) private foundation. The restrictions on private foundations make it difficult to maintain control over a large corporation, so he would pretty quickly have to start selling shares if he donated them to a foundation while alive. If he had started that at age 80, he would already have less direct control by now. If he paid dividends, he would pay taxes and would have limitations on his ability to donate the dividends due to the 50/60 limitations and (for many years) the Pease limitations. So, to advance his own interests, he is holding the stoc...

I work in planned giving for a large nonprofit and am a devoted bpglehead and it warms my heart to see this topic. Interested if anyone does do the new option of funding a CGA from an IRA. Personally I think the one calendar year limit, $50k max and the fact that all of the income will be taxable (as opposed to traditional CGAs where some of the income is tax-feee) really limits the opportunities. I'm urging my organization not to build too much of a strategy around these new options. In my opinion (and I'm obviously not a a tax advisor) funding a CGA with appreciated assets usually makes more sense. The only way it would make sense I think is if Fidelity/Schwab/Vanguard could package it up with low overhead as part of their charitable arms.

First, I assume by "executor" you mean that your wife is the "trustee" of the trust. She is responsible for making sure it does what it's supposed to do, like file its tax return. Second, she needs to retain qualified, likely expensive help from a qualified accountant and possibly an attorney. This is not an area to cheap out on. Third, whether the trust pays taxes depends on whether it is a nongrantor trust retaining income. Most likely, the trust in question would be such a trust. However, just because a trust is irrevocable does not mean it is a nongrantor trust. If it is a grantor trust, which is possible even for an irrevocable trust if the parents retained various special powers, then the parents report all tax con...

Sadly, only being able to do it once and up to $50,000 severely limits its relevance.

You need to closely review your state's guidance since it depends on whether their maximum tax deduction is per-taxpayer, per-return, or per-beneficiary, and then whether there are any other exclusions/clawbacks that impact your strategy.

Do you have any assets other than the TSP and your annuity?

I didn't say that the SBBI data was cherrypicked. I also don't agree that the correlation is just squishy, unstable, and imprecise; it is non-stationary and exhibits clear "regime" characteristics, where long-term bonds seem to have either a positive or negative correlation over long decades-long periods. Hence, I said that using the average correlation from the data was not reliable for action. Here's an analogy: in a coin flip, imagine the prize for heads is to die a fiery death, and the prize for tails is immense wealth. It would be misleading to look at that and say, well, the average coin flip outcome is .5 heads and .5 tails, so the average outcome can't be so bad (or great). The truth is, the coin flipper is either going t...

Scenario 1: I express no opinion about the deductibility of variable annuities. However, if you do agree with the miscellaneous itemized expense approach, note that miscellaneous itemized deductions are not allowed until after 2025 under TCJA. So, even if this position is correct, it does not help you right now. I agree that you want to get a CPA to sign off on any deductions actually taken. Scenario 2: The basic syllogism here would be the following: (A) Guaranteed income riders have value for people who plan to take income from the annuity, if anybody. (B) Your father has no need or plans to take income from the annuity. (C) Hence, the guaranteed rider does not have value for your father. I am sympathetic to this syllogism, but there is a...

I do not agree with drawing any conclusions from the idealized modeling of intermediate-term and long-term treasuries, at least with respect to the higher-risk allocations where long-term treasuries appear to be dominant. The magnitude of difference visually is small enough that small modeling assumptions are very likely making a difference. Two major features of the relationship between intermediate- and long-duration bonds strike me quickly. One is that the assumptions assume a traditional yield curve where long bonds are expected to earn 50 bps more than intermediate bonds. That's fine as an average. But it is not always the case. Right now, there is an inverted yield curve. At times in the last 2-3 years, there have been 150 bps or mor...