Have you annuitized some of your money?

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4nursebee
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Have you annuitized some of your money?

Post by 4nursebee » Sat Oct 13, 2018 10:54 am

Guaranteed monthly income and longevity insurance make an annuity seem appealing to me. It would also be a guard against some of the poor decisions I've made related to finances. We have no direct heirs. Legacy not important.

For those that have gone the annuity route, how did you decide what product to use? How much of your $$ did you place in this? I am not so concerned about exact amounts as I am thinking of percent.

The figures I can look at now suggest that removing 5% of assets per year on our own would be about equal to what the annuity company would give us for joint survivorship in one year (planned retirement date). It really seems to come down to comfort, guarantee, psychological stress levels.

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Re: Have you annuitized some of your money?

Post by jebmke » Sat Oct 13, 2018 10:58 am

I did - in a backward sort of way. When I became eligible for my pension, one of the options was a lump sum. I priced the annuity options using Vanguard online and found that the 100% joint and survivor annuity was the best choice for us.
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Re: Have you annuitized some of your money?

Post by nisiprius » Sat Oct 13, 2018 11:01 am

We've annuitized about 1/4th of our portfolio. The products we used were an inflation-indexed single-premium immediate annuity from AIG Life Insurance Company, now renamed American General, and a TIAA-CREF lifetime payout contract with the "graded" payment option, which generates an imprecise, vaguely increasing payout which might or might not parallel inflation. We did this back in 2007. We've been quite happy with how it has worked out... so far. Uh, but, of course, relieved that AIG Life Insurance Company didn't go bust and has finally clawed itself from from the lowest rating it could possibly have and still be within the A's.
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Re: Have you annuitized some of your money?

Post by 4nursebee » Sat Oct 13, 2018 11:28 am

nisiprius wrote:
Sat Oct 13, 2018 11:01 am
We've annuitized about 1/4th of our portfolio. The products we used were an inflation-indexed single-premium immediate annuity from AIG Life Insurance Company, now renamed American General, and a TIAA-CREF lifetime payout contract with the "graded" payment option, which generates an imprecise, vaguely increasing payout which might or might not parallel inflation. We did this back in 2007. We've been quite happy with how it has worked out... so far. Uh, but, of course, relieved that AIG Life Insurance Company didn't go bust and has finally clawed itself from from the lowest rating it could possibly have and still be within the A's.
How did you decide on 1/4?

I've read some people use this as a floor to their income/lifestyle.
4nursebee

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Re: Have you annuitized some of your money?

Post by nisiprius » Sat Oct 13, 2018 11:39 am

4nursebee wrote:
Sat Oct 13, 2018 11:28 am
nisiprius wrote:
Sat Oct 13, 2018 11:01 am
We've annuitized about 1/4th of our portfolio.
How did you decide on 1/4?
I don't remember exactly. It was a combination of seat-of-the-pants, what we felt comfortable irrevocably "spending," and, if I remember correctly, I really did deduct our anticipated Social Security benefits and from our roughly estimated monthly expenses. That is, Social Security plus annuity payments roughly meet our baseline expenses.
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Re: Have you annuitized some of your money?

Post by The Wizard » Sat Oct 13, 2018 11:56 am

I annuitized a hefty percentage of my tax deferred accumulation at start of retirement, age 63.
Total retirement income then was annuity income plus an additional amount withdrawn from remaining tax deferred each month to bridge the seven years until start of SS at age 70.

I wanted net income hitting my checking account in retirement to be a bit more than net amount my last few working years, to fund recreational travel.

My tax deferred accumulation was with TIAA and one of the things they do best is Immediate Annuties. But I didn't want all "guaranteed" annuity income; I wanted portions based on the broad stock market and commercial real estate market, to keep up with and maybe outpace inflation.
So I annuitized a mix of funds in:
1) TIAA Traditional
2) CREF Stock
3) TIAA Real Estate Account

5-1/2 years later this mostly unguaranteed mix has done well.

When I hit age 70 in 16 months, I expect to have more income than "needed" and expect to be reinvesting amounts most months, rather than needing withdrawals from portfolio for routine living expenses. So that's good...
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Re: Have you annuitized some of your money?

Post by dodecahedron » Sat Oct 13, 2018 12:00 pm

4nursebee wrote:
Sat Oct 13, 2018 10:54 am
The figures I can look at now suggest that removing 5% of assets per year on our own would be about equal to what the annuity company would give us for joint survivorship in one year (planned retirement date). It really seems to come down to comfort, guarantee, psychological stress levels.
It also occurs to me (having spoken with friends and colleagues who are managing financial affairs for their elderly relatives in assisted living situations) that older folks annuitizing relieves a LOT of decision-making stress on their financial proxies if the elders had set things up prior to their cognitive declines so that regular cash flows cover all or mostly all of their baseline needs.

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Re: Have you annuitized some of your money?

Post by GerryL » Sat Oct 13, 2018 12:58 pm

dodecahedron wrote:
Sat Oct 13, 2018 12:00 pm
4nursebee wrote:
Sat Oct 13, 2018 10:54 am
The figures I can look at now suggest that removing 5% of assets per year on our own would be about equal to what the annuity company would give us for joint survivorship in one year (planned retirement date). It really seems to come down to comfort, guarantee, psychological stress levels.
It also occurs to me (having spoken with friends and colleagues who are managing financial affairs for their elderly relatives in assisted living situations) that older folks annuitizing relieves a LOT of decision-making stress on their financial proxies if the elders had set things up prior to their cognitive declines so that regular cash flows cover all or mostly all of their baseline needs.
I seriously considered annuitizing the funds in my employer profit-sharing plan when I retired, but when I did the math, I realized that with SS, taxable dividends and a couple of small pensions my basic needs would be more than covered. And then RMDs would start with much of those being reinvested. So I decided a SPIA didn't really make sense. As I get older and may need to start relying on others for help with my investments, I could decide to annuitize a portion of my tIRA if that would make life a little simpler. It's good to have options.

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Re: Have you annuitized some of your money?

Post by remomnyc » Sat Oct 13, 2018 1:13 pm

Not yet, but when I get closer to RMD age, I am considering purchasing a QLAC (qualified longevity annuity contract) in my IRA, depending on my financial situation at the time. The more concerned I am about my finances at the time, the more likely I am to buy a QLAC.

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Re: Have you annuitized some of your money?

Post by dm200 » Sat Oct 13, 2018 1:24 pm

In my opinion, part of the analysis of an annuity would the role of your sex/gender. For defined benefit pensions, men and women receive the same payments for life - other factors being equal. So, a pension benefit is worth more to a woman than a man (on average) since women live longer.

For most annuities, though, women pay more for the same benefit OR get a lesser benefit for the same purchase price as men. I think (not sure) there may be some sex/gender neutral ones though.

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Re: Have you annuitized some of your money?

Post by dodecahedron » Sat Oct 13, 2018 1:32 pm

GerryL wrote:
Sat Oct 13, 2018 12:58 pm
I seriously considered annuitizing the funds in my employer profit-sharing plan when I retired, but when I did the math, I realized that with SS, taxable dividends and a couple of small pensions my basic needs would be more than covered. And then RMDs would start with much of those being reinvested. So I decided a SPIA didn't really make sense. As I get older and may need to start relying on others for help with my investments, I could decide to annuitize a portion of my tIRA if that would make life a little simpler. It's good to have options.
GerryLś situation and plan to keep options open is similar to the one I contemplate as well, though a bit farther down the road for me since my RMDs are still 6 years away. As a result, my crystal ball is even cloudier and I hope to leave it as an unused contingency plan for quite some time. I have also thought that it might be good to leave a letter of advance contingent instructions suggesting annuity options for my designated POAs to investigate if I should become suddenly disabled without warning (e.g., a stroke.) Obviously they should not purchase an annuity on my behalf if my life expectancy is very uncertain immediately after the event, but once things have stabilized and it appears that I might need assisted living for many years to come, I might suggest trustworthy sources of information about annuity providers, types of annuities, etc.

Unfortunately, as nisiprius has shared above, annuity providers can fall from grace over time. AIG is not as ¨sleep-well-at-night¨ (SWAN) as it was when he originally bought an annuity from it. Even the venerable TIAA is not as SWAN as it used to be, due to the Nuveen acquisition and other issues.

Charitable annuities from a well-managed charity I truly believe in seem like one possible avenue to explore. If things go south, at least it will have done so in support of a cause I truly believe in. (And perhaps by the time it has done so, I will be beyond caring.)

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Re: Have you annuitized some of your money?

Post by Earl Lemongrab » Sat Oct 13, 2018 1:41 pm

In essence I did. When I retired from Megacorp in January, I could take the pension as a lump sum or annuity. I chose the latter. That gives me 40k before tax per year (non-COLA). Right now, that covers my spending. Inflation will erode that over time, but then SS will come into play, plus the investments.
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Re: Have you annuitized some of your money?

Post by Cyclesafe » Sat Oct 13, 2018 1:42 pm

I intend to almost certainly joint life annuitize roughly 20% of my net worth sometime between the ages 75 and 80. The main reason is to address cognitive decline. I have no legacy interests. The reason for 20% is that that's how much will remain in my variable investment annuity after withdrawing to a targeted tax bracket between now and then.

Without a legacy interest and under a cloud of dementia, it makes sense to buy a SPIA bridging social security / pension and expected expenses.

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Re: Have you annuitized some of your money?

Post by dm200 » Sat Oct 13, 2018 1:47 pm

Earl Lemongrab wrote:
Sat Oct 13, 2018 1:41 pm
In essence I did. When I retired from Megacorp in January, I could take the pension as a lump sum or annuity. I chose the latter. That gives me 40k before tax per year (non-COLA). Right now, that covers my spending. Inflation will erode that over time, but then SS will come into play, plus the investments.
Yes - I agree that was a wise choice.

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Re: Have you annuitized some of your money?

Post by ResearchMed » Sat Oct 13, 2018 1:51 pm

dm200 wrote:
Sat Oct 13, 2018 1:24 pm
In my opinion, part of the analysis of an annuity would the role of your sex/gender. For defined benefit pensions, men and women receive the same payments for life - other factors being equal. So, a pension benefit is worth more to a woman than a man (on average) since women live longer.

For most annuities, though, women pay more for the same benefit OR get a lesser benefit for the same purchase price as men. I think (not sure) there may be some sex/gender neutral ones though.
TIAA Trad Annuity is gender neutral if annuitized, and I'd assume annuitizing the other flavors are also.

Are there other commercial annuities that are gender neutral?
The approximation quotes on immediateannuities.com differentiate by sex/gender, but obviously, those are not "the complete information" from individual companies.

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Re: Have you annuitized some of your money?

Post by Stinky » Sat Oct 13, 2018 2:53 pm

Earl Lemongrab wrote:
Sat Oct 13, 2018 1:41 pm
In essence I did. When I retired from Megacorp in January, I could take the pension as a lump sum or annuity. I chose the latter. That gives me 40k before tax per year (non-COLA). Right now, that covers my spending. Inflation will erode that over time, but then SS will come into play, plus the investments.
+1

I’m in the process of doing the same thing. Need to make a final decision on whether to annuitize with company, or roll the lump sum into IRA and buy a SPIA, in the next few days. Leaning to staying with company, since monthly payout is about 4% more with company than the best SPIA through vanguard.
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Re: Have you annuitized some of your money?

Post by NoHeat » Sat Oct 13, 2018 3:59 pm

Wade Pfau suggested (back in 2012, when interest rates were different than now) a retirement portfolio strictly of stocks and SPIA, with no bonds. He has graphs showing simulation results for various allocations, with a 4% withdrawal rate:

https://retirementresearcher.com/an-eff ... nt-income/

In his diagram below, it's best to be in the upper right of the graph, and worst to be in the lower left. The best possible outcomes are a "frontier". Where you choose to be on this frontier depends on your risk preference:
- higher risk of running out of money is toward the left
- higher risk of not having extra money for legacy or unexpected issues is toward the bottom.

His main point is that replacing bonds with SPIA improves your outcomes. Maybe you could also use his graph to help choose your allocation in SPIA, although I'm not sure exactly how.

Image
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Re: Have you annuitized some of your money?

Post by rxtra8 » Sat Oct 13, 2018 4:27 pm

Earl Lemongrab wrote:
Sat Oct 13, 2018 1:41 pm
In essence I did. When I retired from Megacorp in January, I could take the pension as a lump sum or annuity. I chose the latter. That gives me 40k before tax per year (non-COLA). Right now, that covers my spending. Inflation will erode that over time, but then SS will come into play, plus the investments.
Ditto...annuity/pension from the company was the best deal; no COLA though. That plus SS at 70 (1.5yrs away) will cover our expenses, which include a 2.5% mortgage; gone in 12 years. Everyones situation is different though. My wife is 10.5 years younger and still working; she will retire next year I hope. We also have enough in 401/IRA to exceed the pension at 4% withdrawal. Overall it is nice to have different sources of income in retirement; pension/annuity, SS, RMDs and rental income.

And it is nice to have that pension check coming in every month; makes me chuckle when I am out walking thinking that they are paying me that much to do nothing!
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Re: Have you annuitized some of your money?

Post by 2015 » Sat Oct 13, 2018 9:44 pm

Sure am. Every day that goes by I'm buying the best inflation indexed annuity out there by delaying SS until 70. I love the thought of it. Annuitization is a sort of plan B that will almost definitely not be needed but is there just to fluff up my sleep well pillow at night.

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Re: Have you annuitized some of your money?

Post by 4nursebee » Sun Oct 14, 2018 4:01 am

If a sepia is purchased with retirement 401k fund, are payments taxed normally? I am reading more and think I am getting confused.
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Re: Have you annuitized some of your money?

Post by HueyLD » Sun Oct 14, 2018 4:26 am

4nursebee wrote:
Sun Oct 14, 2018 4:01 am
If a sepia is purchased with retirement 401k fund, are payments taxed normally? I am reading more and think I am getting confused.
I think you meant SPIA, not sepia.

If the 401(k) money is pretax, then all annuity payments will be fully taxable because you have not paid taxes on the money. In addition, the amount annuitized will be removed from your 401(k) balance because you no longer own that money.

I am in the camp of having foundational income via annuities. When necessities are taken care of thru a stream of annuity payments, one may be more capable of staying the course for the remainder of assets especially in volatile times.

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Re: Have you annuitized some of your money?

Post by 22twain » Sun Oct 14, 2018 7:14 am

I too like the concept of annuitizing enough income alongside Social Security, to cover normal basic living expenses, and using portfolio withdrawals to cover "fun stuff" and irregular or one-off expenses such as new cars, new roof, etc. Both of our main retirement accounts are at TIAA which has annuitization as a major component of its system, so it would be a natural way to go.

However, it looks like after we're both collecting SS, both delaying until 70 (one of us next year and the other a few years later), it will cover our current basic expenses plus the added taxes for SS and RMDs, without having to annuitize anything. So we'll probably simply take RMDs and re-invest them, at least at first. At some point we'll probably move to a CCRC or other retirement facility, and will consider annuitizing enough to cover the monthly fees.
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Re: Have you annuitized some of your money?

Post by ResearchMed » Sun Oct 14, 2018 7:22 am

22twain wrote:
Sun Oct 14, 2018 7:14 am
I too like the concept of annuitizing enough income alongside Social Security, to cover normal basic living expenses, and using portfolio withdrawals to cover "fun stuff" and irregular or one-off expenses such as new cars, new roof, etc. Both of our main retirement accounts are at TIAA which has annuitization as a major component of its system, so it would be a natural way to go.

However, it looks like after we're both collecting SS, both delaying until 70 (one of us next year and the other a few years later), it will cover our current basic expenses plus the added taxes for SS and RMDs, without having to annuitize anything. So we'll probably simply take RMDs and re-invest them, at least at first. At some point we'll probably move to a CCRC or other retirement facility, and will consider annuitizing enough to cover the monthly fees.
Speaking of CCRC's, some of those (and similar facilities) require an up front [sometimes large] deposit, one that might be partially refundable to estate later.
If so, then one certainly doesn't want to annuitize so much that there isn't enough of a lump sum.

We have no specific legacy needs, other than for "whatever happens to be left over", which might not be insignificant.
We are interested in the same facility where MIL now resides, as we've had more and more time to see it inside out over a few years (and enjoy their food!). We need to check if they would do something like accept a smaller up front fee, in exchange for being able to keep it *all*. That would leave us with more for extra for "whatever", including travel while we still can.
We'll see...

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Re: Have you annuitized some of your money?

Post by SGM » Sun Oct 14, 2018 9:43 am

I took a company pension that is basically an SPIA. DW annuitized her TIAA-CREF 403b. The TIAA-CREF annuity is the only variable annuity I would buy. It is very low cost and the payout can go up or down, but historically has gone up. We both delayed SS until 70 while using the file and suspend with restricted spousal benefit for the lower earner.

After age 70 we will consider a ladder of SPIAs probably without a cost of living adjustment.

The decisions were based in part on expected longevity, and an expectation of possible diminished ability to manage a portfolio in later years. These multiple income streams will allow us to take less out of our portfolio going forward.

The annuitized income while only partially protected from inflation is very different than our portfolio investments. I feel no need to defend our choices, but they are good for our situation.

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Re: Have you annuitized some of your money?

Post by hirlaw » Sun Oct 14, 2018 10:06 am

I am 62 and have a Vanguard Variable Annuity which we have owned for several years. A few things:

- I don't plan to annuitize it until I am closer to 70;

- If there is a significant spike in interest rates, I may be tempted to annuitize sooner;

- Because the insurance company backing the Vanguard annuity, Transamerica, doesn't have very strong ratings, I will probably do 1035 exchanges to purchase the SPIA's at another insurance company or companies;

- When doing the exchange, I will likely split the annuity into more than one annuity with different companies to keep the balances within the limits of my state's Guaranty Fund.

Off topic, but some may be interested to know that you can do partial 1035 exchanges to pay the premiums of a long term care policy. I have been doing that the last few years. If done properly, you will avoid taxes on the amount withdrawn (exchanged) out of the annuity to pay the premium.

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Re: Have you annuitized some of your money?

Post by BrooklynInvest » Sun Oct 14, 2018 10:15 am

Am taking a different path to the same destination -

Bought a 2-family house and rent will be my "inflation-linked annuity" in 3 years when I'm done with the mortgage.

Granted a few assumptions embedded in there but my wife likes the survivorship benefit. . .

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Re: Have you annuitized some of your money?

Post by dknightd » Sun Oct 14, 2018 10:16 am

Not yet. But we probably will do about 20% when I retire, Then perhaps more when I hit 70.

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Re: Have you annuitized some of your money?

Post by The Wizard » Sun Oct 14, 2018 10:17 am

SGM wrote:
Sun Oct 14, 2018 9:43 am
...The annuitized income while only partially protected from inflation is very different than our portfolio investments...
Actually, annuitized income based on CREF Stock or TREA is fairly similar to holding a stock index fund or a REIT fund in your portfolio, especially if you're using something like Variable Percentage Withdrawal (VPW).
When the fund is doing well, you have more income at your disposal. And vice versa...
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Re: Have you annuitized some of your money?

Post by Beehave » Sun Oct 14, 2018 11:22 am

If I were to purchase an annuity, my chief concerns would be future inflation and future ability of the insurer to pay.

For these reasons, I probably would not buy an annuity, I'd probably buy more than one spread among different insurers and purchased some time apart from each other in hopes of reducing both the credit and interest risk components.

Guaranteed monthly income in retirement is very highly desirable. If Social Security and pension will not cover monthly expenses, adding an annuity component can make a lot of sense for financial stability and peace of mind. But also be mindful of the risks and act prudently.

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Re: Have you annuitized some of your money?

Post by AlmstRtrd » Sun Oct 14, 2018 2:41 pm

Beehave wrote:
Sun Oct 14, 2018 11:22 am
If I were to purchase an annuity, my chief concerns would be future inflation and future ability of the insurer to pay.

For these reasons, I probably would not buy an annuity, I'd probably buy more than one spread among different insurers and purchased some time apart from each other in hopes of reducing both the credit and interest risk components.

Guaranteed monthly income in retirement is very highly desirable. If Social Security and pension will not cover monthly expenses, adding an annuity component can make a lot of sense for financial stability and peace of mind. But also be mindful of the risks and act prudently.
While I like the idea of an annuity income floor, I feel that what you are told you are going to receive has to be discounted to some degree... and I have no idea what that discount should be. Furthermore, it seems likely that a time of stress on annuity providers is likely to coincide with a poor sequence of returns on our "un-annuitized" investments.

nisiprius refers to AIG upthread and a similar situation in the future might not be met with such a generous response. Their bailout came just a day after Lehman was "allowed" to fail.

For those of you have annuitized assets, do most of you do as Beehave suggests, spreading annuities out over both several providers and over significant time gaps?

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Re: Have you annuitized some of your money?

Post by dm200 » Sun Oct 14, 2018 2:49 pm

Beehave wrote:
Sun Oct 14, 2018 11:22 am
If I were to purchase an annuity, my chief concerns would be future inflation and future ability of the insurer to pay.

For these reasons, I probably would not buy an annuity, I'd probably buy more than one spread among different insurers and purchased some time apart from each other in hopes of reducing both the credit and interest risk components.

Guaranteed monthly income in retirement is very highly desirable. If Social Security and pension will not cover monthly expenses, adding an annuity component can make a lot of sense for financial stability and peace of mind. But also be mindful of the risks and act prudently.
No knowledge or experience, but how likely is such a risk from the company providing the annuity?

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Re: Have you annuitized some of your money?

Post by Earl Lemongrab » Sun Oct 14, 2018 2:53 pm

The base rates they are using for annuities these days are so low that I wouldn't worry too much about insolvency. Some other company will take it over. They issued annuities at much higher payouts years ago, but there haven't been many problems with those.
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Re: Have you annuitized some of your money?

Post by ResearchMed » Sun Oct 14, 2018 2:54 pm

AlmstRtrd wrote:
Sun Oct 14, 2018 2:41 pm
Beehave wrote:
Sun Oct 14, 2018 11:22 am
If I were to purchase an annuity, my chief concerns would be future inflation and future ability of the insurer to pay.

For these reasons, I probably would not buy an annuity, I'd probably buy more than one spread among different insurers and purchased some time apart from each other in hopes of reducing both the credit and interest risk components.

Guaranteed monthly income in retirement is very highly desirable. If Social Security and pension will not cover monthly expenses, adding an annuity component can make a lot of sense for financial stability and peace of mind. But also be mindful of the risks and act prudently.
While I like the idea of an annuity income floor, I feel that what you are told you are going to receive has to be discounted to some degree... and I have no idea what that discount should be. Furthermore, it seems likely that a time of stress on annuity providers is likely to coincide with a poor sequence of returns on our "un-annuitized" investments.

nisiprius refers to AIG upthread and a similar situation in the future might not be met with such a generous response. Their bailout came just a day after Lehman was "allowed" to fail.

For those of you have annuitized assets, do most of you do as Beehave suggests, spreading annuities out over both several providers and over significant time gaps?
We definitely plan to spread it around, such that no one vendor has much more than the so-called "guarantee" per our state.
And it won't be even close to "everything", anyway.

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Re: Have you annuitized some of your money?

Post by AlmstRtrd » Sun Oct 14, 2018 3:50 pm

Earl Lemongrab wrote:
Sun Oct 14, 2018 2:53 pm
The base rates they are using for annuities these days are so low that I wouldn't worry too much about insolvency. Some other company will take it over. They issued annuities at much higher payouts years ago, but there haven't been many problems with those.
Can I infer from this that annuities are not as good of a deal as they used to be?

Or are they just as good in real terms but less spectacular in nominal terms?

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dm200
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Re: Have you annuitized some of your money?

Post by dm200 » Sun Oct 14, 2018 4:04 pm

AlmstRtrd wrote:
Sun Oct 14, 2018 3:50 pm
Earl Lemongrab wrote:
Sun Oct 14, 2018 2:53 pm
The base rates they are using for annuities these days are so low that I wouldn't worry too much about insolvency. Some other company will take it over. They issued annuities at much higher payouts years ago, but there haven't been many problems with those.
Can I infer from this that annuities are not as good of a deal as they used to be?
Or are they just as good in real terms but less spectacular in nominal terms?
My understanding is that the amount paid for annuitizing a certain amount is higher when interest rates are higher.

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Earl Lemongrab
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Re: Have you annuitized some of your money?

Post by Earl Lemongrab » Sun Oct 14, 2018 4:11 pm

AlmstRtrd wrote:
Sun Oct 14, 2018 3:50 pm
Earl Lemongrab wrote:
Sun Oct 14, 2018 2:53 pm
The base rates they are using for annuities these days are so low that I wouldn't worry too much about insolvency. Some other company will take it over. They issued annuities at much higher payouts years ago, but there haven't been many problems with those.
Can I infer from this that annuities are not as good of a deal as they used to be?

Or are they just as good in real terms but less spectacular in nominal terms?
Interest rates are lower than at some times, and higher than others. From here, they could go up, down, or stay about the same. Annuities have to compete with other sources of steady income. Would you buy an annuity that gives 7% per year (much of that return of principal) when money-market accounts pay 10%? Probably not.
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Re: Have you annuitized some of your money?

Post by Farmboyslim83 » Sun Oct 14, 2018 5:02 pm

Thoughts on DIA, instead of SPIA? Buying now and waiting 5-6 years to begin payments results in a higher monthly payment. Think most would jump on a 5% 5-year CD, why not a DIA in 5 years at +7%?

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JoMoney
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Re: Have you annuitized some of your money?

Post by JoMoney » Sun Oct 14, 2018 5:08 pm

Farmboyslim83 wrote:
Sun Oct 14, 2018 5:02 pm
Thoughts on DIA, instead of SPIA? Buying now and waiting 5-6 years to begin payments results in a higher monthly payment. Think most would jump on a 5% 5-year CD, why not a DIA in 5 years at +7%?
I'd be interested in seeing the specifics of whatever you're looking at, my assumption is that it's not really 7%.
The 7% number is likely accrued interest and return of principal at an interest rate inline with other fixed-income assets amortized over some expected time period.
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Re: Have you annuitized some of your money?

Post by chipperd » Sun Oct 14, 2018 5:35 pm

I have been playing around with the idea of a 15 year annuity to bridge the gap between 52 to 67 as part of a FIRE plan. The annuity would run out and SS would start up to take the place of the monthly annuity income at age 67. Anyone consider this and have thoughts? Also, in comparing annuities, what is a decent payout rate? (ie: looking at a 15 year, 200k single premium annuity to start Jul, 2019. Monthly payout of $1,429. Payout rate listed at 8.57%).
Thanks. Forgive me if these questions high jack the thread.
chipperd

Gill
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Re: Have you annuitized some of your money?

Post by Gill » Sun Oct 14, 2018 5:37 pm

Earl Lemongrab wrote:
Sun Oct 14, 2018 4:11 pm
AlmstRtrd wrote:
Sun Oct 14, 2018 3:50 pm
Earl Lemongrab wrote:
Sun Oct 14, 2018 2:53 pm
The base rates they are using for annuities these days are so low that I wouldn't worry too much about insolvency. Some other company will take it over. They issued annuities at much higher payouts years ago, but there haven't been many problems with those.
Can I infer from this that annuities are not as good of a deal as they used to be?

Or are they just as good in real terms but less spectacular in nominal terms?
Interest rates are lower than at some times, and higher than others. From here, they could go up, down, or stay about the same. Annuities have to compete with other sources of steady income. Would you buy an annuity that gives 7% per year (much of that return of principal) when money-market accounts pay 10%? Probably not.
If money market accounts were paying 10% annuities would be paying more than 7% so your example doesn’t make sense.
Gill

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Re: Have you annuitized some of your money?

Post by beardsworth » Sun Oct 14, 2018 5:45 pm

ResearchMed wrote:
Sun Oct 14, 2018 2:54 pm

We definitely plan to spread it around, such that no one vendor has much more than the so-called "guarantee" per our state.
Coverage by state insurance guaranty associations, which are not actual agencies of state governments, range from $100,000 to $500,000, depending on the state.

I won't ask you to name your state or its limit, but previous conversations here and on Morningstar have made clear that you're a TIAA participant. So am I.

Am I correct in understanding your statement above to mean that, even for a company with the financial strength and long history of TIAA, you still won't annuitize more than the dollar limit of your state guaranty association's coverage limit?

I could see following that rule for "lesser" companies. But the chance of a TIAA default on annuity obligations, while not completely zero, seems so remote that I hadn't considered limiting annuitizations at this particular company, TIAA, to a figure no greater than state guaranty association coverage. I'd think the same way regardless of whether I was in a state with coverage at the high end or the low end of the guaranty dollar range.

If state guaranty associations are funded by money pooled from solvent insurance companies themselves, I figure that if a company of TIAA's resources "went down," there would hardly be anyone else "still left standing" to adequately fund the guaranty pool.

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Re: Have you annuitized some of your money?

Post by Dottie57 » Sun Oct 14, 2018 5:58 pm

Farmboyslim83 wrote:
Sun Oct 14, 2018 5:02 pm
Thoughts on DIA, instead of SPIA? Buying now and waiting 5-6 years to begin payments results in a higher monthly payment. Think most would jump on a 5% 5-year CD, why not a DIA in 5 years at +7%?
Do you mean SPDA - single premium deferred annuity?
Last edited by Dottie57 on Sun Oct 14, 2018 6:03 pm, edited 1 time in total.

ByThePond
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Re: Have you annuitized some of your money?

Post by ByThePond » Sun Oct 14, 2018 6:01 pm

I'm in the process of annuitizing right now.

I'm moving a substantial amount, 40%+/-, from a Vanguard tIRA into TIAA to augment my 403-b there. The annuity, with DW's modest SS, will cover our baseline expenses until I claim SS at age 70.
We like this for two reasons: the SWAN effect of matched liability, and the effect of lowering the impending RMDs. When the second SS starts, it will soon be followed by RMDs, and much of the monthly surplus will likely go into a taxable account. Roth conversions, of course before then.

I am secretly pleased that my plans are very similar to so many others' here. Well, maybe not so secretly anymore. :)

ResearchMed
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Re: Have you annuitized some of your money?

Post by ResearchMed » Sun Oct 14, 2018 6:06 pm

beardsworth wrote:
Sun Oct 14, 2018 5:45 pm
ResearchMed wrote:
Sun Oct 14, 2018 2:54 pm

We definitely plan to spread it around, such that no one vendor has much more than the so-called "guarantee" per our state.
Coverage by state insurance guaranty associations, which are not actual agencies of state governments, range from $100,000 to $500,000, depending on the state.

I won't ask you to name your state or its limit, but previous conversations here and on Morningstar have made clear that you're a TIAA participant. So am I.

Am I correct in understanding your statement above to mean that, even for a company with the financial strength and long history of TIAA, you still won't annuitize more than the dollar limit of your state guaranty association's coverage limit?

I could see following that rule for "lesser" companies. But the chance of a TIAA default on annuity obligations, while not completely zero, seems so remote that I hadn't considered limiting annuitizations at this particular company, TIAA, to a figure no greater than state guaranty association coverage. I'd think the same way regardless of whether I was in a state with coverage at the high end or the low end of the guaranty dollar range.

If state guaranty associations are funded by money pooled from solvent insurance companies themselves, I figure that if a company of TIAA's resources "went down," there would hardly be anyone else "still left standing" to adequately fund the guaranty pool.
I agree that TIAA is "different", and isn't the "average annuity insurer", etc.

We'll probably go over the state "guarantee" (in quotes, because it's not really a full guarantee, but that's a separate issue) at TIAA.
But just as we do - and will continue to - keep investments/money in more than one financial institution, we'd do that with annuities. The amounts may not be equivalent.
That's not just due to any current or future "fear of failure", although that is always in the wee corners of our minds after some "moments of concern" in 2008/2009. It's more in case of hacking, which could include theft of money, but again, that's not the main concern.
The main concern is loss of access to our money (or income) due to HW/SW problems, for whatever reason.

People here (and on Morningstar, for example) react quite quickly, and some with grave concern, if their accounts aren't accessible for even a relatively short period of time. That's understandable, especially for newbies who don't realize what might be happening. It got us in the gut, too, when the entire 403b portion at Vanguard disappeared, leaving only the much smaller amount in IRA's. "Software glitch"! :annoyed Now we are used to that, and it happens remarkably frequently.
(Actually, for now, the money in our 403b plans is among our "most secure" in terms of any theft worries. Even WE cannot remove the money from the 403b plan yet, so good luck to someone trying to impersonate us somehow...)

Anyway, given the increasing "cops and robbers" each trying to outwit the other in terms of internet security, we assume that there may well be more extended outages. If it is generalized ("all or most" financial institutions), well, lots will come to a screeching halt. But if it's more localized - imagine "only" TIAA, for example - we'd at least have access to some of our money and income from other sources.

It just seems prudent.
The amounts annuitized elsewhere will also depend in part upon the comparative rates.

RM
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AlmstRtrd
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Re: Have you annuitized some of your money?

Post by AlmstRtrd » Sun Oct 14, 2018 6:08 pm

chipperd wrote:
Sun Oct 14, 2018 5:35 pm
I have been playing around with the idea of a 15 year annuity to bridge the gap between 52 to 67 as part of a FIRE plan. The annuity would run out and SS would start up to take the place of the monthly annuity income at age 67. Anyone consider this and have thoughts? Also, in comparing annuities, what is a decent payout rate? (ie: looking at a 15 year, 200k single premium annuity to start Jul, 2019. Monthly payout of $1,429. Payout rate listed at 8.57%).
Thanks. Forgive me if these questions high jack the thread.
chipperd
At $1,429 for 15 years (180 months), you'd be forking over $200,000 in order to get $257,220 back. That just seems like a bad deal to me. At 2% interest you would come out with $269,000 or so (not taking taxes into account here). The "payout rate" sounds great but really you are just getting your own money back with no interest for the first 140 months.

That all being said, I do like your idea of an annuity bridge (I'm 60 and plan to take SS at 70).

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Re: Have you annuitized some of your money?

Post by Beehave » Sun Oct 14, 2018 6:30 pm

dm200 wrote:
Sun Oct 14, 2018 2:49 pm
Beehave wrote:
Sun Oct 14, 2018 11:22 am
If I were to purchase an annuity, my chief concerns would be future inflation and future ability of the insurer to pay.

For these reasons, I probably would not buy an annuity, I'd probably buy more than one spread among different insurers and purchased some time apart from each other in hopes of reducing both the credit and interest risk components.

Guaranteed monthly income in retirement is very highly desirable. If Social Security and pension will not cover monthly expenses, adding an annuity component can make a lot of sense for financial stability and peace of mind. But also be mindful of the risks and act prudently.
No knowledge or experience, but how likely is such a risk from the company providing the annuity?
I am no expert on this - - but two comments.

First, there are insurance company ratings provided by AM Best and others. They are indicators of the strength of the insurance companies and are industry-respected standards readily available for you to consider.

Second, I'd note that in a post above someone mentioned having a policy from AIG pre-dating AIG's near-collapse around 2008. So there is some risk. My next sentences are not intended as a political comment, but rather as an actionable suggestion. It seems that we get regular swings between more and less expansive lending policies and more and less regulatory supervision of lending which periodically coincide in ways resulting in episodes of too much unsupervised lending which can cause financial institutions to teeter or fail (1990, 2008). I am making no prediction or political statement here -- just suggesting that credit risk (the potential inability of any insurer or other party to pay on a contractual obligation) is not zero. That does not at all mean don't get an annuity. Getting an annuity could be a fabulous decision. It just means it is good to understand your risks and as with all risks, to remember that diversification can be a risk-mitigator.

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Re: Have you annuitized some of your money?

Post by beardsworth » Sun Oct 14, 2018 6:32 pm

ResearchMed wrote:
Sun Oct 14, 2018 6:06 pm

I agree that TIAA is "different", and isn't the "average annuity insurer", etc.

We'll probably go over the state "guarantee" (in quotes, because it's not really a full guarantee, but that's a separate issue) at TIAA. But just as we do - and will continue to - keep investments/money in more than one financial institution, we'd do that with annuities. The amounts may not be equivalent. . . .
ResearchMed, thanks for your prompt and extended reply to mine above, which I haven't quoted again here, or fully quoted the rest of yours, in the interest of reducing visual space.

I think you and I are more or less in agreement on the main points. My wife and I consider the risk of TIAA failure so remote, and TIAA's annuity payouts compare so favorably to those of most other companies, i.e., better, that we expect to annuitize money at TIAA which is considerably above the limit of our state's guaranty association.

I might also be willing to exceed that limit if my wife or I ever placed annuity money, i.e. money from sources outside TIAA-based employer plans, at other very highly–rated companies, especially mutuals, e.g, Northwestern Mutual Life, MassMutual, or New York Life. And in fact "spreading around" some of our non-employer money is definitely something we think of doing, for exactly the reasons you mention.

I don't think we'd ever buy annuities from any company ranked lower than these, but in such a case we would keep the amount under the state guaranty limit.

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Re: Have you annuitized some of your money?

Post by Dottie57 » Sun Oct 14, 2018 6:34 pm

AlmstRtrd wrote:
Sun Oct 14, 2018 6:08 pm
chipperd wrote:
Sun Oct 14, 2018 5:35 pm
I have been playing around with the idea of a 15 year annuity to bridge the gap between 52 to 67 as part of a FIRE plan. The annuity would run out and SS would start up to take the place of the monthly annuity income at age 67. Anyone consider this and have thoughts? Also, in comparing annuities, what is a decent payout rate? (ie: looking at a 15 year, 200k single premium annuity to start Jul, 2019. Monthly payout of $1,429. Payout rate listed at 8.57%).
Thanks. Forgive me if these questions high jack the thread.
chipperd
At $1,429 for 15 years (180 months), you'd be forking over $200,000 in order to get $257,220 back. That just seems like a bad deal to me. At 2% interest you would come out with $269,000 or so (not taking taxes into account here). The "payout rate" sounds great but really you are just getting your own money back with no interest for the first 140 months.

That all being said, I do like your idea of an annuity bridge (I'm 60 and plan to take SS at 70).

The 269k amount calculated is on the whole amount. Each month the original amount goes down because it is used as income, so interest goes down too.

AlmstRtrd
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Re: Have you annuitized some of your money?

Post by AlmstRtrd » Sun Oct 14, 2018 6:45 pm

Dottie57 wrote:
Sun Oct 14, 2018 6:34 pm
AlmstRtrd wrote:
Sun Oct 14, 2018 6:08 pm
chipperd wrote:
Sun Oct 14, 2018 5:35 pm
I have been playing around with the idea of a 15 year annuity to bridge the gap between 52 to 67 as part of a FIRE plan. The annuity would run out and SS would start up to take the place of the monthly annuity income at age 67. Anyone consider this and have thoughts? Also, in comparing annuities, what is a decent payout rate? (ie: looking at a 15 year, 200k single premium annuity to start Jul, 2019. Monthly payout of $1,429. Payout rate listed at 8.57%).
Thanks. Forgive me if these questions high jack the thread.
chipperd
At $1,429 for 15 years (180 months), you'd be forking over $200,000 in order to get $257,220 back. That just seems like a bad deal to me. At 2% interest you would come out with $269,000 or so (not taking taxes into account here). The "payout rate" sounds great but really you are just getting your own money back with no interest for the first 140 months.

That all being said, I do like your idea of an annuity bridge (I'm 60 and plan to take SS at 70).

The 269k amount calculated is on the whole amount. Each month the original amount goes down because it is used as income, so interest goes down too.
Correct. My point was just that you are forking over $200,000 and getting the equivalent of lest than 2% annualized interest. Sure, I may to worse than that investing that money on my own, but it's a risk that I would take.

stlutz
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Re: Have you annuitized some of your money?

Post by stlutz » Sun Oct 14, 2018 6:54 pm

chipperd wrote:
Sun Oct 14, 2018 5:35 pm
I have been playing around with the idea of a 15 year annuity to bridge the gap between 52 to 67 as part of a FIRE plan. The annuity would run out and SS would start up to take the place of the monthly annuity income at age 67. Anyone consider this and have thoughts? Also, in comparing annuities, what is a decent payout rate? (ie: looking at a 15 year, 200k single premium annuity to start Jul, 2019. Monthly payout of $1,429. Payout rate listed at 8.57%).
Thanks. Forgive me if these questions high jack the thread.
chipperd
If you have Excel or Open Office on your computer, it's worth learning to use the PMT function (there are also online calculators that do this).

Your alternative to create this stable stream of income is to create a bond portfolio with a 7.5 year duration (15/2 = 7.5).

Using PMT, I can experiment and figure out that you could do the same with a bond portfolio that yields 3.8%. Again, the average portfolio duration should be 7.5. This can pretty easily be done with a mix of Treasury and investment grade corporate bonds (which is what the insurance company you buy the annuity from would invest in).

At your age and given that you are looking to cover a fixed period of time, I'd just create your own annuity with fixed income investments that you draw down over time.

Annuities make sense when you are looking for the guaranteed income for a long lifespan. Generating returns for a fixed period of time--not so much. You're just adding a middle-man to a fixed income investment.

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