dbr wrote: ↑
Sat Oct 28, 2017 8:06 am
LonnieG wrote: ↑
Fri Oct 27, 2017 9:20 pm
If he did not get a return of 7% on $100,000 annuity (extra $7000) as posted, thenn would be the correct yield on the $100,000 annuity?
An annuity doesn't have a yield. What you can do is compute a theoretical interest rate that would be enough to support the return of the annuity money plus enough to make up the total payout for as long as it is paid out. How that comes out depends on the longevity of the annuitant. If he dies early he won't even get his initial premium back. If he outlives his expected lifetime he will get back more than his paid in amount. The insurance company funds this payout by investing the premiums at enough return so that the portfolio of money they have and the earnings they make are sufficient to support the contracts plus pay them expenses and commission. Long lived annuitants collect some of the money left behind by short lived annuitants.
Ok, back from this morning's dives (Jamaica).
dbr is quite correct in his explanations.
With TIAA in particular, what we participants have during working years is essentially a portfolio of tax sheltered mutual funds, under the 403(b) tax shelter law most often, not 401(k).
In retirement, we have various options for withdrawing this accumulated money. ALL withdrawal options result in taxable Ordinary Income, same as with IRAs and 401(k)s.
I can withdraw around 4% per year which might be Sustainable forever, or I can withdraw nothing in my early retirement years and let everything be subject to RMDs at age 70.5.
But with TIAA, I have the option of "annuitizing" a portion of my accumulation for lifetime income. When I annuitize a sum of money, like the $100,000 I did last May, it stays in the mutual fund side until the 30th or 31st of the month preceding your chosen start month. Then on the 1st of that month it transforms into an irrevocable lifetime income stream.
In my case, I chose a ten year guarantee period and got a 7.04% PAYOUT RATE, which means that roughly $587 per month hits my checking account each month for the next decade plus, hopefully.
Note: this rather modest monthly amount is on top of a larger amount from funds I annuitized at start of retirement in 2013.
Annuitized income will generally be higher than 3.5% or 4% SWR income, so this is the reason my AGI and marginal tax bracket are somewhat higher in retirement than when working. I've come to accept that.
So what I have is basically a do it yourself pension which, combined with my SS payment, tends to exceed my monthly expenses.
This means that my remaining UNANNUITIZED portfolio, both tax deferred 403(b) and my taxable account at Vanguard are growing at this point, without being needed for routine monthly expenses...
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