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iamblessed
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Post by iamblessed »

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OnTrack2020
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Re: If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took dividends and capita

Post by OnTrack2020 »

Someone check my math, but currently, I believe, the dividends would throw off around $29,000 per year. Capital gains would vary, but will probably put you over the additional $6,000 a year you are asking about.
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Re: If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took dividends and capita

Post by livesoft »

I guess it would depend on how much you have in savings. For instance, if you have $5.21 million in savings, then that $1 million in Wellesley would last more than your lifetime perhaps even hundreds of years. If you have $0 in savings, then I doubt you would ever have any significant amount in savings and would have to be selling shares of Wellesley in some years to get $35K to spend.
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Re: If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took dividends and capita

Post by nisiprius »

This kind of question is impossible to answer exactly. It is the topic of many endless discussions in the forum. Here is a rough-and-ready answer. It is unlikely that you can get any answer that is more accurate or more precise than this.

Wellesley is 40% stocks and 60% bonds.

If we go to the Vanguard Retirement Nest Egg Calculator and enter 40% stocks, 60% bonds, Vanguard's simulator says that there is a 96% chance that your savings will last 30 years, and an 85% chance that it will last for 50 years. Their simulator assumes that you will not draw exactly $35,000 every year, but that you will increase that amount year by year according to inflation.

My experience is that this particular Vanguard calculator tends to be conservative compared to some others. I also believe that Wellesley, being specifically designed for retirement income, is likely to do at least as well and maybe a little better than a generic "40% stocks, 60% bonds" allocation.

There are absolutely no guarantees, but it is reasonable to plan on the idea that $1 million in Wellesley will probably give you $35,000 a year, then increased annually to keep up with inflation, for as long as you live. It's not a crazy or an unrealistic plan.

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Re: If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took dividends and capita

Post by iamblessed »

I looked up the dividends and capitals gains for about 10 years they averaged 5.7%. The capital gains are cut down the next year after the market goes down. So that is not the big draw some people think. I think it is doable but one would need a budget that had a lot of flex to it. It might swing from 32k to 55k a year for dividends and capitals gains. If you can live on less than 32k you should be in very good shape.
Last edited by iamblessed on Tue May 05, 2020 9:14 am, edited 1 time in total.
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Re: If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took dividends and capita

Post by nigel_ht »

iamblessed wrote: Tue May 05, 2020 7:53 am If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took out dividends and capital gains each year? I would put the excess in a saving account each year. I would pull some from saving in the years it paid out less than 35k.
Its mostly 40/60 domestic with a 0.16% expense ratio. At a 3.5% WR the success rate was 86% for lasting 50 years adjusting for CPI.

https://www.firecalc.com/index.php?wdam ... ersion=3.0&

The assumption in the model is that you would re-invest any excess of the $35K a year. Not stash it in a savings account.

Surviving 40 years is more likely. Note that the lucky ones with a good SOR in their first decade will likely be significantly more lucky than the majority of the folks less lucky. As in if you get a good first 10 years your portfolio becomes very large. If not, then not so much.

Folks in the US have been very lucky the past decade. Folks who retired in any of our "lost decades"...not so much. What 2020-2030 looks like... :confused
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Re: If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took dividends and capita

Post by sixtyforty »

Here's another example using PV w/ Monte-Carlo Sim. The data only goes back to 1971 for VWINX (Wellesley). Using a $35K withdrawal adjusted for inflation every year yields a 96% success for 45 years. Note that this is using the total return where dividends and interest are re-invested.

https://www.portfoliovisualizer.com/fin ... foccurs3=3
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Re: If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took dividends and capita

Post by dziuniek »

iamblessed wrote: Tue May 05, 2020 7:53 am If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took out dividends and capital gains each year? I would put the excess in a saving account each year. I would pull some from saving in the years it paid out less than 35k.
I would put 500k into TIPS /35k - inflation adjusted is by itself... atleast 14 years... ride it down to zeero...

I doubt another 500k into Wellesley would do worse....
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Re: If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took dividends and capita

Post by KEotSK66 »

6.74% return is needed to grow the portfolio with inflation AND grow the draw with inflation, for a 3.5% draw in 3% inflation

it seems like you're only looking to not run out of money, in which case i say you probably won't run out of money

you have a good chance of retaining a $1M portfolio even after supporting your retirement

you have a good chance of growing your portfolio with inflation even after supporting your retirement
"i just got fluctuated out of $1,500", jerry
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Re: If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took dividends and capita

Post by TN_Boy »

iamblessed wrote: Tue May 05, 2020 9:12 am I looked up the dividends and capitals gains for about 10 years they averaged 5.7%. The capital gains are cut down the next year after the market goes down. So that is not the big draw some people think. I think it is doable but one would need a budget that had a lot of flex to it. It might swing from 32k to 55k a year for dividends and capitals gains. If you can live on less than 32k you should be in very good shape.
Not another total return versus dividend ....

As people are saying, you would need to pull from from more than just dividends and capital gain distributions some years to get the 35k.

And it is important to note that on years when you don't need to sell some shares to get the 35k, any excess should be reinvested/remain in the fund. By pulling extra and putting into a savings account you would be changing your asset allocation to include some cash, which tends to be a drag on portfolio performance.

In a taxable account, using Wellesley to get 3.5% will probably cost you more in taxes than some solutions, but you'd have to do that math for your tax situation to see how much difference.

That fund is currently yielding about 2.6%, so you would be selling shares to get 35k, though it looks like from Vanguard's page it's throwing off some capital gains and you were going to spend that also (still think you'd have to sell a few shares).
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Re: If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took dividends and capita

Post by Independent George »

Impossible to foretell in the future, as we have no idea what inflation, interest, and dividends will be going forward.

I own Wellesley because I wanted a somewhat-risky place to park my capital in the medium-term, not because I want or need to live off of distributions. Total return and volatility are the important things to consider for long-term investments.
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Re: If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took dividends and capita

Post by KEotSK66 »

admiral shares of Wellesley, vwiax, have a ttm yield of 3.20%
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Re: If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took dividends and capita

Post by rob65 »

I’m a big fan of the Wellesley and Wellington funds, but I’ll just mention one aspect of these funds that could complicate the plan.

Is the money in tax-advantaged accounts (IRA, 401k, etc.) where you only owe tax on withdrawals or in taxable accounts where all distributions are taxed?

If it’s In taxable accounts, the distributions from year to year can vary significantly and could result in a big tax bill in some years. Perhaps more problematic, a large distribution could eliminate any ACA subsidy if you’re under 65 and counting on an ACA plan for health insurance.
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Re: If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took dividends and capita

Post by willthrill81 »

From 1985 until now (all available data in Portfolio Visualizer), had you withdrawn $35k, adjusted annually for inflation, from a starting portfolio of $1 million, you would now have $5.7 million, adjusted for inflation.

Granted, that was near the beginning of a great bull market for both stocks and bonds. But had you started in the year 2000, the worst starting year in almost a half century for retirees, you would now have $1.54 million, adjusted for inflation. But what if you started in 2014, after the long bull market in bonds arguably ended? You would now have $1.07, adjusted for inflation.

A 3.5% withdrawal rate is very robust, especially when combined with an excellent fund like Wellesley.
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Re: If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took dividends and capita

Post by TN_Boy »

KEotSK66 wrote: Tue May 05, 2020 12:34 pm admiral shares of Wellesley, vwiax, have a ttm yield of 3.20%
That's recent history. More recent history is that bond yields have dropped quite a bit this year, hence the SEC yield is about 2.7%, per vanguard.

Unless bond yields spike back up again for some reason, I'd think the SEC yield is what a person should expect going forward in the near future.
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Re: If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took dividends and capita

Post by KEotSK66 »

i believe some of the div cuts will be restored
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Re: If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took dividends and capita

Post by TN_Boy »

KEotSK66 wrote: Tue May 05, 2020 1:21 pm i believe some of the div cuts will be restored
Eventually.

And bond yields will rise (the fund is 60% bonds). Eventually.

We just don't know when. The OP asking about pulling 3.5% from a 1M portfolio of Wellesley income. Right now, you have to sell shares to get that much out of the fund.
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Re: If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took dividends and capita

Post by willthrill81 »

TN_Boy wrote: Tue May 05, 2020 2:30 pm
KEotSK66 wrote: Tue May 05, 2020 1:21 pm i believe some of the div cuts will be restored
Eventually.

And bond yields will rise (the fund is 60% bonds). Eventually.

We just don't know when. The OP asking about pulling 3.5% from a 1M portfolio of Wellesley income. Right now, you have to sell shares to get that much out of the fund.
Selling shares isn't a de facto problem. A 3.5% withdrawal rate is pretty close to the historic perpetual withdrawal rate and certainly would have been perpetual for most historic starting years.
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Re: If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took dividends and capita

Post by TN_Boy »

willthrill81 wrote: Tue May 05, 2020 2:32 pm
TN_Boy wrote: Tue May 05, 2020 2:30 pm
KEotSK66 wrote: Tue May 05, 2020 1:21 pm i believe some of the div cuts will be restored
Eventually.

And bond yields will rise (the fund is 60% bonds). Eventually.

We just don't know when. The OP asking about pulling 3.5% from a 1M portfolio of Wellesley income. Right now, you have to sell shares to get that much out of the fund.
Selling shares isn't a de facto problem. A 3.5% withdrawal rate is pretty close to the historic perpetual withdrawal rate and certainly would have been perpetual for most historic starting years.
It's certainly not a problem for me. Especially if you think in terms of total returns.

But the OP was asking about spending only dividend and capital gains distributions (at least, I think "I took out dividends and capital gains" means spend the capital gains distributions, since spending all capital gains and the dividends from a year would be a pretty hefty draw).
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Re: If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took dividends and capita

Post by willthrill81 »

TN_Boy wrote: Tue May 05, 2020 3:21 pm
willthrill81 wrote: Tue May 05, 2020 2:32 pm
TN_Boy wrote: Tue May 05, 2020 2:30 pm
KEotSK66 wrote: Tue May 05, 2020 1:21 pm i believe some of the div cuts will be restored
Eventually.

And bond yields will rise (the fund is 60% bonds). Eventually.

We just don't know when. The OP asking about pulling 3.5% from a 1M portfolio of Wellesley income. Right now, you have to sell shares to get that much out of the fund.
Selling shares isn't a de facto problem. A 3.5% withdrawal rate is pretty close to the historic perpetual withdrawal rate and certainly would have been perpetual for most historic starting years.
It's certainly not a problem for me. Especially if you think in terms of total returns.

But the OP was asking about spending only dividend and capital gains distributions (at least, I think "I took out dividends and capital gains" means spend the capital gains distributions, since spending all capital gains and the dividends from a year would be a pretty hefty draw).
I agree that the OP wasn't very clear about the strategy. There presumably won't be anything in the savings account to pull from if the dividends and capital gains are under $35k annually, which they likely won't be for a while.
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Re: If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took dividends and capita

Post by KEotSK66 »

i don't think the cash flows come in from wellesley as $35k/12, they're quarterly and vary over the year

what i'm probably going to do is take 1/12th of my yearly draw each month (sell shares :shock:) and the full TR will be reinvested as it comes in throughout the year
"i just got fluctuated out of $1,500", jerry
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Re: If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took dividends and capita

Post by iamblessed »

I was planning on maybe spending 30k to 55k a year depending what the dividends and capitals gains were that year. Do you think that would work?
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Re: If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took dividends and capita

Post by TN_Boy »

iamblessed wrote: Tue May 05, 2020 4:53 pm I was planning on maybe spending 30k to 55k a year depending what the dividends and capitals gains were that year. Do you think that would work?
To clarify when you say spend what "capitals gains were that year" do you mean the taxable capital gains distributions the fund pays out?
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Re: If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took dividends and capita

Post by tibbitts »

iamblessed wrote: Tue May 05, 2020 4:53 pm I was planning on maybe spending 30k to 55k a year depending what the dividends and capitals gains were that year. Do you think that would work?
It'll work great thanks to the other $10M you have in Wellington. Seriously, now you're just throwing out ideas, hoping something will generate some support.
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Re: If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took dividends and capita

Post by willthrill81 »

iamblessed wrote: Tue May 05, 2020 4:53 pm I was planning on maybe spending 30k to 55k a year depending what the dividends and capitals gains were that year.
To be honest, I would not base my withdrawal strategy at all on what happens with dividends.

Karsten at Early Retirement Now has several great posts on this precise topic. This is the first of them.
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Re: If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took dividends and capita

Post by TropikThunder »

KEotSK66 wrote: Tue May 05, 2020 1:21 pm i believe some of the div cuts will be restored
Sure, from the 40% equity part. But unlikely from the 60% bond part.
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iamblessed

Post by KEotSK66 »

hi

spending all the distributions takes reinvestment toward additional shares off the table, you would have to rely totally on nav growth to grow the portfolio

a lot depends on how concerned you are about your portfolio's final value

1) do you want to grow the portfolio over your retirement
2) do you want to maintain the $1M starting value
3) do you want to completely exhaust your portfolio
"i just got fluctuated out of $1,500", jerry
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Re: iamblessed

Post by iamblessed »

KEotSK66 wrote: Tue May 05, 2020 6:41 pm hi

spending all the distributions takes reinvestment toward additional shares off the table, you would have to rely totally on nav growth to grow the portfolio

a lot depends on how concerned you are about your portfolio's final value

1) do you want to grow the portfolio over your retirement
2) do you want to maintain the $1M starting value
3) do you want to completely exhaust your portfolio
Almost number 3 I would like to have a little after 25 years.
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Re: If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took dividends and capita

Post by iamblessed »

TN_Boy wrote: Tue May 05, 2020 5:01 pm
iamblessed wrote: Tue May 05, 2020 4:53 pm I was planning on maybe spending 30k to 55k a year depending what the dividends and capitals gains were that year. Do you think that would work?
To clarify when you say spend what "capitals gains were that year" do you mean the taxable capital gains distributions the fund pays out?
Yes
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Re: iamblessed

Post by willthrill81 »

iamblessed wrote: Tue May 05, 2020 9:12 pm
KEotSK66 wrote: Tue May 05, 2020 6:41 pm hi

spending all the distributions takes reinvestment toward additional shares off the table, you would have to rely totally on nav growth to grow the portfolio

a lot depends on how concerned you are about your portfolio's final value

1) do you want to grow the portfolio over your retirement
2) do you want to maintain the $1M starting value
3) do you want to completely exhaust your portfolio
Almost number 3 I would like to have a little after 25 years.
According to the '4% rule', you would historically have always had at least "a little" after 25 years of withdrawals. Granted, that was for asset allocations of around 60/40 (+/- 10% in stocks), but you should still be just fine with only withdrawing $35k, adjusted for inflation, from a $1 million portfolio. Across the worst 25 year periods in Wellesley's half century lifespan, I believe that you would always have had more than you started with after 25 years at that withdrawal rate.
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Re: iamblessed

Post by venkman »

iamblessed wrote: Tue May 05, 2020 9:12 pm
KEotSK66 wrote: Tue May 05, 2020 6:41 pm hi

spending all the distributions takes reinvestment toward additional shares off the table, you would have to rely totally on nav growth to grow the portfolio

a lot depends on how concerned you are about your portfolio's final value

1) do you want to grow the portfolio over your retirement
2) do you want to maintain the $1M starting value
3) do you want to completely exhaust your portfolio
Almost number 3 I would like to have a little after 25 years.
If you don't care about having much left over, you might consider buying a single premium annuity with some of your principal.

e.g. For a 55-year-old male, $500k will buy an income stream of $2k/month ($24k/year) for life. To get to $35k, the other half of your portfolio would only have to throw off 2.2% in dividends.
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Re: If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took dividends and capita

Post by bltn »

As I scan through this thread, I don t see any discussion about taxes. I presume when the op mentioned 35k per year in expenses, he was including income tax expenses. With 60% of the Wellington Fund in bonds, a significant portion of the dividends will be unqualified and therefore taxed as ordinary income. If taxes weren t considered in the above discussions, then a withdrawal rate of 4% might be necessary to net 3.5 % for living expenses.
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Re: If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took dividends and capita

Post by TN_Boy »

bltn wrote: Wed May 06, 2020 8:03 am As I scan through this thread, I don t see any discussion about taxes. I presume when the op mentioned 35k per year in expenses, he was including income tax expenses. With 60% of the Wellington Fund in bonds, a significant portion of the dividends will be unqualified and therefore taxed as ordinary income. If taxes weren t considered in the above discussions, then a withdrawal rate of 4% might be necessary to net 3.5 % for living expenses.
Oh yes, in a taxable account the Wellesley fund approach will almost surely lead to more taxes (i.e. less money in your pocket) than other asset allocations used to get 3.5%

But how much difference depends on your tax bracket. It might or might not be a big deal.
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Re: If I put 1 million in Wellesley and lived on 35k a year how long would the money last if I took dividends and capita

Post by iamblessed »

I guess the only way to know is to backtest test the idea. I am in the 12% tax bracket.
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Re: iamblessed

Post by am »

venkman wrote: Wed May 06, 2020 1:48 am
iamblessed wrote: Tue May 05, 2020 9:12 pm
KEotSK66 wrote: Tue May 05, 2020 6:41 pm hi

spending all the distributions takes reinvestment toward additional shares off the table, you would have to rely totally on nav growth to grow the portfolio

a lot depends on how concerned you are about your portfolio's final value

1) do you want to grow the portfolio over your retirement
2) do you want to maintain the $1M starting value
3) do you want to completely exhaust your portfolio
Almost number 3 I would like to have a little after 25 years.
If you don't care about having much left over, you might consider buying a single premium annuity with some of your principal.

e.g. For a 55-year-old male, $500k will buy an income stream of $2k/month ($24k/year) for life. To get to $35k, the other half of your portfolio would only have to throw off 2.2% in dividends.
Is there an inflation protected option for annuity and how much would that cost?
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iamblessed

Post by KEotSK66 »

hi

i'm sensitive to my portfolio's value, not just in terms of the nav but also in terms of #shares. since everything is on a per-share basis I think it's warranted to husband the share base, which is why I mentioned taking all the distributions (and possibly putting any excess in a bank account) puts you at the mercy of the nav. there's little you can do to affect nav other than portfolio changes but through the number of shares you do maintain some control

i'll be shooting to grow my portfolio with reasonable inflation and so grow my draw on a real basis (more or less the way tips work). i plan for a 3% draw in 3% inflation, depending how things go over the coming 4 years i may be able to drop my draw to 2.5% or 2.0%

my inflation-adjusted draw is a reality for me, so i'll need my real draw regardless of how the portfolio is performing

i have at least 2 objectives in trying to grow the portfolio with inflation, even after supporting the real draw

1) if my portfolio value stays up i'll be in the game longer, and if i need to tap it in an emergency hopefully the money will be there

2) i would like to leave amap behind


i'm pretty sure at this point all my retirement $ will be in vwiax in my iras

i don't see the return needed to achieve the above being beyond the capabilities of vwiax, stocks bonds and inflation are the unknowns. if i'm able to drop my draw all the better


based on what you posted you are not as sensitive to your portfolio's value so maybe you can take all the distributions and save any excess, i would reinvest the cap gains (even after taxes, if any) and spend the income

good luck
"i just got fluctuated out of $1,500", jerry
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Re: iamblessed

Post by venkman »

am wrote: Wed May 06, 2020 8:53 am Is there an inflation protected option for annuity and how much would that cost?
I used http://www.immediateannuities.com to get the quote. You can get a quote for an inflation-indexed annuity, but you have to get it through e-mail. From what I've heard, there aren't a lot of companies left that offer inflation-indexed annuities.

Laddering annuities is a strategy some people use that can help with inflation. You can also use the annuity to create an income floor, then invest the rest of your portfolio for growth to preserve purchasing power.
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Re: iamblessed

Post by willthrill81 »

venkman wrote: Thu May 07, 2020 9:11 pm
am wrote: Wed May 06, 2020 8:53 am Is there an inflation protected option for annuity and how much would that cost?
I used http://www.immediateannuities.com to get the quote. You can get a quote for an inflation-indexed annuity, but you have to get it through e-mail. From what I've heard, there aren't a lot of companies left that offer inflation-indexed annuities.
No insurance companies provide CPI linked annuities any more. The best that you can do is to get one with a fixed COLA (e.g. 2% every year).
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings
am
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Re: iamblessed

Post by am »

venkman wrote: Thu May 07, 2020 9:11 pm
am wrote: Wed May 06, 2020 8:53 am Is there an inflation protected option for annuity and how much would that cost?
I used http://www.immediateannuities.com to get the quote. You can get a quote for an inflation-indexed annuity, but you have to get it through e-mail. From what I've heard, there aren't a lot of companies left that offer inflation-indexed annuities.

Laddering annuities is a strategy some people use that can help with inflation. You can also use the annuity to create an income floor, then invest the rest of your portfolio for growth to preserve purchasing power.
Thanks. Given that retirements can last 30+ yrs, how do you reduce the risk of the annuity company going bankrupt? Use multiple well rated companies to the limit. And what is the insured limit?
venkman
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Re: iamblessed

Post by venkman »

am wrote: Sat May 09, 2020 7:40 am Thanks. Given that retirements can last 30+ yrs, how do you reduce the risk of the annuity company going bankrupt? Use multiple well rated companies to the limit. And what is the insured limit?
I'm not an expert on the subject, but I believe each state has a Guaranty Association that insures insurance policies. I think the limit for most states is around the $250k range. Spreading things around among the highest-rated companies should cover you against anything short of black-swan-level risk.
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