Rethinking annuities with a strong portfolio

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
Wricha
Posts: 575
Joined: Sun Mar 25, 2012 10:33 am

Rethinking annuities with a strong portfolio

Post by Wricha » Fri Apr 24, 2020 7:40 pm

Now fully into retirement (mid 60’s) and with this Covid situation I really feel retired (not good or bad just retired). I built what I thought was almost a bulletproof portfolio. (34% SPY 33% muni/treasury/CD and 33% commercial real estate) plus a small pension. Planning on SS at 70 (have not factored that in to planning). The interest/dividend of my portfolio would cover my expenses. Rent from real estate would also cover my expenses. Nothing bad happened the market went down and the portfolio did what was expected. A few tenants asked for help and we worked it out no big deal. I checked the value of my portfolio once and it was down a lot in absolute dollars but what was expected.
This down turn got me thinking I could lose all my tenants, market could go down big time, and bonds are a little soft. Maybe I am not so smart and should I be thinking about an annuity. I have had a tough time pulling the trigger on annuities because my current withdrawal rate is less than 2%. Is there anyone else with a “strong” portfolio rethinking annuities?

smitcat
Posts: 5885
Joined: Mon Nov 07, 2016 10:51 am

Re: Rethinking annuities with a strong portfolio

Post by smitcat » Fri Apr 24, 2020 7:47 pm

Wricha wrote:
Fri Apr 24, 2020 7:40 pm
Now fully into retirement (mid 60’s) and with this Covid situation I really feel retired (not good or bad just retired). I built what I thought was almost a bulletproof portfolio. (34% SPY 33% muni/treasury/CD and 33% commercial real estate) plus a small pension. Planning on SS at 70 (have not factored that in to planning). The interest/dividend of my portfolio would cover my expenses. Rent from real estate would also cover my expenses. Nothing bad happened the market went down and the portfolio did what was expected. A few tenants asked for help and we worked it out no big deal. I checked the value of my portfolio once and it was down a lot in absolute dollars but what was expected.
This down turn got me thinking I could lose all my tenants, market could go down big time, and bonds are a little soft. Maybe I am not so smart and should I be thinking about an annuity. I have had a tough time pulling the trigger on annuities because my current withdrawal rate is less than 2%. Is there anyone else with a “strong” portfolio rethinking annuities?
"Is there anyone else with a “strong” portfolio rethinking annuities?"
Not unless we are into our 70's and the numbers look very favorable at that time.

megabad
Posts: 2789
Joined: Fri Jun 01, 2018 4:00 pm

Re: Rethinking annuities with a strong portfolio

Post by megabad » Fri Apr 24, 2020 7:54 pm

Can you clarify “annuities”? The vast majority of annuities range from useless to complete ripoffs. There are a tiny fraction that are moderately useful in limited capacities for limited numbers of people. Any annuity that someone volunteers to sell you is likely complete junk.

Topic Author
Wricha
Posts: 575
Joined: Sun Mar 25, 2012 10:33 am

Re: Rethinking annuities with a strong portfolio

Post by Wricha » Fri Apr 24, 2020 7:55 pm

smitcat wrote:
Fri Apr 24, 2020 7:47 pm
Wricha wrote:
Fri Apr 24, 2020 7:40 pm
Now fully into retirement (mid 60’s) and with this Covid situation I really feel retired (not good or bad just retired). I built what I thought was almost a bulletproof portfolio. (34% SPY 33% muni/treasury/CD and 33% commercial real estate) plus a small pension. Planning on SS at 70 (have not factored that in to planning). The interest/dividend of my portfolio would cover my expenses. Rent from real estate would also cover my expenses. Nothing bad happened the market went down and the portfolio did what was expected. A few tenants asked for help and we worked it out no big deal. I checked the value of my portfolio once and it was down a lot in absolute dollars but what was expected.
This down turn got me thinking I could lose all my tenants, market could go down big time, and bonds are a little soft. Maybe I am not so smart and should I be thinking about an annuity. I have had a tough time pulling the trigger on annuities because my current withdrawal rate is less than 2%. Is there anyone else with a “strong” portfolio rethinking annuities?
"Is there anyone else with a “strong” portfolio rethinking annuities?"
Not unless we are into our 70's and the numbers look very favorable at that time.
Good point about 70’s which also keep me away from annuities.

Topic Author
Wricha
Posts: 575
Joined: Sun Mar 25, 2012 10:33 am

Re: Rethinking annuities with a strong portfolio

Post by Wricha » Fri Apr 24, 2020 7:56 pm

megabad wrote:
Fri Apr 24, 2020 7:54 pm
Can you clarify “annuities”? The vast majority of annuities range from useless to complete ripoffs. There are a tiny fraction that are moderately useful in limited capacities for limited numbers of people. Any annuity that someone volunteers to sell you is likely complete junk.
I was thinking single premium immediate annuity, or SPIA

smitcat
Posts: 5885
Joined: Mon Nov 07, 2016 10:51 am

Re: Rethinking annuities with a strong portfolio

Post by smitcat » Fri Apr 24, 2020 8:04 pm

Wricha wrote:
Fri Apr 24, 2020 7:55 pm
smitcat wrote:
Fri Apr 24, 2020 7:47 pm
Wricha wrote:
Fri Apr 24, 2020 7:40 pm
Now fully into retirement (mid 60’s) and with this Covid situation I really feel retired (not good or bad just retired). I built what I thought was almost a bulletproof portfolio. (34% SPY 33% muni/treasury/CD and 33% commercial real estate) plus a small pension. Planning on SS at 70 (have not factored that in to planning). The interest/dividend of my portfolio would cover my expenses. Rent from real estate would also cover my expenses. Nothing bad happened the market went down and the portfolio did what was expected. A few tenants asked for help and we worked it out no big deal. I checked the value of my portfolio once and it was down a lot in absolute dollars but what was expected.
This down turn got me thinking I could lose all my tenants, market could go down big time, and bonds are a little soft. Maybe I am not so smart and should I be thinking about an annuity. I have had a tough time pulling the trigger on annuities because my current withdrawal rate is less than 2%. Is there anyone else with a “strong” portfolio rethinking annuities?
"Is there anyone else with a “strong” portfolio rethinking annuities?"
Not unless we are into our 70's and the numbers look very favorable at that time.
Good point about 70’s which also keep me away from annuities.
I think you are great where you are - but if you get into the 70's and all your planning goes to heck you can assess the option of an SPIA for whatever 'gap' you may have between your combined SS, pension, and costs at that time. My personal opinion is you will never need/want to go that way.

megabad
Posts: 2789
Joined: Fri Jun 01, 2018 4:00 pm

Re: Rethinking annuities with a strong portfolio

Post by megabad » Fri Apr 24, 2020 8:10 pm

Wricha wrote:
Fri Apr 24, 2020 7:56 pm

I was thinking single premium immediate annuity, or SPIA
I am strongly considering SPIA for a small portion of expenses much later in life to hedge against my (unlikely) or my spouses longevity. In your case I might caution somewhat as you are extremely exposed to inflation and most SPIAs would only increase that exposure. If you go that route, Maybe balance out with a small TIPs holding in an IRA/401k and keep it a small part of your portfolio. Alternatively you might consider an inflation adjusted SPIA but the cost is sometimes high and availability is severely limited now. Additionally there are others here (ie Taylor Larimore) that support a strategy that includes some SPIA component.

jjface
Posts: 3034
Joined: Thu Mar 19, 2015 6:18 pm

Re: Rethinking annuities with a strong portfolio

Post by jjface » Fri Apr 24, 2020 8:17 pm

I'd rather reconsider that much in properties which seem more hands on than I would want as a retiree. A traditional stock/bond mix should satisfy your needs just fine assuming you've saved enough.

You are close enough to 70 that i would factor ss into your planning. You are likely to have a good annuity there already. And very little chance of SS being reduced any time soon.
Last edited by jjface on Fri Apr 24, 2020 8:23 pm, edited 1 time in total.

Topic Author
Wricha
Posts: 575
Joined: Sun Mar 25, 2012 10:33 am

Re: Rethinking annuities with a strong portfolio

Post by Wricha » Fri Apr 24, 2020 8:23 pm

Thanks Megabad and jjface

mighty72
Moderator
Posts: 986
Joined: Fri May 04, 2018 11:22 pm
Location: Somewhere in the West

Re: Rethinking annuities with a strong portfolio

Post by mighty72 » Fri Apr 24, 2020 10:42 pm

[moved to Personal Investments -mighty72]

User avatar
SevenBridgesRoad
Posts: 709
Joined: Sat Jul 07, 2018 12:14 am
Location: Within Pacific Ring of Fire

Re: Rethinking annuities with a strong portfolio

Post by SevenBridgesRoad » Fri Apr 24, 2020 11:32 pm

And now for something completely different...

Strong portfolio, and a strong plan here.
Wife and I are big fans of three legged stool approach: SS, pension, portfolio withdrawals. However, no pension for either of us. Using two single premium annuities to create a pension for us. Using the Variable Percentage Withdrawal method with our strong portfolio. Will get another single premium annuity at age 80, if fortunate enough to reach that milestone.

The knee jerk response here is often (but not always) "Annuity = Bad". You really have to dig deeper and listen to more voices.

About as bulletproof as one can get.
Retired 2018 age 61/Variable Percentage Withdrawal method/One fund: VTINX all accounts/No mortgage,debt/Good enough | "Not using an alarm is one of the great glories of my life." Robert Greene

User avatar
Mel Lindauer
Moderator
Posts: 30849
Joined: Mon Feb 19, 2007 8:49 pm
Location: Daytona Beach Shores, Florida
Contact:

Re: Rethinking annuities with a strong portfolio

Post by Mel Lindauer » Sat Apr 25, 2020 12:03 am

With interest rates so low and dropping, chances are that payouts for SPIAs will be much lower at this time. It might pay to wait for interest rates to get a bit more attractive. And while you're waiting for that to happen, you'll also be aging, which increases the payout, too.
Best Regards - Mel | | Semper Fi

User avatar
Stinky
Posts: 4435
Joined: Mon Jun 12, 2017 11:38 am
Location: Sweet Home Alabama

Re: Rethinking annuities with a strong portfolio

Post by Stinky » Sat Apr 25, 2020 6:43 am

Mel Lindauer wrote:
Sat Apr 25, 2020 12:03 am
With interest rates so low and dropping, chances are that payouts for SPIAs will be much lower at this time. It might pay to wait for interest rates to get a bit more attractive. And while you're waiting for that to happen, you'll also be aging, which increases the payout, too.
Both of these points are extremely valid. The low current interest rates are really driving down SPIA "yields" per dollar of premium
It's a GREAT day to be alive - Travis Tritt

David Althaus
Posts: 226
Joined: Wed Feb 14, 2018 8:05 pm

Re: Rethinking annuities with a strong portfolio

Post by David Althaus » Sat Apr 25, 2020 7:32 am

With a Single Premium Annuity you're paid with your own principle, a return on the actuarial table of those who die early, and a paltry interest rate. Then there's fees. On Bogleheads we seem to have a little cognitive dissonance as to fees of these things compared to our index funds. My wife and I will follow the suggestion on the Wiki site to reevaluate if or when we reach age 80. It's important to recognize that in the long run (unless they go bankrupt) the insurance company is always the winner. They're the casino not the player.

All the best

User avatar
Cyclesafe
Posts: 1132
Joined: Wed Dec 31, 2014 1:03 pm

Re: Rethinking annuities with a strong portfolio

Post by Cyclesafe » Sat Apr 25, 2020 7:51 am

The longer you can hold out annuitizing the better. You'll know better your likelihood of survival to age 92 or above (this is about how long the IRS thinks you'll survive if you annuitize from age 80 - imputed from the tables in Pub 939) and/or whether you can trust yourself or your fiduciaries during your dotage to do financially what's best for you.

If you don't attribute to yourself excessive longevity, SPIA's are simply insurance for when you turn out to be wrong - that you actually live longer than you previously thought. If you think your portfolio is sufficient regardless, you don't need to annuitize and incur the considerable potential cost to your beneficiaries of doing so. If you don't care about your beneficiaries, you won't care if you enrich the insurance company at their expense.

Reassess from ages 75 to 80.

Also, don't forget that some states charge a premium tax on annuities.
"Plans are useless; planning is indispensable.” (Dwight Eisenhower) | "Man plans, God laughs" (Yiddish proverb)

smitcat
Posts: 5885
Joined: Mon Nov 07, 2016 10:51 am

Re: Rethinking annuities with a strong portfolio

Post by smitcat » Sat Apr 25, 2020 7:52 am

SevenBridgesRoad wrote:
Fri Apr 24, 2020 11:32 pm
And now for something completely different...

Strong portfolio, and a strong plan here.
Wife and I are big fans of three legged stool approach: SS, pension, portfolio withdrawals. However, no pension for either of us. Using two single premium annuities to create a pension for us. Using the Variable Percentage Withdrawal method with our strong portfolio. Will get another single premium annuity at age 80, if fortunate enough to reach that milestone.

The knee jerk response here is often (but not always) "Annuity = Bad". You really have to dig deeper and listen to more voices.

About as bulletproof as one can get.
3 points in the OP's original post suggests he does not require an SPIA.
1. Planning on SS at 70 (have not factored that in to planning).
2. The interest/dividend of my portfolio would cover my expenses.
3. Rent from real estate would also cover my expenses.

HoosierJim
Posts: 742
Joined: Wed Mar 24, 2010 7:11 pm

Re: Rethinking annuities with a strong portfolio

Post by HoosierJim » Sat Apr 25, 2020 8:17 am

Not considering it until later in life especially if I think I am loosing my facilities. The only reason is to keep some shark from talking me out of my portfolio.

You seem to have a large diversification considering your real estate. Since you didn't factor your SS at 70, seems like your portfolio is even more bullet proof.

Here is the Schwab calculator Note the $5762 per month means they will pay you for 173 months (14.5 years) using just YOUR MONEY. This is not inflation protected (amounts would be lower) and break even point would be later.

Image

User avatar
SevenBridgesRoad
Posts: 709
Joined: Sat Jul 07, 2018 12:14 am
Location: Within Pacific Ring of Fire

Re: Rethinking annuities with a strong portfolio

Post by SevenBridgesRoad » Sat Apr 25, 2020 8:20 am

smitcat wrote:
Sat Apr 25, 2020 7:52 am
SevenBridgesRoad wrote:
Fri Apr 24, 2020 11:32 pm
And now for something completely different...

Strong portfolio, and a strong plan here.
Wife and I are big fans of three legged stool approach: SS, pension, portfolio withdrawals. However, no pension for either of us. Using two single premium annuities to create a pension for us. Using the Variable Percentage Withdrawal method with our strong portfolio. Will get another single premium annuity at age 80, if fortunate enough to reach that milestone.

The knee jerk response here is often (but not always) "Annuity = Bad". You really have to dig deeper and listen to more voices.

About as bulletproof as one can get.
3 points in the OP's original post suggests he does not require an SPIA.
1. Planning on SS at 70 (have not factored that in to planning).
2. The interest/dividend of my portfolio would cover my expenses.
3. Rent from real estate would also cover my expenses.
OP specifically asked "Is there anyone else with a “strong” portfolio rethinking annuities?" He was hearing only from those who weren't rethinking annuities (or upon rethinking, decided against). I offered an example of a couple that decided to use annuities now and in the future, as part of an overall plan, as he requested.
Retired 2018 age 61/Variable Percentage Withdrawal method/One fund: VTINX all accounts/No mortgage,debt/Good enough | "Not using an alarm is one of the great glories of my life." Robert Greene

User avatar
Sandtrap
Posts: 11003
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii No Ka Oi , N. Arizona

Re: Rethinking annuities with a strong portfolio

Post by Sandtrap » Sat Apr 25, 2020 8:37 am

Congratulations on earning that strong portfolio and having a sound strategy.

1 Do nothing. Feeling as if you have to “do something” might pass.
2 Consider possible 1031 Exchanges to residential multi unit income property as it is normally less volatile in economic downturns. How dependent are you on R/E returns for floor income?
3 Annuitize via Laddered SPIA when you must, not before. A “portfolio review” post format with more data would help a lot here.
4 Increase your cash or cash-like allocations can increase your “sleep and stress factor”. Try it. Does no harm.
5 Shift your allocation conservatively so you will not have the urge to change things going forward.
6 Sometimes small changes and adjustments are all that’s needed.

DW and I are also “Strongly Positioned” and that includes R/E income properties in retirement. We’ve often discussed SPIA Annuitizing but there’s no need to.

If you were indeed “Strongly Positioned with substantial assets, you wouldn’t “need” to and it would just be an option.
Reconsider in 5 years if that is so.

j🌺
Wiki Bogleheads Wiki: Everything You Need to Know

Beehave
Posts: 727
Joined: Mon Jun 19, 2017 12:46 pm

Re: Rethinking annuities with a strong portfolio

Post by Beehave » Sat Apr 25, 2020 8:56 am

SevenBridgesRoad wrote:
Fri Apr 24, 2020 11:32 pm
And now for something completely different...

Strong portfolio, and a strong plan here.
Wife and I are big fans of three legged stool approach: SS, pension, portfolio withdrawals. However, no pension for either of us. Using two single premium annuities to create a pension for us. Using the Variable Percentage Withdrawal method with our strong portfolio. Will get another single premium annuity at age 80, if fortunate enough to reach that milestone.

The knee jerk response here is often (but not always) "Annuity = Bad". You really have to dig deeper and listen to more voices.

About as bulletproof as one can get.
+1
If you have the funds to diversify into it, a guaranteed monthly income really helps you get through these types of downturns. If you don't have a pension, an annuity from a solid insurance company makes excellent sense. Instead of a downturn causing financial apprehension, the guaranteed income removes emotion and facilitates helpful rebalancing and even active investment when prices are very low.

Pops1860
Posts: 124
Joined: Thu Mar 14, 2013 4:05 pm

Re: Rethinking annuities with a strong portfolio

Post by Pops1860 » Sat Apr 25, 2020 9:03 am

We have what we consider a "strong portfolio," and, to answer your question, no, we are not thinking about an SPIA, even with the current market turmoil ("strong portfolio" is 90+ % stocks, majority in index funds).

Our reasoning is that annuities, to us, seem most appropriate for people with 'spending concerns/issues,' that cannot handle a large amount of $$ prudently. This could be dementia associated with aging, some other medical impairment, total disinterest in financial matters, or just personal irresponsibility. The SPIA guarantees a steady stream of income, for life.

In our own case, we have more then sufficient income from SS (claimed at 70 for me, FRA for DW) and pensions, that our drawdown rate is essentially 0%. We only withdraw from investments for major discretionary items, like family gatherings hosted by us (all expense paid, just show up), and QCDs for our charity donations. We recognize we are fortunate in this respect, probably better off than many others, but being that is the case (similar to your situation?), going the SPIA route just never enters the discussion.

As a minor note, as others have said, this is not a one-time, stuck forever, decision. You can just keep up to date as your situation evolves over time, and SPIA costs/benefits also change, and decide to change your mind at any point.
The power of accurate observation is often called cynicism by those who do not have it. ~George Bernard Shaw

Dottie57
Posts: 8661
Joined: Thu May 19, 2016 5:43 pm
Location: Earth Northern Hemisphere

Re: Rethinking annuities with a strong portfolio

Post by Dottie57 » Sat Apr 25, 2020 9:04 am

Wricha wrote:
Fri Apr 24, 2020 7:56 pm
megabad wrote:
Fri Apr 24, 2020 7:54 pm
Can you clarify “annuities”? The vast majority of annuities range from useless to complete ripoffs. There are a tiny fraction that are moderately useful in limited capacities for limited numbers of people. Any annuity that someone volunteers to sell you is likely complete junk.
I was thinking single premium immediate annuity, or SPIA
63 here. When I hit 70 , that will be the time to start thinking about Annuities. Maybe several smaller one over a 10 year period... to spread risk.

User avatar
midareff
Posts: 6931
Joined: Mon Nov 29, 2010 10:43 am
Location: Biscayne Bay, South Florida

Re: Rethinking annuities with a strong portfolio

Post by midareff » Sat Apr 25, 2020 9:09 am

smitcat wrote:
Fri Apr 24, 2020 7:47 pm
Wricha wrote:
Fri Apr 24, 2020 7:40 pm
Now fully into retirement (mid 60’s) and with this Covid situation I really feel retired (not good or bad just retired). I built what I thought was almost a bulletproof portfolio. (34% SPY 33% muni/treasury/CD and 33% commercial real estate) plus a small pension. Planning on SS at 70 (have not factored that in to planning). The interest/dividend of my portfolio would cover my expenses. Rent from real estate would also cover my expenses. Nothing bad happened the market went down and the portfolio did what was expected. A few tenants asked for help and we worked it out no big deal. I checked the value of my portfolio once and it was down a lot in absolute dollars but what was expected.
This down turn got me thinking I could lose all my tenants, market could go down big time, and bonds are a little soft. Maybe I am not so smart and should I be thinking about an annuity. I have had a tough time pulling the trigger on annuities because my current withdrawal rate is less than 2%. Is there anyone else with a “strong” portfolio rethinking annuities?
"Is there anyone else with a “strong” portfolio rethinking annuities?"
Not unless we are into our 70's and the numbers look very favorable at that time.
Not here ... I'm 72 and consider my/our portfolio strong, but probably most do as well. Mixed Vanguard S&P500 and TSM with FI munis, corporates and CDs and cash. Realistically, all discretionary expenses have all but vanished... no restaurants, take out once this month, no entertainment outside the home, no this, no that, no almost anything and certainly no air or cruise travel..... 3 cruises cancelled. Good thing Ally is still paying 1.5% on savings cash.

dbr
Posts: 32851
Joined: Sun Mar 04, 2007 9:50 am

Re: Rethinking annuities with a strong portfolio

Post by dbr » Sat Apr 25, 2020 9:12 am

SS is an annuity from the point of view of income planning.

I think the only "flaw" in your plan is whether or not you have correctly estimated the risk in real estate. You are comfortable that you have correctly estimated the risk in stocks and bonds. But connected with that is that you are measuring the real estate contribution by net cash flow that you can withdraw and you are concerned about risk to that income. But, how much at risk are the assets in the event you would choose to sell everything. Real estate is an awkward investment from the income point of view. I think people view the rents as a kind of annuity when in fact rental income is extremely risky, as you fear. What would your plan be to get that income if your real estate starts to generate negative cash flow?

It might be the best plan is not to buy SPIAs but rather to liquidate the real estate? This is not a recommendation. I just want to ask as a thought process. I think what this needs is some folks experienced in real estate (commercial), which I am not.

smitcat
Posts: 5885
Joined: Mon Nov 07, 2016 10:51 am

Re: Rethinking annuities with a strong portfolio

Post by smitcat » Sat Apr 25, 2020 9:16 am

SevenBridgesRoad wrote:
Sat Apr 25, 2020 8:20 am
smitcat wrote:
Sat Apr 25, 2020 7:52 am
SevenBridgesRoad wrote:
Fri Apr 24, 2020 11:32 pm
And now for something completely different...

Strong portfolio, and a strong plan here.
Wife and I are big fans of three legged stool approach: SS, pension, portfolio withdrawals. However, no pension for either of us. Using two single premium annuities to create a pension for us. Using the Variable Percentage Withdrawal method with our strong portfolio. Will get another single premium annuity at age 80, if fortunate enough to reach that milestone.

The knee jerk response here is often (but not always) "Annuity = Bad". You really have to dig deeper and listen to more voices.

About as bulletproof as one can get.
3 points in the OP's original post suggests he does not require an SPIA.
1. Planning on SS at 70 (have not factored that in to planning).
2. The interest/dividend of my portfolio would cover my expenses.
3. Rent from real estate would also cover my expenses.
OP specifically asked "Is there anyone else with a “strong” portfolio rethinking annuities?" He was hearing only from those who weren't rethinking annuities (or upon rethinking, decided against). I offered an example of a couple that decided to use annuities now and in the future, as part of an overall plan, as he requested.
That is fine - so in the OP's case that would then be a 4 legged stool.
The 4th would be in addition to the 3 he already has each one of which could carry all of his expenses.

User avatar
Sandtrap
Posts: 11003
Joined: Sat Nov 26, 2016 6:32 pm
Location: Hawaii No Ka Oi , N. Arizona

Re: Rethinking annuities with a strong portfolio

Post by Sandtrap » Sat Apr 25, 2020 9:21 am

dbr wrote:
Sat Apr 25, 2020 9:12 am
SS is an annuity from the point of view of income planning.

I think the only "flaw" in your plan is whether or not you have correctly estimated the risk in real estate. You are comfortable that you have correctly estimated the risk in stocks and bonds. But connected with that is that you are measuring the real estate contribution by net cash flow that you can withdraw and you are concerned about risk to that income. But, how much at risk are the assets in the event you would choose to sell everything. Real estate is an awkward investment from the income point of view. I think people view the rents as a kind of annuity when in fact rental income is extremely risky, as you fear. What would your plan be to get that income if your real estate starts to generate negative cash flow?

It might be the best plan is not to buy SPIAs but rather to liquidate the real estate? This is not a recommendation. I just want to ask as a thought process. I think what this needs is some folks experienced in real estate (commercial), which I am not.
+1
Great points!

Without more data that might be included in a "portfolio review" format, there's no way of knowing the solidity of those investments and the income they produce, nor how reliant the OP is on those earnings, etc.

OP: as far as your own question as it applies to you, you can edit your original post using the "pencil icon" to include more data in "this format". By doing this, you'll have more comprehensive suggestions with context as it pertains to "you".
Asking Portfolio Questions
https://www.bogleheads.org/forum/viewt ... =1&t=6212

j :happy
Wiki Bogleheads Wiki: Everything You Need to Know

Topic Author
Wricha
Posts: 575
Joined: Sun Mar 25, 2012 10:33 am

Re: Rethinking annuities with a strong portfolio

Post by Wricha » Sat Apr 25, 2020 9:36 am

Sandtrap wrote:
Sat Apr 25, 2020 8:37 am
Congratulations on earning that strong portfolio and having a sound strategy.

1 Do nothing. Feeling as if you have to “do something” might pass.
2 Consider possible 1031 Exchanges to residential multi unit income property as it is normally less volatile in economic downturns. How dependent are you on R/E returns for floor income?
3 Annuitize via Laddered SPIA when you must, not before. A “portfolio review” post format with more data would help a lot here.
4 Increase your cash or cash-like allocations can increase your “sleep and stress factor”. Try it. Does no harm.
5 Shift your allocation conservatively so you will not have the urge to change things going forward.
6 Sometimes small changes and adjustments are all that’s needed.

DW and I are also “Strongly Positioned” and that includes R/E income properties in retirement. We’ve often discussed SPIA Annuitizing but there’s no need to.

If you were indeed “Strongly Positioned with substantial assets, you wouldn’t “need” to and it would just be an option.
Reconsider in 5 years if that is so.

j🌺
The commercial real estate is medical office space with one tenant 60% (15 year lease, if publicly held Fortune 500) which I now understand could go to hell in a hand basket. If I were not in real estate and wanted in I could not think of a better tenant. I am probably too old/lazy for a 1031 exchange. As you know, selling creates all kinds of tax “problems” then what do you do with cash.
If I completely lost the real estate (extremely unpleasant) my lifestyle would not have to change. Although I probably would. I guess I am looking at creating a four legged stool with the fourth leg being an annuity.
Given what I am hearing it maybe a bit early to start building that leg. Thank you.

TN_Boy
Posts: 1687
Joined: Sat Jan 17, 2009 12:51 pm

Re: Rethinking annuities with a strong portfolio

Post by TN_Boy » Sat Apr 25, 2020 9:58 am

Wricha wrote:
Fri Apr 24, 2020 7:40 pm
Now fully into retirement (mid 60’s) and with this Covid situation I really feel retired (not good or bad just retired). I built what I thought was almost a bulletproof portfolio. (34% SPY 33% muni/treasury/CD and 33% commercial real estate) plus a small pension. Planning on SS at 70 (have not factored that in to planning). The interest/dividend of my portfolio would cover my expenses. Rent from real estate would also cover my expenses. Nothing bad happened the market went down and the portfolio did what was expected. A few tenants asked for help and we worked it out no big deal. I checked the value of my portfolio once and it was down a lot in absolute dollars but what was expected.
This down turn got me thinking I could lose all my tenants, market could go down big time, and bonds are a little soft. Maybe I am not so smart and should I be thinking about an annuity. I have had a tough time pulling the trigger on annuities because my current withdrawal rate is less than 2%. Is there anyone else with a “strong” portfolio rethinking annuities?
1) Your withdrawal rate is less than 2%?

2) And you'll be starting SS in about 5 years? (Which is a annuity).

3) And you have a pension (another annuity).

4) After SS kicks in, what will your draw be?

I might bail on the muni bonds .... though this could easily be a overreaction... and replace with TIPS or CDs.

I don't know how risky your 33% commercial real estate investment is. Not being a real estate guy, that is what would worry me the most, since I don't understand how bad that could get. I mean, if all that was invested in mall properties, I'd be kinda upset.

But after all is said and done, based on 1 through 3, I doubt you need to do anything at all. And as others have noted, the SPIA payouts will be small.

The answer to 4) would be interesting.

dbr
Posts: 32851
Joined: Sun Mar 04, 2007 9:50 am

Re: Rethinking annuities with a strong portfolio

Post by dbr » Sat Apr 25, 2020 10:00 am

Wricha wrote:
Sat Apr 25, 2020 9:36 am

The commercial real estate is medical office space with one tenant 60% (15 year lease, if publicly held Fortune 500) which I now understand could go to hell in a hand basket. If I were not in real estate and wanted in I could not think of a better tenant. I am probably too old/lazy for a 1031 exchange. As you know, selling creates all kinds of tax “problems” then what do you do with cash.
If I completely lost the real estate (extremely unpleasant) my lifestyle would not have to change. Although I probably would. I guess I am looking at creating a four legged stool with the fourth leg being an annuity.
Given what I am hearing it maybe a bit early to start building that leg. Thank you.
You seem to be fine:

1. Your income needs are covered twice or three times over. Such people never need an annuity.

2. SS is an annuity that you already have and are maximizing at age 70. It is inexplicable why you would say you are not factoring that in.

3. If you would sell the real estate you would invest that in stocks and bonds and increase the income you would have by the usual process of withdrawing money from a portfolio. If, on assessing your income needs, you would find that SS is only a tiny fraction of your income, then one might think of adding one or more SPIAs in the mid 70's age range, but only if you are under pressure to ensure that your resources will last a lifetime. This does not appear to be the case with you.

NotWhoYouThink
Posts: 3037
Joined: Fri Dec 26, 2014 4:19 pm

Re: Rethinking annuities with a strong portfolio

Post by NotWhoYouThink » Sat Apr 25, 2020 10:17 am

TN_Boy wrote:
Sat Apr 25, 2020 9:58 am
Wricha wrote:
Fri Apr 24, 2020 7:40 pm
Now fully into retirement (mid 60’s) and with this Covid situation I really feel retired (not good or bad just retired). I built what I thought was almost a bulletproof portfolio. (34% SPY 33% muni/treasury/CD and 33% commercial real estate) plus a small pension. Planning on SS at 70 (have not factored that in to planning). The interest/dividend of my portfolio would cover my expenses. Rent from real estate would also cover my expenses. Nothing bad happened the market went down and the portfolio did what was expected. A few tenants asked for help and we worked it out no big deal. I checked the value of my portfolio once and it was down a lot in absolute dollars but what was expected.
This down turn got me thinking I could lose all my tenants, market could go down big time, and bonds are a little soft. Maybe I am not so smart and should I be thinking about an annuity. I have had a tough time pulling the trigger on annuities because my current withdrawal rate is less than 2%. Is there anyone else with a “strong” portfolio rethinking annuities?
1) Your withdrawal rate is less than 2%?

2) And you'll be starting SS in about 5 years? (Which is a annuity).

3) And you have a pension (another annuity).

4) After SS kicks in, what will your draw be?

I might bail on the muni bonds .... though this could easily be a overreaction... and replace with TIPS or CDs.

I don't know how risky your 33% commercial real estate investment is. Not being a real estate guy, that is what would worry me the most, since I don't understand how bad that could get. I mean, if all that was invested in mall properties, I'd be kinda upset.

But after all is said and done, based on 1 through 3, I doubt you need to do anything at all. And as others have noted, the SPIA payouts will be small.

The answer to 4) would be interesting.
OP, it seems you want to "do something" in response to this horrific world pandemic. For some reason, you are thinking of doing something about a retirement portfolio that is more than adequate. You will get SS that you don't need and even without it your interest OR your rents could cover your expenses.

If you want to do something, adopt me. You are going to leave a whopping estate because you are too afraid to spend. I've seen people that happened to, and it was a very sad thing to watch, but habits are hard to change at your age. Leave it to me, I'll spend it on luxury travel and have a great time.

If you are married, please talk with your spouse about how you could use some of your money to make your current and future life more comfortable. It's ok to deprive yourself it that makes you feel good, less ok to deprive others because of your phobias.

Better yet, find some nonprofit work to keep your body and mind occupied. When you see the paltry amounts of money most people have, and the struggles to keep rent and maintenance and insurance current which has become much harder for people that aren't in your situation, you may realize how stable your situation is, and may be able to spend intellectual energy helping others rather than catastrophizing your own situation.

I'm a little old for you to adopt really, am retired with pension/SS/Savings all in the planned spending mix, and have no desire to buy an annuity anytime soon, since I already have 2. Well, 5 actually, 3 pensions and 2 SS streams.

Topic Author
Wricha
Posts: 575
Joined: Sun Mar 25, 2012 10:33 am

Re: Rethinking annuities with a strong portfolio

Post by Wricha » Sat Apr 25, 2020 11:19 am

NotWhoYouThink wrote:
Sat Apr 25, 2020 10:17 am
TN_Boy wrote:
Sat Apr 25, 2020 9:58 am
Wricha wrote:
Fri Apr 24, 2020 7:40 pm
Now fully into retirement (mid 60’s) and with this Covid situation I really feel retired (not good or bad just retired). I built what I thought was almost a bulletproof portfolio. (34% SPY 33% muni/treasury/CD and 33% commercial real estate) plus a small pension. Planning on SS at 70 (have not factored that in to planning). The interest/dividend of my portfolio would cover my expenses. Rent from real estate would also cover my expenses. Nothing bad happened the market went down and the portfolio did what was expected. A few tenants asked for help and we worked it out no big deal. I checked the value of my portfolio once and it was down a lot in absolute dollars but what was expected.
This down turn got me thinking I could lose all my tenants, market could go down big time, and bonds are a little soft. Maybe I am not so smart and should I be thinking about an annuity. I have had a tough time pulling the trigger on annuities because my current withdrawal rate is less than 2%. Is there anyone else with a “strong” portfolio rethinking annuities?
1) Your withdrawal rate is less than 2%?

2) And you'll be starting SS in about 5 years? (Which is a annuity).

3) And you have a pension (another annuity).

4) After SS kicks in, what will your draw be?

I might bail on the muni bonds .... though this could easily be a overreaction... and replace with TIPS or CDs.

I don't know how risky your 33% commercial real estate investment is. Not being a real estate guy, that is what would worry me the most, since I don't understand how bad that could get. I mean, if all that was invested in mall properties, I'd be kinda upset.

But after all is said and done, based on 1 through 3, I doubt you need to do anything at all. And as others have noted, the SPIA payouts will be small.

The answer to 4) would be interesting.
OP, it seems you want to "do something" in response to this horrific world pandemic. For some reason, you are thinking of doing something about a retirement portfolio that is more than adequate. You will get SS that you don't need and even without it your interest OR your rents could cover your expenses.

If you want to do something, adopt me. You are going to leave a whopping estate because you are too afraid to spend. I've seen people that happened to, and it was a very sad thing to watch, but habits are hard to change at your age. Leave it to me, I'll spend it on luxury travel and have a great time.

If you are married, please talk with your spouse about how you could use some of your money to make your current and future life more comfortable. It's ok to deprive yourself it that makes you feel good, less ok to deprive others because of your phobias.

Better yet, find some nonprofit work to keep your body and mind occupied. When you see the paltry amounts of money most people have, and the struggles to keep rent and maintenance and insurance current which has become much harder for people that aren't in your situation, you may realize how stable your situation is, and may be able to spend intellectual energy helping others rather than catastrophizing your own situation.

I'm a little old for you to adopt really, am retired with pension/SS/Savings all in the planned spending mix, and have no desire to buy an annuity anytime soon, since I already have 2. Well, 5 actually, 3 pensions and 2 SS streams.
You are 100% correct. My only defense is my prostrate grew and my brain got smaller. SS would cover maybe 20% of my expenses, I believe that SS is going to be at greater risk (for some folks) when we settle down from this stimulus rush and figure out how to pay it back (not political just some common sense).

Post Reply