New Retiree - To annuitize, stay the 50/50 course, or combo?

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GetSmarter
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New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by GetSmarter »

Fairly new retiree, high-net individual, single, age 62. (3.5 mil) I'm on learning curve where my expense money comes from now and in future, how to drawdown the nest egg. About 1 mil is "set aside" in MMs for future real estate purchase/move; money was from a real estate sale. So I'm likely talking about 2.5 retirement money.

Guaranteed Income: Because interest rates are low, and my social security at 70 will be insufficient to meet annual spending, Fidelity is advocating that I buy an immediate annuity for guaranteed income, as opposed to drawing from my ample 50/50 asset allocation and cash reserve. Currently my expenses are low and I draw from cash/CDs, an inherited IRA with mostly equity index funds, and I just turned off reinvest on individual stocks I inherited to use those dividends for income. (About 2/3 of my equities are index funds where I reinvest the dividends)

To what degree does an annuity make sense for a retiree given low interest rates, and if an annuity makes sense, is it profitable to wait for interest rates to rise for higher payout? Fidelity said with mortality credits, it doesn't matter if I wait or not. 

On the other hand, Vanguard recommends reinvesting dividends (which I do) and selling from my total return for income, withdrawing equal portions from my 50/50 asset allocation for monthly/annual expenses. They think I have too much cash. I think so too but I've been uncomfortable with pending interest rates rise to put cash from a recent inheritance into bonds. I currently have some FXNAX, VBTLX, VCAIX and am considering a portion of cash (haven't decided how much) into VTIP and VCADX.

What's still new to me is having no more reliable income and drawing down from my portfolio. Longevity is in my family. I can see the benefit of an annuity, or annuities to spread insurance company risk, yet tying up a large chunk of money feels uncomfortable for a variety of reasons, particularly if it's over the state's 250k guarantee insurance amount. I also do not have long term care insurance and want to make sure I always have a big chunk of money liquid should I need it.

Thank you for sharing your thoughts and experience.
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
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retired@50
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by retired@50 »

Based on the reading I've done, and the podcasts I've listened to, the best time to buy an annuity is in your 70s. Some people will buy several smaller immediate annuities, spacing them by a year or more, to avoid single insurer risk and interest rate issues.

I'd say you're too young to buy one now, and with the current low interest rates, your money won't buy as much.

Finally, I wouldn't consider anything but a SPIA. See link: https://www.bogleheads.org/wiki/Immediate_fixed_annuity

Regards,
This is one person's opinion. Nothing more.
dbr
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by dbr »

GetSmarter wrote: Wed Oct 06, 2021 12:48 pm
Guaranteed Income: Because interest rates are low, and my social security at 70 will be insufficient to meet annual spending, Fidelity is advocating that I buy an immediate annuity for guaranteed income, as opposed to drawing from my ample 50/50 asset allocation and cash reserve. Currently my expenses are low and I draw from cash/CDs, an inherited IRA with mostly equity index funds, and I just turned off reinvest on individual stocks I inherited to use those dividends for income. (About 2/3 of my equities are index funds where I reinvest the dividends)

1. They want to sell you something. I am surprised this is from Fidelity though.
2. They need to show you why buying an annuity is a better idea than drawing from your investments. It could make some sense, but you need to see how. Be sure they are talking about a single premium fixed immediate annuity (SPIA).
3. SS is an annuity you already have and inflation indexed to boot.


To what degree does an annuity make sense for a retiree given low interest rates, and if an annuity makes sense, is it profitable to wait for interest rates to rise for higher payout? Fidelity said with mortality credits, it doesn't matter if I wait or not. 

I wonder if the statement of waiting vs not waiting is not just about the fact that annuities are actuarially neutral. The fact that you would buy at a time of low interest rates seems to me to be a problem. Maybe someone else can help with this. Note low interest rates affect the prospects for investing the money as well.

On the other hand, Vanguard recommends reinvesting dividends (which I do) and selling from my total return for income, withdrawing equal portions from my 50/50 asset allocation for monthly/annual expenses. They think I have too much cash. I think so too but I've been uncomfortable with pending interest rates rise to put cash from a recent inheritance into bonds. I currently have some FXNAX, VBTLX, VCAIX and am considering a portion of cash (haven't decided how much) into VTIP and VCADX.

Lots of people withdraw dividends in taxable accounts as a matter of convenience and reinvest in tax deferred accounts. It is correct that implicitly identifying dividends with withdrawals is illogical. On the other hand "selling from my total return" is not a thing. What does this even mean. You simply sell an asset and withdraw the cash. It is often sensible to sell some of whatever asset is above target allocation. You would not withdraw whatever your gain was in a year any more than you withdraw what your dividends are in a year. In general a retiree might spend more than he is gaining in return, intending to spend down the portfolio, or less, intending for the portfolio to grow. Note that an annuity purchase represents spending down the portfolio with the portfolio loss being immediate and the income returned on a schedule of future payments.

What's still new to me is having no more reliable income and drawing down from my portfolio. Longevity is in my family. I can see the benefit of an annuity, or annuities to spread insurance company risk, yet tying up a large chunk of money feels uncomfortable for a variety of reasons, particularly if it's over the state's 250k guarantee insurance amount. I also do not have long term care insurance and want to make sure I always have a big chunk of money liquid should I need it.

Those are all very relevant concerns. The annuity is longevity insurance but has the fault of not being inflation indexed. It doesn't tie up chunk of money, it deletes a chunk of money on day 1. A person should have a balance of annuity sources, starting with Social Security, and of asset. A lot may depend on how much of your spending comes from SS, on whether you have legacy objectives, and on retaining a safety net of assets for old age.

Thank you for sharing your thoughts and experience.
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by GerryL »

Here is how I made the decision:
I was aiming to annuitize a chunk of money that I would be getting from my former employer's profit-sharing plan. Then I did the math and peered into the future.

First, of course, I needed to understand what I intended/wanted to spend, so I figured out my expenses -- both needs and wants -- then I increased it generously so as not to be too conservative. (You do yourself no favors by setting up a stingy budget.)

Then I figured out what income streams I could count on, which for me were just SS and two tiny pensions. Add into that estimated dividends in my taxable investments, and I already had more than enough to cover basic expenses.

So, should I still annuitize that profit-sharing cash for reliable income to cover the rest of my desired allowance? That's when I realized that since I was delaying SS until 70, RMDs would kick in soon after (Pre-SECURE Act). At that point I would have to start taking money out of my IRA, and that would be more than enough to fully cover the generous allowance I'd planned on. So I decided to roll the profit-sharing $$ into the IRA, thereby generating even larger RMDs. No need to pay for an annuity.

Note that I had already had my plan -- with allowance level growing with inflation each year -- evaluated by a CFP. So I knew I was okay on my spending. The question was, did I really need another steady income stream. You are younger than I was, so you will also need to consider your pre-SS and pre-RMD income streams for more years.

But really, the critical bit of information is "How much do I want to be able to spend each year?"
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by jebmke »

GerryL wrote: Wed Oct 06, 2021 1:15 pm First, of course, I needed to understand what I intended/wanted to spend, so I figured out my expenses -- both needs and wants
This is a crucial step that should not be skipped or done casually. Annuities have embedded in them insurance which adds cost. Unless one knows if that insurance is needed, the decision is difficult. The need could come from risk of failure, absent the insurance policy. It could also come from a desire to reduce the psychological stress related to money and its potential impact on financial behaviors.
When you discover that you are riding a dead horse, the best strategy is to dismount.
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by Mr.BB »

If you know what your annual expenses are, then you first need to look at how much your Social Security money will cover those expenses. The closer you can get to 100% the more risk/equities you can take with your retirement money.
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by ByThePond »

For me it was combo.
Everything posted above is good advice, and I don't dispute a bit of it. However, at age 63 (some years back), I annuitized about 45% of my portfolio, getting a return of 5.61% from TIAA. My numbers were comparable to yours, and the annuity plus our SS will more than cover our desired expenses when I start collecting at age 70. The remaining portfolio is likely to remain untouched.
Was this financially optimal? No, but I have no concerns over financial security and sleep well.
It was my concession to having "won the game, stop playing".

"It would be nice to roll the dice,
with no less vice than Satisfice." -R. Frost
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by Pocanutin »

By the Pond:

We did exactly the same thing...Purchased a series of SPIAs over a 5 year period ( and were lucky enough to get an average 6% payout). All told, the annuities constituted approx. 45% of our savings and that, coupled with SS, has allowed us to sleep well.. The remaining 55% of our IRAs are allocated at 50/50 Fidelity Total Market Index and Fidelity Intermediate Treasuries.

We are 79 and 75 years of age and didn't begin to purchase the SPIAs until I was 66 yo. In addition, SPIAs and SS cover 93% of our current expenses.

I would recommend this strategy to others. It has allowed us to spend more than I think that we would have without the SPIAs. Probably not the best strategy to maximize wealth however.

To the OP: Best of luck.

P
dbr
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by dbr »

I myself was "forced" to take an SPIA at retirement in the form of a pension with no lump sum or delayed benefit options. That's fine with me. You just have to recognize the properties in being life payments but not inflation indexed and has a certain survivor benefit.

One use of retirement models like FireCalc is that such complexities are rolled in.

I have no idea what decisions I would be making if the pension did not exist and we had more money in investments instead.
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by jebmke »

dbr wrote: Wed Oct 06, 2021 4:19 pm I myself was "forced" to take an SPIA at retirement in the form of a pension with no lump sum or delayed benefit options. That's fine with me. You just have to recognize the properties in being life payments but not inflation indexed and has a certain survivor benefit.
and, if I recall correctly, the payout rates people often cite with respect to annuities are not the same as a return on investment.

One of the drawbacks of no lump sum alternative with DB pensions is that you have no easy way to determine if it is even "as good as" an purchased annuity.
When you discover that you are riding a dead horse, the best strategy is to dismount.
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GetSmarter
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by GetSmarter »

dbr wrote: Wed Oct 06, 2021 4:19 pm I myself was "forced" to take an SPIA at retirement in the form of a pension with no lump sum or delayed benefit options. That's fine with me. You just have to recognize the properties in being life payments but not inflation indexed and has a certain survivor benefit.

One use of retirement models like FireCalc is that such complexities are rolled in.

I have no idea what decisions I would be making if the pension did not exist and we had more money in investments instead.
Thank you for sharing.
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
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GetSmarter
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by GetSmarter »

Pocanutin wrote: Wed Oct 06, 2021 3:35 pm By the Pond:

We did exactly the same thing...Purchased a series of SPIAs over a 5 year period ( and were lucky enough to get an average 6% payout). All told, the annuities constituted approx. 45% of our savings and that, coupled with SS, has allowed us to sleep well.. The remaining 55% of our IRAs are allocated at 50/50 Fidelity Total Market Index and Fidelity Intermediate Treasuries.

We are 79 and 75 years of age and didn't begin to purchase the SPIAs until I was 66 yo. In addition, SPIAs and SS cover 93% of our current expenses.

I would recommend this strategy to others. It has allowed us to spend more than I think that we would have without the SPIAs. Probably not the best strategy to maximize wealth however.

To the OP: Best of luck.

P
Thank you for sharing. I appreciate hearing you sleep well with annuity, and remain invested.
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
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GetSmarter
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by GetSmarter »

dbr wrote: Wed Oct 06, 2021 1:08 pm
GetSmarter wrote: Wed Oct 06, 2021 12:48 pm
Guaranteed Income: Because interest rates are low, and my social security at 70 will be insufficient to meet annual spending, Fidelity is advocating that I buy an immediate annuity for guaranteed income, as opposed to drawing from my ample 50/50 asset allocation and cash reserve. Currently my expenses are low and I draw from cash/CDs, an inherited IRA with mostly equity index funds, and I just turned off reinvest on individual stocks I inherited to use those dividends for income. (About 2/3 of my equities are index funds where I reinvest the dividends)

1. They want to sell you something. I am surprised this is from Fidelity though.
2. They need to show you why buying an annuity is a better idea than drawing from your investments. It could make some sense, but you need to see how. Be sure they are talking about a single premium fixed immediate annuity (SPIA).
3. SS is an annuity you already have and inflation indexed to boot.


To what degree does an annuity make sense for a retiree given low interest rates, and if an annuity makes sense, is it profitable to wait for interest rates to rise for higher payout? Fidelity said with mortality credits, it doesn't matter if I wait or not. 

I wonder if the statement of waiting vs not waiting is not just about the fact that annuities are actuarially neutral. The fact that you would buy at a time of low interest rates seems to me to be a problem. Maybe someone else can help with this. Note low interest rates affect the prospects for investing the money as well.

On the other hand, Vanguard recommends reinvesting dividends (which I do) and selling from my total return for income, withdrawing equal portions from my 50/50 asset allocation for monthly/annual expenses. They think I have too much cash. I think so too but I've been uncomfortable with pending interest rates rise to put cash from a recent inheritance into bonds. I currently have some FXNAX, VBTLX, VCAIX and am considering a portion of cash (haven't decided how much) into VTIP and VCADX.

Lots of people withdraw dividends in taxable accounts as a matter of convenience and reinvest in tax deferred accounts. It is correct that implicitly identifying dividends with withdrawals is illogical. On the other hand "selling from my total return" is not a thing. What does this even mean. You simply sell an asset and withdraw the cash. It is often sensible to sell some of whatever asset is above target allocation. You would not withdraw whatever your gain was in a year any more than you withdraw what your dividends are in a year. In general a retiree might spend more than he is gaining in return, intending to spend down the portfolio, or less, intending for the portfolio to grow. Note that an annuity purchase represents spending down the portfolio with the portfolio loss being immediate and the income returned on a schedule of future payments.

What's still new to me is having no more reliable income and drawing down from my portfolio. Longevity is in my family. I can see the benefit of an annuity, or annuities to spread insurance company risk, yet tying up a large chunk of money feels uncomfortable for a variety of reasons, particularly if it's over the state's 250k guarantee insurance amount. I also do not have long term care insurance and want to make sure I always have a big chunk of money liquid should I need it.

Those are all very relevant concerns. The annuity is longevity insurance but has the fault of not being inflation indexed. It doesn't tie up chunk of money, it deletes a chunk of money on day 1. A person should have a balance of annuity sources, starting with Social Security, and of asset. A lot may depend on how much of your spending comes from SS, on whether you have legacy objectives, and on retaining a safety net of assets for old age.

Thank you for sharing your thoughts and experience.
I appreciate your response and thoughts. I'm inclined to consider a small annuity for partial income but I am still wrapping my head around best time to invest, regarding my age and interest rates, and the fact currently my expenses are very low and I don't need much money to enjoy life.
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
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GetSmarter
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by GetSmarter »

retired@50 wrote: Wed Oct 06, 2021 1:05 pm Based on the reading I've done, and the podcasts I've listened to, the best time to buy an annuity is in your 70s. Some people will buy several smaller immediate annuities, spacing them by a year or more, to avoid single insurer risk and interest rate issues.

I'd say you're too young to buy one now, and with the current low interest rates, your money won't buy as much.

Finally, I wouldn't consider anything but a SPIA. See link: https://www.bogleheads.org/wiki/Immediate_fixed_annuity

Regards,
Thank you
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
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GetSmarter
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by GetSmarter »

GerryL wrote: Wed Oct 06, 2021 1:15 pm Here is how I made the decision:
I was aiming to annuitize a chunk of money that I would be getting from my former employer's profit-sharing plan. Then I did the math and peered into the future.

First, of course, I needed to understand what I intended/wanted to spend, so I figured out my expenses -- both needs and wants -- then I increased it generously so as not to be too conservative. (You do yourself no favors by setting up a stingy budget.)

Then I figured out what income streams I could count on, which for me were just SS and two tiny pensions. Add into that estimated dividends in my taxable investments, and I already had more than enough to cover basic expenses.

So, should I still annuitize that profit-sharing cash for reliable income to cover the rest of my desired allowance? That's when I realized that since I was delaying SS until 70, RMDs would kick in soon after (Pre-SECURE Act). At that point I would have to start taking money out of my IRA, and that would be more than enough to fully cover the generous allowance I'd planned on. So I decided to roll the profit-sharing $$ into the IRA, thereby generating even larger RMDs. No need to pay for an annuity.

Note that I had already had my plan -- with allowance level growing with inflation each year -- evaluated by a CFP. So I knew I was okay on my spending. The question was, did I really need another steady income stream. You are younger than I was, so you will also need to consider your pre-SS and pre-RMD income streams for more years.

But really, the critical bit of information is "How much do I want to be able to spend each year?"
Thanks for sharing your process!
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
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GetSmarter
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by GetSmarter »

retired@50 wrote: Wed Oct 06, 2021 1:05 pm Based on the reading I've done, and the podcasts I've listened to, the best time to buy an annuity is in your 70s. Some people will buy several smaller immediate annuities, spacing them by a year or more, to avoid single insurer risk and interest rate issues.

I'd say you're too young to buy one now, and with the current low interest rates, your money won't buy as much.

Finally, I wouldn't consider anything but a SPIA. See link: https://www.bogleheads.org/wiki/Immediate_fixed_annuity

Regards,
Thanks I'll check out link.
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
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GetSmarter
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by GetSmarter »

dbr wrote: Wed Oct 06, 2021 4:19 pm I myself was "forced" to take an SPIA at retirement in the form of a pension with no lump sum or delayed benefit options. That's fine with me. You just have to recognize the properties in being life payments but not inflation indexed and has a certain survivor benefit.

One use of retirement models like FireCalc is that such complexities are rolled in.

I have no idea what decisions I would be making if the pension did not exist and we had more money in investments instead.
Thanks for weighing in.
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
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GetSmarter
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by GetSmarter »

ByThePond wrote: Wed Oct 06, 2021 2:31 pm For me it was combo.
Everything posted above is good advice, and I don't dispute a bit of it. However, at age 63 (some years back), I annuitized about 45% of my portfolio, getting a return of 5.61% from TIAA. My numbers were comparable to yours, and the annuity plus our SS will more than cover our desired expenses when I start collecting at age 70. The remaining portfolio is likely to remain untouched.
Was this financially optimal? No, but I have no concerns over financial security and sleep well.
It was my concession to having "won the game, stop playing".

"It would be nice to roll the dice,
with no less vice than Satisfice." -R. Frost
I appreciate hearing your story and outcome, sleeping well with financial security. Thank you for sharing.
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
rich126
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by rich126 »

I will admit that I don't mind giving up some money in exchange for safety. My biggest worry with a long term annuity is inflation. At 3% inflation your money drops by 50% in 24 years. So retiring at 60 means at 84 or a few years before you have to account for the decrease in buying power. And with inflation currently around 5%, if that were to continue, the numbers drop to 15 years.
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by 22twain »

In an earlier thread (last February) you wrote:
GetSmarter wrote: Thu Feb 25, 2021 12:16 pm I'm 61 year old retired single. Expenses $60k a year. Assets 3.1 million. Longevity in family. Social Security at 70 about $15,000 a year.
In this thread you've adjusted your assets and set aside some money for real estate, leaving about $2.5 million. That's more than 40x your expenses, even without taking Social Security into account. To put it another way, your expenses amount to 2.4% of of the $2.5 million. On this forum, people often talk about the "4% rule": if you start by spending 4% of your assets in the first year, and thereafter adjust the dollar value upwards for inflation, you are very unlikely to run out of money after 30 years. If you drop the initial spending rate to 3%, you are very likely to have as much money after 30 years as when you started, even after taking inflation into account.

With a 2.4% spending rate, you're almost certain to leave a big pile of money behind. I think most people here would say that from a purely financial point of view, you have no need for an annuity.
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by joverby »

Pocanutin wrote: Wed Oct 06, 2021 3:35 pm By the Pond:

We did exactly the same thing...Purchased a series of SPIAs over a 5 year period ( and were lucky enough to get an average 6% payout).

I would recommend this strategy to others. It has allowed us to spend more than I think that we would have without the SPIAs. Probably not the best strategy to maximize wealth however.
Great payout of 6%!

I was listening to the Rational Reminder podcast (#167) on the psychology of investing and they made that very point. Most people feel comfortable spending their annuity income, because they know it will be "replenished" each month. However many have a hard time spending their IRAs because there is no guarantee that it will replenish. Annuitizing your basic expenses, and even some of your "fun" expenses, can make you feel secure, and also increase your spending and "fun" in retirement.
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by dbr »

joverby wrote: Wed Oct 06, 2021 5:41 pm
Pocanutin wrote: Wed Oct 06, 2021 3:35 pm By the Pond:

We did exactly the same thing...Purchased a series of SPIAs over a 5 year period ( and were lucky enough to get an average 6% payout).

I would recommend this strategy to others. It has allowed us to spend more than I think that we would have without the SPIAs. Probably not the best strategy to maximize wealth however.
Great payout of 6%!

I was listening to the Rational Reminder podcast (#167) on the psychology of investing and they made that very point. Most people feel comfortable spending their annuity income, because they know it will be "replenished" each month. However many have a hard time spending their IRAs because there is no guarantee that it will replenish. Annuitizing your basic expenses, and even some of your "fun" expenses, can make you feel secure, and also increase your spending and "fun" in retirement.
Nothing against SPIAs in general but 2% inflation drops that 6% to 4.5% in fifteen years and 3% inflation drops it to 3.9%.

I have a fixed pension so an important planning problem for me is to understand the relative contributions to income over the years from the pension, from SS, and from portfolio withdrawals. One reason we delayed SS to age 70 was to maximize inflation indexed annuity income in the later years. The good luck factor for us has been low inflation so far. It has been a miniscule 37% over that time. I think that is an average of around 2.2% annual inflation.
InNameOnly
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by InNameOnly »

GetSmarter wrote: Wed Oct 06, 2021 4:37 pm
I appreciate your response and thoughts. I'm inclined to consider a small annuity for partial income but I am still wrapping my head around best time to invest, regarding my age and interest rates, and the fact currently my expenses are very low and I don't need much money to enjoy life.
My wife and I have a similar mind set. We figured stability was job one for our retirement investments so in our mid 60s we added an annuity. Our AA is 50% equity, 25% bonds and 25% annuity. Our lifestyle expenses for the last 4 years has been X. Our annuity plus Social Security will provide us 1.5X as long as either one of us is alive. That means equities and bonds only need to cover inflation on our 1.5X and/or any lumpy expenses, so we sleep well.
Good luck with your decision and remember to keep it simple.
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by Sandtrap »

GetSmarter wrote: Wed Oct 06, 2021 12:48 pm Fairly new retiree, high-net individual, single, age 62. (3.5 mil) I'm on learning curve where my expense money comes from now and in future, how to drawdown the nest egg. About 1 mil is "set aside" in MMs for future real estate purchase/move; money was from a real estate sale. So I'm likely talking about 2.5 retirement money.

Guaranteed Income: Because interest rates are low, and my social security at 70 will be insufficient to meet annual spending, Fidelity is advocating that I buy an immediate annuity for guaranteed income, as opposed to drawing from my ample 50/50 asset allocation and cash reserve. Currently my expenses are low and I draw from cash/CDs, an inherited IRA with mostly equity index funds, and I just turned off reinvest on individual stocks I inherited to use those dividends for income. (About 2/3 of my equities are index funds where I reinvest the dividends)

To what degree does an annuity make sense for a retiree given low interest rates, and if an annuity makes sense, is it profitable to wait for interest rates to rise for higher payout? Fidelity said with mortality credits, it doesn't matter if I wait or not. 

On the other hand, Vanguard recommends reinvesting dividends (which I do) and selling from my total return for income, withdrawing equal portions from my 50/50 asset allocation for monthly/annual expenses. They think I have too much cash. I think so too but I've been uncomfortable with pending interest rates rise to put cash from a recent inheritance into bonds. I currently have some FXNAX, VBTLX, VCAIX and am considering a portion of cash (haven't decided how much) into VTIP and VCADX.

What's still new to me is having no more reliable income and drawing down from my portfolio. Longevity is in my family. I can see the benefit of an annuity, or annuities to spread insurance company risk, yet tying up a large chunk of money feels uncomfortable for a variety of reasons, particularly if it's over the state's 250k guarantee insurance amount. I also do not have long term care insurance and want to make sure I always have a big chunk of money liquid should I need it.

Thank you for sharing your thoughts and experience.
I've been following this thread for a bit and several points stand out.
1. There's not quite enough information provided to discuss whether an SPIA (annuity) fits for "you" in "your financial context and goals". (Not what others would do, but would fit you best).
2. Rather than unpack your narrative vs data, it would help greatly to give comprehensive input if you format your post a bit. You can edit your original post using the "pencil icon" (upper right), and try your best to put it in this format.
Portfolio Review Request
https://www.bogleheads.org/forum/viewt ... =1&t=6212

3. You have a bunch of questions within the narrative:
a) you think you might have too much cash
b) tying up a large chunk of money is uncomfortable for what reasons?
c) State 250k guarantee insurance coverage is a concern. There are ways of dealing with this through the structure of accounts and brokerages you have and also if you have a trust (therefore estate planning seek legal counsel) because the coverages can be structured differently in a trust in a brokerage, etc.
d) Concerns for reliable income and withdrawal rate. Yes.
e) Long term care insurance is none so you will be "self insured", thus, yes, you have to have funds available vs locked in an SPIA.
f) etc, etc, etc.

Note: Annuitization has a time and place depending on one's comprehensive long term financial strategy, also depending on asset size, income stream (which can happen at different times IE: Pension, SS, outside investment income such as rental property, etc).
Annuitization also does not have to be a one shot things, it can be laddered in over time, IE: age 75, age 80, etc.

Note: Annuities are an insurance product. Thus, sales, etc. So, you are being sold a product.

Etc.

So. . . the short of it is that there's no definitive answer to your questions until you provide more info. And, as far as Annuitization, the first step would be to get your investment portfolio in order or at least strategized on paper, and then go from there to see whether you need it, or if you do, when, and how much (in relation to your total invested assets).

You have a lot of very valid concerns and annuitization is just a part of them. And, you are asking the right questions.

I hope this helps.
PM me as you wish.
j :D
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by Sandtrap »

22twain wrote: Wed Oct 06, 2021 5:29 pm In an earlier thread (last February) you wrote:
GetSmarter wrote: Thu Feb 25, 2021 12:16 pm I'm 61 year old retired single. Expenses $60k a year. Assets 3.1 million. Longevity in family. Social Security at 70 about $15,000 a year.
In this thread you've adjusted your assets and set aside some money for real estate, leaving about $2.5 million. That's more than 40x your expenses, even without taking Social Security into account. To put it another way, your expenses amount to 2.4% of of the $2.5 million. On this forum, people often talk about the "4% rule": if you start by spending 4% of your assets in the first year, and thereafter adjust the dollar value upwards for inflation, you are very unlikely to run out of money after 30 years. If you drop the initial spending rate to 3%, you are very likely to have as much money after 30 years as when you started, even after taking inflation into account.

With a 2.4% spending rate, you're almost certain to leave a big pile of money behind. I think most people here would say that from a purely financial point of view, you have no need for an annuity.
Great work on back portfolio filling, "22twain".
That extra important info should be in this topic post by OP.

thanks!
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by Northern Flicker »

The strategies are not mutually exclusive. A SPIA is a fixed income asset. If you start with a 50/50 portfolio of equities and bonds, you can annuitize a portion of the bond portfolio and still have a 50/50 portfolio.

One strategy is to annuitize enough so that SS + SPIA(s) + pensions (if any) covers your estimated essential expenses, sometimes called setting up an income floor. If hypothetically you start with a 50/50 portfolio and then annuitize half of your fixed income assets, the you would have a 66.7/33.3 stock/bond portfolio plus the annuity.

The 250K state guaranty pool limit is not a barrier as this is per person per insurance company. You could, for instance, annuitize $625K by splitting it up into 3 separate purchases of SPIAs from 3 different companies.

I personally don't find the claims that delaying the purchase of a SPIA is beneficial to be very convincing. You will have more knowledge of your health outcomes, but the insurance company may price the SPIA under the assumption that people who delay will self-select to buy at a later age if their health is good. And while Covid lowered our life expectancy a little, the general trend is for life expectancy to increase gradually over time, which increases the cost of a SPIA, all else equal.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by GetSmarter »

InNameOnly wrote: Wed Oct 06, 2021 9:24 pm
GetSmarter wrote: Wed Oct 06, 2021 4:37 pm
I appreciate your response and thoughts. I'm inclined to consider a small annuity for partial income but I am still wrapping my head around best time to invest, regarding my age and interest rates, and the fact currently my expenses are very low and I don't need much money to enjoy life.
My wife and I have a similar mind set. We figured stability was job one for our retirement investments so in our mid 60s we added an annuity. Our AA is 50% equity, 25% bonds and 25% annuity. Our lifestyle expenses for the last 4 years has been X. Our annuity plus Social Security will provide us 1.5X as long as either one of us is alive. That means equities and bonds only need to cover inflation on our 1.5X and/or any lumpy expenses, so we sleep well.
Good luck with your decision and remember to keep it simple.
Thank you for sharing. I appreciate it.
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by GetSmarter »

Northern Flicker wrote: Wed Oct 06, 2021 9:52 pm The strategies are not mutually exclusive. A SPIA is a fixed income asset. If you start with a 50/50 portfolio of equities and bonds, you can annuitize a portion of the bond portfolio and still have a 50/50 portfolio.

One strategy is to annuitize enough so that SS + SPIA(s) + pensions (if any) covers your estimated essential expenses, sometimes called setting up an income floor. If hypothetically you start with a 50/50 portfolio and then annuitize half of your fixed income assets, the you would have a 66.7/33.3 stock/bond portfolio plus the annuity.

The 250K state guaranty pool limit is not a barrier as this is per person per insurance company. You could, for instance, annuitize $625K by splitting it up into 3 separate purchases of SPIAs from 3 different companies.

I personally don't find the claims that delaying the purchase of a SPIA is beneficial to be very convincing. You will have more knowledge of your health outcomes, but the insurance company may price the SPIA under the assumption that people who delay will self-select to buy at a later age if their health is good. And while Covid lowered our life expectancy a little, the general trend is for life expectancy to increase gradually over time, which increases the cost of a SPIA, all else equal.
With pending rising interest rates, I was thinking they'll impact annuity payouts in near future. Of course, that's not my only consideration in this decision. I really appreciate your thoughts and experience. Thank you.
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by Northern Flicker »

If the bond holdings you will annuitize have the same duration as the duration of the SPIA, then there is no effect of interest rate changes. If your fixed income holdings earmarked for annuitization have a shorter duration than the duration of the annuity, then you are making a bet on interest rates rising. If at some point you defer and interest rates fall, the annuity will become more expensive relative to the value of the bond portfolio. Every year you defer, the duration of the annuity will shorten by about half a year.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by GetSmarter »

Northern Flicker wrote: Wed Oct 06, 2021 10:51 pm If the bond holdings you will annuitize have the same duration as the duration of the SPIA, then there is no effect of interest rate changes. If your fixed income holdings earmarked for annuitization have a shorter duration than the duration of the annuity, then you are making a bet on interest rates rising. If at some point you defer and interest rates fall, the annuity will become more expensive relative to the value of the bond portfolio. Every year you defer, the duration of the annuity will shorten by about half a year.
I'd be using cash if I were to buy annuity.
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by GetSmarter »

Sandtrap wrote: Wed Oct 06, 2021 9:47 pm
GetSmarter wrote: Wed Oct 06, 2021 12:48 pm Fairly new retiree, high-net individual, single, age 62. (3.5 mil) I'm on learning curve where my expense money comes from now and in future, how to drawdown the nest egg. About 1 mil is "set aside" in MMs for future real estate purchase/move; money was from a real estate sale. So I'm likely talking about 2.5 retirement money.

Guaranteed Income: Because interest rates are low, and my social security at 70 will be insufficient to meet annual spending, Fidelity is advocating that I buy an immediate annuity for guaranteed income, as opposed to drawing from my ample 50/50 asset allocation and cash reserve. Currently my expenses are low and I draw from cash/CDs, an inherited IRA with mostly equity index funds, and I just turned off reinvest on individual stocks I inherited to use those dividends for income. (About 2/3 of my equities are index funds where I reinvest the dividends)

To what degree does an annuity make sense for a retiree given low interest rates, and if an annuity makes sense, is it profitable to wait for interest rates to rise for higher payout? Fidelity said with mortality credits, it doesn't matter if I wait or not. 

On the other hand, Vanguard recommends reinvesting dividends (which I do) and selling from my total return for income, withdrawing equal portions from my 50/50 asset allocation for monthly/annual expenses. They think I have too much cash. I think so too but I've been uncomfortable with pending interest rates rise to put cash from a recent inheritance into bonds. I currently have some FXNAX, VBTLX, VCAIX and am considering a portion of cash (haven't decided how much) into VTIP and VCADX.

What's still new to me is having no more reliable income and drawing down from my portfolio. Longevity is in my family. I can see the benefit of an annuity, or annuities to spread insurance company risk, yet tying up a large chunk of money feels uncomfortable for a variety of reasons, particularly if it's over the state's 250k guarantee insurance amount. I also do not have long term care insurance and want to make sure I always have a big chunk of money liquid should I need it.

Thank you for sharing your thoughts and experience.
I've been following this thread for a bit and several points stand out.
1. There's not quite enough information provided to discuss whether an SPIA (annuity) fits for "you" in "your financial context and goals". (Not what others would do, but would fit you best).
2. Rather than unpack your narrative vs data, it would help greatly to give comprehensive input if you format your post a bit. You can edit your original post using the "pencil icon" (upper right), and try your best to put it in this format.
Portfolio Review Request
https://www.bogleheads.org/forum/viewt ... =1&t=6212

3. You have a bunch of questions within the narrative:
a) you think you might have too much cash
b) tying up a large chunk of money is uncomfortable for what reasons?
c) State 250k guarantee insurance coverage is a concern. There are ways of dealing with this through the structure of accounts and brokerages you have and also if you have a trust (therefore estate planning seek legal counsel) because the coverages can be structured differently in a trust in a brokerage, etc.
d) Concerns for reliable income and withdrawal rate. Yes.
e) Long term care insurance is none so you will be "self insured", thus, yes, you have to have funds available vs locked in an SPIA.
f) etc, etc, etc.

Note: Annuitization has a time and place depending on one's comprehensive long term financial strategy, also depending on asset size, income stream (which can happen at different times IE: Pension, SS, outside investment income such as rental property, etc).
Annuitization also does not have to be a one shot things, it can be laddered in over time, IE: age 75, age 80, etc.

Note: Annuities are an insurance product. Thus, sales, etc. So, you are being sold a product.

Etc.

So. . . the short of it is that there's no definitive answer to your questions until you provide more info. And, as far as Annuitization, the first step would be to get your investment portfolio in order or at least strategized on paper, and then go from there to see whether you need it, or if you do, when, and how much (in relation to your total invested assets).

You have a lot of very valid concerns and annuitization is just a part of them. And, you are asking the right questions.

I hope this helps.
PM me as you wish.
j :D
I appreciate your suggestion for more information in portfolio review format. I'll do that edit within day or so. I'm glad I'm asking good questions. Thank you.
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by Wannaretireearly »

Tag. Lots of good advice.
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by Northern Flicker »

GetSmarter wrote: Wed Oct 06, 2021 11:52 pm
Northern Flicker wrote: Wed Oct 06, 2021 10:51 pm If the bond holdings you will annuitize have the same duration as the duration of the SPIA, then there is no effect of interest rate changes. If your fixed income holdings earmarked for annuitization have a shorter duration than the duration of the annuity, then you are making a bet on interest rates rising. If at some point you defer and interest rates fall, the annuity will become more expensive relative to the value of the bond portfolio. Every year you defer, the duration of the annuity will shorten by about half a year.
I'd be using cash if I were to buy annuity.
cash has a duration of zero.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by Northern Flicker »

The first thing to consider for annuitizing assets is to delay social security. This simulates buying an inflation-adjusted annuity. The increase in benefit is equivalent to the payout of an inflation-adjusted annuity, and the cash you spend replacing the SS income you don't receive because of delaying the benefit is equivalent to the purchase price of the simulated annuity.

This usually is a better deal than any annuity on the market.
Last edited by Northern Flicker on Thu Oct 07, 2021 11:25 am, edited 1 time in total.
My postings are my opinion, and never should be construed as a recommendation to buy, sell, or hold any particular investment.
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by GetSmarter »

Northern Flicker wrote: Thu Oct 07, 2021 2:29 am The first thing to consider for annuitizing assets is to delay social security. This simulates buying an inflation-adjusted annuity. The increase in benefit is equivalent to the payout of an inflation-adjusted annuity, and the cash you spend replacing the SS incone you don't receive because of delaying the benefit is equivalent to the purchase price of the simulated annuity.

This usually is a better deal than any annuity on the market.
Thanks, yes I'm delaying until age 70.
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by abc132 »

At age 62 with 40x expenses, a 5% payout would give you just enough portfolio (20x expenses) to replace bonds with a 1.2 million annuity an meet all of your current expenses with a 50% stock/50% fixed income portfolio. If you include social security, 15x expenses or 900,000 would provide you the remaining 45,000 per year from age 70 onward.

A 2.4 million 50% bond/50% stock portfolio with 15k inflation adjusted SS at 75, 60k inflation adjusted expenses, and bonds earning -1% real would need:

stocks to earn -6.1% constant real returns to be depleted by age 95.
stocks earn 0% constant real returns to still have 8x expenses at age 95
stocks earn 3% constant real returns to still have 22x expenses at 95


For the 20x (1.2 million) annuity + 20x stock portfolio:

With bonds earning -1% real, the annuity option with 5% payout performed better (better survival and more net worth) with 3% real stock returns. Inflation could not hurt this portfolio. The reason is simple, with -1% bond performance the 50/50 stock/bond portfolio is still depleting value per year, while the annuity with income floor is gaining value equal to the stock growth. At 0% real stock returns, inflation had to be over 9% annually for the 33 years for inflation to cause a failure of the annuity option. The biggest historical US inflation I could find was about 5% annually over a 33 year period.

The only concern I would have about inflation with regards to the annuity would be if you expect negative real stock returns over the next 33 years.

I will need to double check my initial analysis for errors, but on the first draft it appears negative bond rates reasonably push large portfolios (>40x expenses) into the annuity option if we also expect low real stock returns (0% to 3%). I have not yet compared higher stock returns, and I have also muddied the water a bit with constant stock returns.
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by GetSmarter »

abc132 wrote: Thu Oct 07, 2021 1:11 pm At age 62 with 40x expenses, a 5% payout would give you just enough portfolio (20x expenses) to replace bonds with a 1.2 million annuity an meet all of your current expenses with a 50% stock/50% fixed income portfolio. If you include social security, 15x expenses or 900,000 would provide you the remaining 45,000 per year from age 70 onward.

A 2.4 million 50% bond/50% stock portfolio with 15k inflation adjusted SS at 75, 60k inflation adjusted expenses, and bonds earning -1% real would need:

stocks to earn -6.1% constant real returns to be depleted by age 95.
stocks earn 0% constant real returns to still have 8x expenses at age 95
stocks earn 3% constant real returns to still have 22x expenses at 95


For the 20x (1.2 million) annuity + 20x stock portfolio:

With bonds earning -1% real, the annuity option with 5% payout performed better (better survival and more net worth) with 3% real stock returns. Inflation could not hurt this portfolio. The reason is simple, with -1% bond performance the 50/50 stock/bond portfolio is still depleting value per year, while the annuity with income floor is gaining value equal to the stock growth. At 0% real stock returns, inflation had to be over 9% annually for the 33 years for inflation to cause a failure of the annuity option. The biggest historical US inflation I could find was about 5% annually over a 33 year period.

The only concern I would have about inflation with regards to the annuity would be if you expect negative real stock returns over the next 33 years.

I will need to double check my initial analysis for errors, but on the first draft it appears negative bond rates reasonably push large portfolios (>40x expenses) into the annuity option if we also expect low real stock returns (0% to 3%). I have not yet compared higher stock returns, and I have also muddied the water a bit with constant stock returns.
I appreciate your analysis on my behalf. I'm pretty new at understanding my present and possible future investments, and various impacts.
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by ncbill »

22twain wrote: Wed Oct 06, 2021 5:29 pm In an earlier thread (last February) you wrote:
GetSmarter wrote: Thu Feb 25, 2021 12:16 pm I'm 61 year old retired single. Expenses $60k a year. Assets 3.1 million. Longevity in family. Social Security at 70 about $15,000 a year.
In this thread you've adjusted your assets and set aside some money for real estate, leaving about $2.5 million. That's more than 40x your expenses, even without taking Social Security into account. To put it another way, your expenses amount to 2.4% of of the $2.5 million. On this forum, people often talk about the "4% rule": if you start by spending 4% of your assets in the first year, and thereafter adjust the dollar value upwards for inflation, you are very unlikely to run out of money after 30 years. If you drop the initial spending rate to 3%, you are very likely to have as much money after 30 years as when you started, even after taking inflation into account.

With a 2.4% spending rate, you're almost certain to leave a big pile of money behind. I think most people here would say that from a purely financial point of view, you have no need for an annuity.
Agreed.

Most retirement calculators I've used don't recommend annuitizing my similarly conservative portfolio until I'm in my late 70s.

With a WR well under 3%, OP can afford to punt for now & revisit the annuity option in a decade or so.
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by GetSmarter »

ncbill wrote: Fri Oct 08, 2021 10:44 am
22twain wrote: Wed Oct 06, 2021 5:29 pm In an earlier thread (last February) you wrote:
GetSmarter wrote: Thu Feb 25, 2021 12:16 pm I'm 61 year old retired single. Expenses $60k a year. Assets 3.1 million. Longevity in family. Social Security at 70 about $15,000 a year.
In this thread you've adjusted your assets and set aside some money for real estate, leaving about $2.5 million. That's more than 40x your expenses, even without taking Social Security into account. To put it another way, your expenses amount to 2.4% of of the $2.5 million. On this forum, people often talk about the "4% rule": if you start by spending 4% of your assets in the first year, and thereafter adjust the dollar value upwards for inflation, you are very unlikely to run out of money after 30 years. If you drop the initial spending rate to 3%, you are very likely to have as much money after 30 years as when you started, even after taking inflation into account.

With a 2.4% spending rate, you're almost certain to leave a big pile of money behind. I think most people here would say that from a purely financial point of view, you have no need for an annuity.
Agreed.

Most retirement calculators I've used don't recommend annuitizing my similarly conservative portfolio until I'm in my late 70s.

With a WR well under 3%, OP can afford to punt for now & revisit the annuity option in a decade or so.
Thanks for weighing in, ncbill.
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by CWRadio »

Most retirement calculators I've used don't recommend annuitizing my similarly conservative portfolio until I'm in my late 70s
Can you please share the url of the calculators you used for the quoted statement. Thanks Paul
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by Leif »

I considered an annuity. But I decided the very best "annuity like" option is social security at 70. So I set aside a CD ladder to carry me from retirement to 70. I think this is a better option than spending money on an annuity. SS is tax free in my state and taxed only 85% of the income (15% tax free), in my case (less tax for others). Also, inflation adjusted. Not many annuities have that.

In addition, I'm taking dividends and capital gains, in my taxable account, as cash. My retirement accounts are set to reinvest.

Of course what is best for the OP will depend on his particular situation.
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by GetSmarter »

Leif wrote: Fri Oct 08, 2021 3:31 pm I considered an annuity. But I decided the very best "annuity like" option is social security at 70. So I set aside a CD ladder to carry me from retirement to 70. I think this is a better option than spending money on an annuity. SS is tax free in my state and taxed only 85% of the income (15% tax free), in my case (less tax for others). Also, inflation adjusted. Not many annuities have that.

In addition, I'm taking dividends and capital gains, in my taxable account, as cash. My retirement accounts are set to reinvest.

Of course what is best for the OP will depend on his particular situation.
Thanks for sharing your process, Leif. It helps hearing how others figure out retirement income/withdrawal strategies despite different situations.
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by Leif »

GetSmarter wrote: Fri Oct 08, 2021 3:58 pm Thanks for sharing your process, Leif. It helps hearing how others figure out retirement income/withdrawal strategies despite different situations.
You're welcome. I would reemphasize 22twain's point. He did the math and it looks like your withdrawal rate, using current numbers, is 2.4%. Based on that I would strongly consider your need for an annuity. Of course, only you have the full picture.
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by diceman3 »

Back in 2008-2009, MetLife was offering annuities with 6% annual bump up rate. Years later MetLife spun off their Annuity business to Brighthouse Financial. I recently found and selected a Brighthouse Inflation Fund to accommodate my fears of inflation, and eating up the present value of the fund that I was invested.
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by illumination »

I think 50/50 is a good middle ground from where you are now. You could also do things like ladder shorter term MYGA's on the bond side of things to get a little better interest rate instead of something more volatile like a bond fund.

I just look at annuity rates right now and it seems a terrible deal, I'd rather just have short term bonds and see what develops with respect to interest rates. I can't imagine going "all in" on an annuity. I also think too many people are dismissing inflation as something we've somehow figured out and its just a "blip" right now. I could easily see a bad situation develop with inflation and policy makers not having the guts to fix it. The days of a bipartisan-backed Volcker Fed coming in with 20% interest rates to curb inflation seems absolutely impossible in today's climate. If we have inflation pick up even a little bit and stay that way, an annuity is not going to fare well long term.

I will say I think psychologically, I can see the appeal of an annuity and having a lifetime cash flow. I'm sure many people that get them are happy with them (until they calculate some alternative scenarios).
rgs92
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Joined: Mon Mar 02, 2009 8:00 pm

Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by rgs92 »

Fidelity offers SPIAs that increase by a fixed percentage each year (with a choice of 2% or 3% I recall seeing). Did Fidelity mention those to you? I think you can get quotes online just like immediateannuities.com does. (Not sure.)
It may make sense now that rates have gone up a bit, or you can try buying a few over time, at, say, $100,000 each.
Of course this is timing the market, but with interest rates low, this form of dollar cost averaging could be OK.
Topic Author
GetSmarter
Posts: 173
Joined: Tue Oct 02, 2018 11:49 pm

Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by GetSmarter »

illumination wrote: Sat Oct 09, 2021 12:11 pm I think 50/50 is a good middle ground from where you are now. You could also do things like ladder shorter term MYGA's on the bond side of things to get a little better interest rate instead of something more volatile like a bond fund.

I just look at annuity rates right now and it seems a terrible deal, I'd rather just have short term bonds and see what develops with respect to interest rates. I can't imagine going "all in" on an annuity. I also think too many people are dismissing inflation as something we've somehow figured out and its just a "blip" right now. I could easily see a bad situation develop with inflation and policy makers not having the guts to fix it. The days of a bipartisan-backed Volcker Fed coming in with 20% interest rates to curb inflation seems absolutely impossible in today's climate. If we have inflation pick up even a little bit and stay that way, an annuity is not going to fare well long term.

I will say I think psychologically, I can see the appeal of an annuity and having a lifetime cash flow. I'm sure many people that get them are happy with them (until they calculate some alternative scenarios).
Thank you for sharing your thoughts!
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
Topic Author
GetSmarter
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by GetSmarter »

rgs92 wrote: Sat Oct 09, 2021 12:54 pm Fidelity offers SPIAs that increase by a fixed percentage each year (with a choice of 2% or 3% I recall seeing). Did Fidelity mention those to you? I think you can get quotes online just like immediateannuities.com does. (Not sure.)
It may make sense now that rates have gone up a bit, or you can try buying a few over time, at, say, $100,000 each.
Of course this is timing the market, but with interest rates low, this form of dollar cost averaging could be OK.
Fidelity did not mention SPIAs that increase percentage. Just an immediate fixed. The representative strongly recommended half my money for an annuity without any thought to where the money comes from in my portfolio, no thought about capital gains or tax consequences now and later. When I mentioned taxes, I was told that's not their speciality, I should talk to a CPA. A week later, I received a Fidelity email stating I shouldn't use more than 50% of my liquid money in an annuity to ensure I maintain flexibility. None of this instilled confidence rather this thread and my further research.
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
BitTooAggressive
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Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by BitTooAggressive »

It sounds like you have plenty of savings so it don’t see any financial benefit of buying an annuity.

To me an annuity only makes sense if you are worried about outliving your assets. Perhaps in the future it might make sense but not now.

I would also ask the fidelity rep if they are paid a commission and how much.
Topic Author
GetSmarter
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Joined: Tue Oct 02, 2018 11:49 pm

Re: New Retiree - To annuitize, stay the 50/50 course, or combo?

Post by GetSmarter »

BitTooAggressive wrote: Sat Oct 09, 2021 4:07 pm It sounds like you have plenty of savings so it don’t see any financial benefit of buying an annuity.

To me an annuity only makes sense if you are worried about outliving your assets. Perhaps in the future it might make sense but not now.

I would also ask the fidelity rep if they are paid a commission and how much.
I was told my rep would make $1,200 commission on largest annuity that Fidelity recommended (maybe lesser amount annuities too - I didn't ask) but when I asked how much money the company would make if I bought annuity, "That's proprietary information and we don't know the amount either."

Benefit considerations: longevity "insurance"; higher returns than current interest rates; my uncertainty about putting same money into bonds.
“The more simple we are, the more complete we become.” August Rodin | | “The less I needed, the better I felt.” Charles Bukowski
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