Why I plan on buying a life annuity - even if it is a stupid idea

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CULater
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Why I plan on buying a life annuity - even if it is a stupid idea

Post by CULater » Thu Nov 15, 2018 9:10 am

In a previous post, I linked to an article by Alan Roth in which he strongly advised against buying life annuities:

https://www.advisorperspectives.com/art ... ur-clients

His primary criticisms were that life annuities mostly just return your own money to you, and that they guarantee you will have maximum exposure to inflation risk because most life annuities are not inflation-indexed and the ones that are are prohibitively expensive. I agree with him entirely.

Except that there's another thing to think about:
- Studies show that, as we age, our brain becomes less able to detect fraud. Changes occur in the region of the brain that helps us decide whether or not to trust someone.

- A majority of financial exploitation is carried out by people the victim knows.

- One study found that financial literacy declines by about 2% every year after age 60. Confidence in financial decision making, however, doesn’t decline with age. That combination—reduced ability but continued confidence—helps explain poor financial decisions by older adults.

In my father’s case, two things helped to lessen the impact of the money squandering. First... my father took his as a lifetime monthly pension. He could only give away what he had on hand, so the financial damage was limited to his past monthly pension payments, while his future distributions remained protected.
https://humbledollar.com/2018/11/taking-their-money/

As a gift from my (relatively) younger self to my older, and likely senile, self I plan to annualize a large portion of my retirement assets even if annuities are a terrible idea. Ending up broke and demented seems like an even worse idea.
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by Jack FFR1846 » Thu Nov 15, 2018 9:21 am

I hope you're only considering an SPIA or a single premium deferred annuity.
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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by HomerJ » Thu Nov 15, 2018 9:27 am

A "life" annuity is a SPIA... The only "good" annuity. You give the insurance company a big check (Single Premium), they give you money each year for life (Immediate Annuity).

It's not a stupid idea. It's a bad investment with poor returns, but it can be a very good idea.

Because when you are talking about the last years of your life, it may not be about investment return. It may be about maximizing income without increasing your risk of running out of money.

Sure, they are only giving you back your own money at first, but you can spend it freely knowing that the income will never run out.

Sure the kids will get less, but you'll get to safely spend more (which may mean spending more on the kids while you are alive).

And I totally agree with you that having a monthly or annual check every year can be a good thing for someone who is suffering from mild dementia. Even if the rest of your investments are stolen from you via fraud, you will still have some income coming in for life.
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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by moehoward » Thu Nov 15, 2018 9:31 am

HomerJ wrote:
Thu Nov 15, 2018 9:27 am
A "life" annuity is a SPIA... The only "good" annuity. You give the insurance company a big check (Single Premium), they give you money each year for life (Immediate Annuity).

It's not a stupid idea. It's a bad investment with poor returns, but it can be a very good idea.

Because when you are talking about the last years of your life, it may not be about investment return. It may be about maximizing income without increasing your risk of running out of money.

Sure, they are only giving you back your own money at first, but you can spend it freely knowing that the income will never run out.

Sure the kids will get less, but you'll get to safely spend more (which may mean spending more on the kids while you are alive).

And I totally agree with you that having a monthly or annual check every year can be a good thing for someone who is suffering from mild dementia. Even if the rest of your investments are stolen from you via fraud, you will still have some income coming in for life.
Well written post. It's not for me but people have different risk tolerances. At least he is going in with eyes wide open.

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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by lernd » Thu Nov 15, 2018 9:31 am

Would a trust offer similar financial protections without relinquishing the capital to an annuity? Assuming an honest trustee, the trust could disperse assets to the beneficiary on a predetermined basis without allowing the beneficiary (with diminishing mental capacity) access to the trust and its assets.

If the argument for an annuity is to protect oneself from diminished mental capacity of old age, then there are probably better ways of offering protection than an annuity.

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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by The Wizard » Thu Nov 15, 2018 9:32 am

CULater wrote:
Thu Nov 15, 2018 9:10 am

...As a gift from my (relatively) younger self to my older, and likely senile, self I plan to annualize a large portion of my retirement assets even if annuities are a terrible idea. Ending up broke and demented seems like an even worse idea.
Welcome to the club.
Alan actually likes single premium annuities from TIAA, which is what I have.
I annuitized enough for several thousand dollars per month of income at start of retirement in 2013.
And a good portion of my annuities are variable, based on commercial real estate and the broad stock market, to provide some inflation protection over the years...
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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by Hug401k » Thu Nov 15, 2018 9:38 am

I think it's a good idea. There's the best financial route and there's the peace of mind route. TIAA reports they pay out monthly annuity payments to 31,000 people over 90 each month. I'm guessing they are all pretty happy about their decision right now.

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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by RickBoglehead » Thu Nov 15, 2018 9:41 am

CULater wrote:
Thu Nov 15, 2018 9:10 am
In a previous post, I linked to an article by Alan Roth in which he strongly advised against buying life annuities:

https://www.advisorperspectives.com/art ... ur-clients

His primary criticisms were that life annuities mostly just return your own money to you, and that they guarantee you will have maximum exposure to inflation risk because most life annuities are not inflation-indexed and the ones that are are prohibitively expensive. I agree with him entirely.

Except that there's another thing to think about:
- Studies show that, as we age, our brain becomes less able to detect fraud. Changes occur in the region of the brain that helps us decide whether or not to trust someone.

- A majority of financial exploitation is carried out by people the victim knows.

- One study found that financial literacy declines by about 2% every year after age 60. Confidence in financial decision making, however, doesn’t decline with age. That combination—reduced ability but continued confidence—helps explain poor financial decisions by older adults.

In my father’s case, two things helped to lessen the impact of the money squandering. First... my father took his as a lifetime monthly pension. He could only give away what he had on hand, so the financial damage was limited to his past monthly pension payments, while his future distributions remained protected.
https://humbledollar.com/2018/11/taking-their-money/

As a gift from my (relatively) younger self to my older, and likely senile, self I plan to annualize a large portion of my retirement assets even if annuities are a terrible idea. Ending up broke and demented seems like an even worse idea.
I understand your logic. But I disagree with most of it.

1) You won't be able to understand if someone is financially exploiting you because you'll be senile (your words) - ok, IF that was true, this person is simply going to take your annuity money. So you're still broke and senile.

2) You use a father as an example, apparently someone who was exploited, but because he had a pension his future money was protected. - until he was exploited again.

Here's a better solution. Have an elder care attorney craft things so that when you're declared incompetent to make your own decisions, a loved one (or a bank trustee) is charged to take care of those decisions for you. As a senile person you likely won't be able to care for yourself safely, so having money is irrelevant.

My in-laws lived into their 90s. Only my MIL handled their money, my FIL never signed a check in his entire life, and likely would have failed if asked to do so even when he was younger. I took over their investments when they were in their late 70s, and took over the day to day handling of the money when my MIL started bouncing checks around mid 80s (at that point she had access to limited funds). We had to push, but we did, because she could see the issues. She still stayed on top of things for a few years until she was declared unable to make her own decisions. Whether we like it or not, at some point in our lives we need to have others making financial (and other) decisions for us. Picking a poor investment choice now doesn't prevent that, it just prevents growth of your investments from being what it should be.

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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by CULater » Thu Nov 15, 2018 9:47 am

lernd wrote:
Thu Nov 15, 2018 9:31 am
Would a trust offer similar financial protections without relinquishing the capital to an annuity? Assuming an honest trustee, the trust could disperse assets to the beneficiary on a predetermined basis without allowing the beneficiary (with diminishing mental capacity) access to the trust and its assets.

If the argument for an annuity is to protect oneself from diminished mental capacity of old age, then there are probably better ways of offering protection than an annuity.
Perhaps. I spoke with an estate attorney who described a client who had made him trustee to manage the client's finances in a non-revokable trust as he aged. But as the elder became more demented, he actually went out and hired another lawyer to sue the trustee attorney in order to dissolve the trust get his hands on his own monies again. He was spending most of his available assets doing this, but apparently the lawyer he found knows better but is shady. Trustee lawyer may have to concede since it was costing him a lot of time and money contesting the lawsuits.

I'm not sure there is anything more bullet-proof than a SPIA. If there is, I'd like to hear about it.
Last edited by CULater on Thu Nov 15, 2018 10:06 am, edited 1 time in total.
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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by ResearchMed » Thu Nov 15, 2018 9:56 am

lernd wrote:
Thu Nov 15, 2018 9:31 am
Would a trust offer similar financial protections without relinquishing the capital to an annuity? Assuming an honest trustee, the trust could disperse assets to the beneficiary on a predetermined basis without allowing the beneficiary (with diminishing mental capacity) access to the trust and its assets.

If the argument for an annuity is to protect oneself from diminished mental capacity of old age, then there are probably better ways of offering protection than an annuity.
We'll be annuitizing at least some of our assets in the future, but not to protect against fraud, although it may help with that "side effect".

For us, it's to allow income for as long as either of us survive.
MIL is almost 100, and she had been living on (surprisingly small survivor) Social Security plus a TIAA annuity until about 95.
Unbeknownst to us, she also had a huge pot of CD's (yes, CD's for decades, ouch!).
Those have allowed her to stay now in a very fine (= expensive) Assisted Living Facility, and perhaps later into the skilled nursing.
Had we known about that money, we'd have tried to insist that she move much sooner. She is so much safer (and better fed, and after several months she was also much happier).

We'll probably deal with inflation in part by having some of the non-annuitized money in equities, and also making our own little inflation adjustment by purchasing smaller SPIA's every several years.

As for fraud, as pointed out, IF someone is determined to get their hands on your money, they'd also be able to figure a way to get some of those monthly checks, too.
At a certain point, one just needs to have *someone* who can be trusted to watch over things.
Yes, it's a bit scary.

RM
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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by vineviz » Thu Nov 15, 2018 9:57 am

HomerJ wrote:
Thu Nov 15, 2018 9:27 am
A "life" annuity is a SPIA... The only "good" annuity. You give the insurance company a big check (Single Premium), they give you money each year for life (Immediate Annuity).

It's not a stupid idea. It's a bad investment with poor returns, but it can be a very good idea.

Because when you are talking about the last years of your life, it may not be about investment return. It may be about maximizing income without increasing your risk of running out of money.

Sure, they are only giving you back your own money at first, but you can spend it freely knowing that the income will never run out.

Sure the kids will get less, but you'll get to safely spend more (which may mean spending more on the kids while you are alive).

And I totally agree with you that having a monthly or annual check every year can be a good thing for someone who is suffering from mild dementia. Even if the rest of your investments are stolen from you via fraud, you will still have some income coming in for life.
I agre. An SPIA can be a very good idea for many people.
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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by ralph124cf » Thu Nov 15, 2018 11:01 am

Has anyone done a good cost comparison between the costs of a bank trust department and the costs of an annuity?

I know that the actual costs are not very transparent, and the trust department generally charges an AUM fee and may well use sub-optimal investments such as their bank branded mutual funds with load fees, 12(b)1 fees, and high ERs. Insurance companies base their guaranteed annuity returns on current long bond rates minus expenses and profit, but at least you get mortality credits.

Ralph

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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by ResearchMed » Thu Nov 15, 2018 11:08 am

ralph124cf wrote:
Thu Nov 15, 2018 11:01 am
Has anyone done a good cost comparison between the costs of a bank trust department and the costs of an annuity?

I know that the actual costs are not very transparent, and the trust department generally charges an AUM fee and may well use sub-optimal investments such as their bank branded mutual funds with load fees, 12(b)1 fees, and high ERs. Insurance companies base their guaranteed annuity returns on current long bond rates minus expenses and profit, but at least you get mortality credits.

Ralph
And those mortality credits and the "for life" aspect of SPIA's are what is particularly appealing to many who get them.
And perhaps especially those how have very long-lived relatives.
It may not be very heritable, but seeing others reach very advanced age, and quite healthy/vigorous, sort of brings it home that it really can happen... and one should be prepared to be comfortable and even active and happy.

There's no other way to get that reassurance, not without risking leaving what may well be too much on the table.
That doesn't work for those without serious legacy plans.
(There will still be "some left", from what is not annuitized, but this approach keeps it to a lower amount, with more to spend-without-worry throughout.)

RM
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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by wolf359 » Thu Nov 15, 2018 11:31 am

vineviz wrote:
Thu Nov 15, 2018 9:57 am
HomerJ wrote:
Thu Nov 15, 2018 9:27 am
A "life" annuity is a SPIA... The only "good" annuity. You give the insurance company a big check (Single Premium), they give you money each year for life (Immediate Annuity).

It's not a stupid idea. It's a bad investment with poor returns, but it can be a very good idea.

Because when you are talking about the last years of your life, it may not be about investment return. It may be about maximizing income without increasing your risk of running out of money.

Sure, they are only giving you back your own money at first, but you can spend it freely knowing that the income will never run out.

Sure the kids will get less, but you'll get to safely spend more (which may mean spending more on the kids while you are alive).

And I totally agree with you that having a monthly or annual check every year can be a good thing for someone who is suffering from mild dementia. Even if the rest of your investments are stolen from you via fraud, you will still have some income coming in for life.
I agre. An SPIA can be a very good idea for many people.
There's a SPIA option called "with cash refund." If you die before your premium has been fully paid out, your survivors get the remainder. Sure, you may have done better investing the whole amount, but at least the premium isn't lost.

If you're married and you get "joint with cash refund," the cost of the cash refund option isn't very high (because it is more likely that one of you will survive beyond the point when they're giving you back your own money.)

I like the idea of a SPIA, but I'm too young for it now and interest rates are too low. I'll kick around the idea until I get older. What I like most about is SPIA option is that if I pass away before my wife (which is likely because I'm older and male), it provides her with a check that combined with social security will address most or all of her needs. Investments will be there, but if she ignores all instructions, gets defrauded, or squanders them, she'll still be okay. It isn't about best return on investment. It's about using the right financial tool (SPIA as insurance) for a specific situation.

It isn't the right tool for me now, but it may be in the future.

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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by CULater » Thu Nov 15, 2018 11:31 am

Just thinking that if you die before your mortality credits kick in and never get anything more than your own money (or less) back from an annuity, how is this different from not having an annuity and leaving your own money on the table when you die? Without an annuity, you must always keep money on the table and not spend it in case you end up needing it. And then somebody is going to have to manage that money responsibly for your benefit. Only difference might be that the non-annuity approach works better for legacy if there is a trusted person to manage it when you start losing your BBs. But recall the linked article, that most of the time the fraudster of demented you is someone you know and maybe even trusted.
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by ResearchMed » Thu Nov 15, 2018 11:37 am

CULater wrote:
Thu Nov 15, 2018 11:31 am
Just thinking that if you die before your mortality credits kick in and never get anything more than your own money (or less) back from an annuity, how is this different from not having an annuity and leaving your own money on the table when you die? Without an annuity, you must always keep money on the table and not spend it in case you end up needing it. And then somebody is going to have to manage that money responsibly for your benefit. Only difference might be that the non-annuity approach works better for legacy if there is a trusted person to manage it when you start losing your BBs. But recall the linked article, that most of the time the fraudster of demented you is someone you know and maybe even trusted.
How is it different?
You are asking this question from a position "after death", not "starting to need retirement income for the rest of your life".

Sure, IF one *knew* that one wouldn't live all that long, then no, don't get an SPIA.
But the decision is made in advance, so the outcome you describe isn't known... and might not be the way it turns out.

I guess I'm not understanding your question??

RM
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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by ScubaHogg » Thu Nov 15, 2018 11:59 am

1) You won't be able to understand if someone is financially exploiting you because you'll be senile (your words) - ok, IF that was true, this person is simply going to take your annuity money. So you're still broke and senile.
I would say there is a very different risk associated with someone stealing a large chunk of your money in one fell swoop vs. someone stealing a little money (monthly pension) for years. Sure, the second thing can happen, but as soon as the theft is discovered it stops (at a minimum), with no effect on future income. That's a very, very different thing then waking up one morning discovering all your money, and it's associated future income, is gone.
Said simply, I think there is a false equivalence between the OPs point and yours.

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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by RickBoglehead » Thu Nov 15, 2018 12:09 pm

ScubaHogg wrote:
Thu Nov 15, 2018 11:59 am
1) You won't be able to understand if someone is financially exploiting you because you'll be senile (your words) - ok, IF that was true, this person is simply going to take your annuity money. So you're still broke and senile.
I would say there is a very different risk associated with someone stealing a large chunk of your money in one fell swoop vs. someone stealing a little money (monthly pension) for years. Sure, the second thing can happen, but as soon as the theft is discovered it stops (at a minimum), with no effect on future income. That's a very, very different thing then waking up one morning discovering all your money, and it's associated future income, is gone.
Said simply, I think there is a false equivalence between the OPs point and yours.
Who discovers it? You're senile (per the OP).

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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by CULater » Thu Nov 15, 2018 12:40 pm

ResearchMed wrote:
Thu Nov 15, 2018 11:37 am
CULater wrote:
Thu Nov 15, 2018 11:31 am
Just thinking that if you die before your mortality credits kick in and never get anything more than your own money (or less) back from an annuity, how is this different from not having an annuity and leaving your own money on the table when you die? Without an annuity, you must always keep money on the table and not spend it in case you end up needing it. And then somebody is going to have to manage that money responsibly for your benefit. Only difference might be that the non-annuity approach works better for legacy if there is a trusted person to manage it when you start losing your BBs. But recall the linked article, that most of the time the fraudster of demented you is someone you know and maybe even trusted.
How is it different?
You are asking this question from a position "after death", not "starting to need retirement income for the rest of your life".

Sure, IF one *knew* that one wouldn't live all that long, then no, don't get an SPIA.
But the decision is made in advance, so the outcome you describe isn't known... and might not be the way it turns out.

I guess I'm not understanding your question??

RM
I think I'm talking about the potential opportunity costs of purchasing a life annuity vs. the opportunity costs of investing that money instead and taking withdrawals.

An opportunity cost of the life annuity is that you might die even before your original principal has been paid back to you, and also what you receive if you live longer than that is a pittance compared to what you might have been able to generate yourself by investing the money.

The opportunity cost of investing the money and taking withdrawals is that you must plan to never spend a significant portion of the money before you die so you always have a "longevity reserve" that you'll never get to spend unless you have the misfortune to live long enough to actually have to spend it, in which case you probably should have purchased the annuity.

Either way, it seems like there is a potential opportunity cost of lost, foregone, or insufficient income. Is there really a difference?
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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by The Wizard » Thu Nov 15, 2018 12:58 pm

CULater wrote:
Thu Nov 15, 2018 11:31 am
Just thinking that if you die before your mortality credits kick in and never get anything more than your own money (or less) back from an annuity, how is this different from not having an annuity and leaving your own money on the table when you die?
The mortality credits "kick in" on month one, you see.
This is why I got a 7.04% payout rate with ten year guarantee from TIAA for my most recent annuitization at age 66.

The mortality credit concept ASSUMES that some of the several thousand age 66 annuitants will just collect 120 monthly payments while others will live considerably longer.
That's how the game is played.

So don't annuitize anything if you plan to live ten additional years or less.
And feel free to withdraw/spend 10% of your portfolio each year in that case...
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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by Stinky » Thu Nov 15, 2018 1:15 pm

Hug401k wrote:
Thu Nov 15, 2018 9:38 am
I think it's a good idea. There's the best financial route and there's the peace of mind route. TIAA reports they pay out monthly annuity payments to 31,000 people over 90 each month. I'm guessing they are all pretty happy about their decision right now.
+1

My mother lived to 90, and most of my aunts and uncles lived well into their 90s. Above a certain age, it’s all about peace of mind. That’s why I’ll buy a SPIA too.
Last edited by Stinky on Thu Nov 15, 2018 1:31 pm, edited 1 time in total.
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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by sschullo » Thu Nov 15, 2018 1:26 pm

Stinky wrote:
Thu Nov 15, 2018 1:15 pm
Hug401k wrote:
Thu Nov 15, 2018 9:38 am
I think it's a good idea. There's the best financial route and there's the peace of mind route. TIAA reports they pay out monthly annuity payments to 31,000 people over 90 each month. I'm guessing they are all pretty happy about their decision right now.
+1

My mother lived to 90, and most of my aunts and uncles lived well into their 90s. Above a certain age, it’s all about piece of kind. That’s why I’ll buy a SPIA too.
Since I already have a pension, VA compensation and SS, I will not need to purchase a private pension, which essentially is an annuity. There is nothing wrong with an annuity during this part of your life, as we are not talking about an investment, its peace of mind. TIAA or Vanguard offered some of the best low-cost annuity plans.
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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by HomerJ » Thu Nov 15, 2018 1:30 pm

RickBoglehead wrote:
Thu Nov 15, 2018 12:09 pm
ScubaHogg wrote:
Thu Nov 15, 2018 11:59 am
1) You won't be able to understand if someone is financially exploiting you because you'll be senile (your words) - ok, IF that was true, this person is simply going to take your annuity money. So you're still broke and senile.
I would say there is a very different risk associated with someone stealing a large chunk of your money in one fell swoop vs. someone stealing a little money (monthly pension) for years. Sure, the second thing can happen, but as soon as the theft is discovered it stops (at a minimum), with no effect on future income. That's a very, very different thing then waking up one morning discovering all your money, and it's associated future income, is gone.
Said simply, I think there is a false equivalence between the OPs point and yours.
Who discovers it? You're senile (per the OP).
A on-going monthly scam is far less lucrative. Steal $1 million and take off, or stick around skimming off the $6000 check the senile guy gets every month.

A family member, a friend, or a neighbor is far more likely to discover an on-going scam than a single scam.

Even if those people do not exist, the scammer has to be somewhat nicer to you and keep you alive to keep the scam going.

Quit trying to make the two things equal. It's obvious that an on-going income stream is less risky.
Last edited by HomerJ on Thu Nov 15, 2018 1:43 pm, edited 1 time in total.
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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by nedsaid » Thu Nov 15, 2018 1:42 pm

I actually think buying an SPIA is a good idea. Not a one size fits all solution but something that many folks should consider. There are strong points in favor and there are drawbacks. This is a case by case decision, one big factor being longevity of family members. The more likely you are to live a very long life, the more you should think about this. Of course, portfolio size is another factor here. People with very large nest eggs probably don't need one.

So if you decide to buy an SPIA (Single Premium Immediate Annuity), other things must be decided. At what age should I buy one? How much of the portfolio should be annuitized? Do I want inflation protection or not? Should I buy longevity insurance, a contract that pays off at a certain age, like age 85?

This is a complex decision and an irrevocable one. Once the money is turned over to the insurance company in exchange for monthly payments, beyond the "look back" period, you cannot go back. I suppose you could turn it back into a lump sum by finding a buyer for the annuity payments but you will take a hit for doing so.
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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by ResearchMed » Thu Nov 15, 2018 1:51 pm

nedsaid wrote:
Thu Nov 15, 2018 1:42 pm
I actually think buying an SPIA is a good idea. Not a one size fits all solution but something that many folks should consider. There are strong points in favor and there are drawbacks. This is a case by case decision, one big factor being longevity of family members. The more likely you are to live a very long life, the more you should think about this. Of course, portfolio size is another factor here. People with very large nest eggs probably don't need one.

So if you decide to buy an SPIA (Single Premium Immediate Annuity), other things must be decided. At what age should I buy one? How much of the portfolio should be annuitized? Do I want inflation protection or not? Should I buy longevity insurance, a contract that pays off at a certain age, like age 85?

This is a complex decision and an irrevocable one. Once the money is turned over to the insurance company in exchange for monthly payments, beyond the "look back" period, you cannot go back. I suppose you could turn it back into a lump sum by finding a buyer for the annuity payments but you will take a hit for doing so.
I think "longevity insurance" is often considered to be a deferred single payment annuity, such that it would *start* at about age 85 or so.
i haven't heard it used to refer to a single payment to be paid back at age 85. Are there models that incorporate something like this? What is done with the lump sum at that age?

RM
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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by nedsaid » Thu Nov 15, 2018 2:10 pm

ResearchMed wrote:
Thu Nov 15, 2018 1:51 pm
nedsaid wrote:
Thu Nov 15, 2018 1:42 pm
I actually think buying an SPIA is a good idea. Not a one size fits all solution but something that many folks should consider. There are strong points in favor and there are drawbacks. This is a case by case decision, one big factor being longevity of family members. The more likely you are to live a very long life, the more you should think about this. Of course, portfolio size is another factor here. People with very large nest eggs probably don't need one.

So if you decide to buy an SPIA (Single Premium Immediate Annuity), other things must be decided. At what age should I buy one? How much of the portfolio should be annuitized? Do I want inflation protection or not? Should I buy longevity insurance, a contract that pays off at a certain age, like age 85?

This is a complex decision and an irrevocable one. Once the money is turned over to the insurance company in exchange for monthly payments, beyond the "look back" period, you cannot go back. I suppose you could turn it back into a lump sum by finding a buyer for the annuity payments but you will take a hit for doing so.
I think "longevity insurance" is often considered to be a deferred single payment annuity, such that it would *start* at about age 85 or so.
i haven't heard it used to refer to a single payment to be paid back at age 85. Are there models that incorporate something like this? What is done with the lump sum at that age?

RM
I forget the name of the product, but you put down a lump sum and it starts with monthly payments at a certain age. The age I read about the most is 85. If you don't make it to age 85, the insurance company gets the money. Just used the Bing search engine and found this Michael Kitces article:

https://www.kitces.com/blog/calculating ... d-returns/
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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by ResearchMed » Thu Nov 15, 2018 2:29 pm

nedsaid wrote:
Thu Nov 15, 2018 2:10 pm
ResearchMed wrote:
Thu Nov 15, 2018 1:51 pm
nedsaid wrote:
Thu Nov 15, 2018 1:42 pm
I actually think buying an SPIA is a good idea. Not a one size fits all solution but something that many folks should consider. There are strong points in favor and there are drawbacks. This is a case by case decision, one big factor being longevity of family members. The more likely you are to live a very long life, the more you should think about this. Of course, portfolio size is another factor here. People with very large nest eggs probably don't need one.

So if you decide to buy an SPIA (Single Premium Immediate Annuity), other things must be decided. At what age should I buy one? How much of the portfolio should be annuitized? Do I want inflation protection or not? Should I buy longevity insurance, a contract that pays off at a certain age, like age 85?

This is a complex decision and an irrevocable one. Once the money is turned over to the insurance company in exchange for monthly payments, beyond the "look back" period, you cannot go back. I suppose you could turn it back into a lump sum by finding a buyer for the annuity payments but you will take a hit for doing so.
I think "longevity insurance" is often considered to be a deferred single payment annuity, such that it would *start* at about age 85 or so.
i haven't heard it used to refer to a single payment to be paid back at age 85. Are there models that incorporate something like this? What is done with the lump sum at that age?

RM
I forget the name of the product, but you put down a lump sum and it starts with monthly payments at a certain age. The age I read about the most is 85. If you don't make it to age 85, the insurance company gets the money. Just used the Bing search engine and found this Michael Kitces article:

https://www.kitces.com/blog/calculating ... d-returns/
Yes, that's what I was suggesting... but it's an annuity, not money that "pays off at a certain age", which seemed to describe a lump sum.

It's also called a single payment deferred annuity, to distinguish it from the more common (relatively speaking) SPIA, where the "I" is for "immediate".

Of course, one can get an annuity to start at any point in the future, not just advanced age.
It's been suggested that it's worth "more" by waiting for more mortality credits.
I've never seen a comparison of putting $X, what one would have paid for the deferred annuity into some sort of reasonably safe investment or even fixed income, and then compare to what that amount would have purchased as an SPIA at the same advanced age. (Hope I managed to describe that clearly?)

RM
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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by nedsaid » Thu Nov 15, 2018 3:03 pm

ResearchMed wrote:
Thu Nov 15, 2018 2:29 pm
nedsaid wrote:
Thu Nov 15, 2018 2:10 pm
ResearchMed wrote:
Thu Nov 15, 2018 1:51 pm
nedsaid wrote:
Thu Nov 15, 2018 1:42 pm
I actually think buying an SPIA is a good idea. Not a one size fits all solution but something that many folks should consider. There are strong points in favor and there are drawbacks. This is a case by case decision, one big factor being longevity of family members. The more likely you are to live a very long life, the more you should think about this. Of course, portfolio size is another factor here. People with very large nest eggs probably don't need one.

So if you decide to buy an SPIA (Single Premium Immediate Annuity), other things must be decided. At what age should I buy one? How much of the portfolio should be annuitized? Do I want inflation protection or not? Should I buy longevity insurance, a contract that pays off at a certain age, like age 85?

This is a complex decision and an irrevocable one. Once the money is turned over to the insurance company in exchange for monthly payments, beyond the "look back" period, you cannot go back. I suppose you could turn it back into a lump sum by finding a buyer for the annuity payments but you will take a hit for doing so.
I think "longevity insurance" is often considered to be a deferred single payment annuity, such that it would *start* at about age 85 or so.
i haven't heard it used to refer to a single payment to be paid back at age 85. Are there models that incorporate something like this? What is done with the lump sum at that age?

RM
I forget the name of the product, but you put down a lump sum and it starts with monthly payments at a certain age. The age I read about the most is 85. If you don't make it to age 85, the insurance company gets the money. Just used the Bing search engine and found this Michael Kitces article:

https://www.kitces.com/blog/calculating ... d-returns/
Yes, that's what I was suggesting... but it's an annuity, not money that "pays off at a certain age", which seemed to describe a lump sum.

It's also called a single payment deferred annuity, to distinguish it from the more common (relatively speaking) SPIA, where the "I" is for "immediate".

Of course, one can get an annuity to start at any point in the future, not just advanced age.
It's been suggested that it's worth "more" by waiting for more mortality credits.
I've never seen a comparison of putting $X, what one would have paid for the deferred annuity into some sort of reasonably safe investment or even fixed income, and then compare to what that amount would have purchased as an SPIA at the same advanced age. (Hope I managed to describe that clearly?)

RM
I am an Accountant by trade and right now I am doing taxes. So I can analyze these things to a degree but I am not an Actuary. This stuff gets to be complex and unfortunately there is no "correct" answer, about all you can do is tilt the odds in your favor. If I knew exactly what would happen in the future, these decisions would be easy, but life is uncertain. Just because my father is 89 years old now doesn't mean I will make it to that age myself. Or I could make it to 105. We just don't know.

About the best we can do is go to a (hopefully) objective Advisor, crunch the numbers, and make some informed guesses. No matter how complex the math, they are still guesses. Still an educated guess is better than an uninformed guess. Plus there are considerations that you just can't quantify.
A fool and his money are good for business.

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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by curmudgeon » Thu Nov 15, 2018 3:24 pm

Considering buying SPIA at certain ages is on my general retirement plan, at age 70,75 and 80. I don't really expect to buy them, but I think they will deserve consideration at roughly those ages. If we go that way, we would split up the purchases, and we would certainly wait until age 80 for some of it, as a way of limiting inflation risk.

Right now I'd be a bit hesitant on buying one because I feel that the long-term rates used in pricing SPIAs are still artificially low because of the Fed's massive balance sheet, though if I were up at age 80 I might not let that hold me back. I'm still 10 years away from my first consideration point, so I'll see how things shake out.

In my case we do have a bequest motive, and we also have kids in whom we have high confidence to manage our finances if needed (and to serve as a sounding board for financial decisions as we get older), so I have somewhat less motivation to go the SPIA route. It's still possible that we might do some as an alternative to bond investments.

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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by afan » Thu Nov 15, 2018 3:48 pm

An annuity is not a good solution for declining mental acuity. All sorts of things can go wrong for such a person beyond outright theft. Annuities do not solve bad financial decisions with the income stream one has. They do not prevent spending too much or giving away too much. One can commit to spending based on the availability of the annuity income stream.

A much better solution is a trust with a reliable person or corporate trustee handing the investments AND paying the bills.
When I took over this for an elderly person I did not find any outright theft. It is possible some may have occurred before I became involved. But there were multiple accounts at high priced brokers and investments in high priced mutual funds. More importantly, there were stacks of unpaid bills. When it was not obvious they were real (say a credit card I knew the person used) I would call up and ask for an accounting of the amounts owed and for what. For the most part legitimate companies were glad to hear there was a trustee involved. A few entities sent bills but were very cagey when they discovered they were talking to someone who was carefully noting who was on the line and what they said. "OK. Let me get this down. It is 2:15 on Thursday June XX, 200X. I spoke with -Please spell your name and your position- who told me that the bills were for services rendered exactly when, and by whom?" A legit company would cheerfully give that information. The ones that did not I never heard from again.

Trust companies charge fees but you can get a schedule of those prices. If you go with something like Vanguard there will be no load or high expense ratio funds involved. Insurance companies will not tell you how much you are paying for their annuities. All they will do is tell you how much money you get.

We have our assets in revocable trusts with a younger generation successor trustee when the time comes. That is likely to be quite a while at this point. That trustee knows that Vanguard is a good place to look if they want a company to do all the work.

I don't know whether one can get fixed annuities with the effective cost less than what Vanguard charges to serve as trustee. Vanguard will sell you variable annuities invested in intermediate term bonds at an all- expense of somewhat less than trustee charges. But these do not include guaranteed returns.

The good reason to buy an annuity would be protection to ensure you have a lifetime income. Delaying Social Security is better since it includes COLA adjustments that do not exist for any annuity I have heard of. But if you want a protected income stream on top of SS, then an annuity might make sense.
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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by CULater » Fri Nov 16, 2018 10:16 am

According to Kitces:
retirees annuitize so rarely that economists have dubbed it an “annuity puzzle”.
An annuity is supposed to be based on mortality risk pooling. If so few people annuitize wouldn't that adversely affect benefits? Also, the people more likely to annuitize might be the ones who expect to live longer. What we need are more people in the pool, especially the ones who will kick off earlier and subsidize the ones who really end up needing the longevity insurance.
May you have the hindsight to know where you've been, The foresight to know where you're going, And the insight to know when you've gone too far. ~ Irish Blessing

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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by gasdoc » Fri Nov 16, 2018 10:32 am

To me, the ideal thing is a SPIA that kicks in at 85 years of age. My question is, "do I trust myself at age 85 to know that I need to purchase one at age 85?" Therefore, I probably will purchase the SPIA, which will kick in at age 85, at the time of my retirement (planned for age 62).

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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by Valuethinker » Fri Nov 16, 2018 10:36 am

CULater wrote:
Thu Nov 15, 2018 9:10 am
In a previous post, I linked to an article by Alan Roth in which he strongly advised against buying life annuities:

https://www.advisorperspectives.com/art ... ur-clients

His primary criticisms were that life annuities mostly just return your own money to you, and that they guarantee you will have maximum exposure to inflation risk because most life annuities are not inflation-indexed and the ones that are are prohibitively expensive. I agree with him entirely.
Would he say the same thing about membership in a Defined Benefit Pension plan? Social Security?

Usually these criticisms rely upon cherry picking - comparing an annuity with a portfolio of stocks for example.

An annuity includes longevity insurance.

Insurance is always, on average, a losing bet. Total payouts to insurees = premiums + investment returns - profits for insurance companies. In the long run for insurance companies (capital) to stay in the business, they have to make a profit.

A complication for individual buyers is that on average annuitants live longer than their peer group of the general population.

You cannot buy longevity insurance any other way. This is the only way you can insure you (or your spouse) living beyond your savings. For those of us with a female spouse, that can be a very long time (the percentage of women aged 65 who live to be over 90 is quite frightening).

"mostly just return your money to you". Yes, but that's a function of low interest rates.

It's hard to make a comparison with a bond portfolio, because US Treasury bonds have no credit risk (and thus are safer, presumably than the insurance company giving you the annuity) but any other type of credit risk could be higher than that faced by annuitants (a relatively privileged position within the liabilities of the insurer, as I understand it).

The inflation point is important as in the USA CPI linked annuities are rare (but not unknown). Deferring taking Social Security is a good way for many of achieving higher inflation protection.

To achieve that without an annuity you need a portfolio of TIPS. And at current interest rates, you'd need a lot of TIPS.

But, of course, you can missestimate future interest rates and die without funds - there's no longevity insurance in a portfolio of TIPS.

Since the mortality credit does not rise linearly, it can pay to defer taking an annuity until your 70s. Depending on age of spouse, health etc.

Cheer yourself up. This is the one purchase where smoking and other issues *helps* you, not hinders ;-).

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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by mouses » Fri Nov 16, 2018 10:48 am

HomerJ wrote:
Thu Nov 15, 2018 1:30 pm

A family member, a friend, or a neighbor is far more likely to discover an on-going scam than a single scam.

Even if those people do not exist, the scammer has to be somewhat nicer to you and keep you alive to keep the scam going.
Well, not really, every so often one reads of a person collecting Social Security say, for a relative who's been dead for years, but buried in the basement or something so no death record exists.

I am probably jinxing things by saying this, but I object to the promise that we're all sliding into senility. If the 2% rate were true, I'd be at 70% of my younger mental capacity. None of my relatives have had a problem with senility. I think if I were that impacted, my younger relatives would be making noises about taking away my car keys and so on.

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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by longinvest » Fri Nov 16, 2018 11:07 am

gasdoc wrote:
Fri Nov 16, 2018 10:32 am
To me, the ideal thing is a SPIA that kicks in at 85 years of age. My question is, "do I trust myself at age 85 to know that I need to purchase one at age 85?" Therefore, I probably will purchase the SPIA, which will kick in at age 85, at the time of my retirement (planned for age 62).
This would give the insurance company 23 additional years to get into trouble!

I think that age 80 is a good age to consider buying an inflation-indexed SPIA with part (not all!) of one's residual portfolio, if necessary to accumulate sufficient non-portfolio income (including Social Security and pensions) to provide lifelong comfortable living (no more than that, as insurance is expensive) independently of portfolio withdrawals which will be used for extra spending and giving forward from there.
Bogleheads investment philosophy | Lifelong Portfolio: 25% each of (domestic / international) stocks / domestic (nominal / inflation-indexed) long-term bonds | VCN/VXC/VLB/ZRR

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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by bsteiner » Fri Nov 16, 2018 11:47 am

lernd wrote:
Thu Nov 15, 2018 9:31 am
Would a trust offer similar financial protections without relinquishing the capital to an annuity? Assuming an honest trustee, the trust could disperse assets to the beneficiary on a predetermined basis without allowing the beneficiary (with diminishing mental capacity) access to the trust and its assets.

If the argument for an annuity is to protect oneself from diminished mental capacity of old age, then there are probably better ways of offering protection than an annuity.
If you want to protect against the risk of living too long, the annuity does that, at the cost of a lesser return if you don't live substantially longer than expected.

If you want to protect against predators, a trust in which you give up control to one or more trusted individuals and/or a bank or trust company does that. We had a client who knew that her abilities were declining and who was concerned about a specific potential predator do that.

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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by averagedude » Fri Nov 16, 2018 11:55 am

I find it odd that alot of people that buy annuities, started claiming their social security as soon as possible. Im sure the financial salesperson didnt tell them that waiting to claim benefits until 70 years old is usually the best annuity. Eight percent gains every year you wait and indexed for inflation forever.

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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by dodecahedron » Fri Nov 16, 2018 12:05 pm

gasdoc wrote:
Fri Nov 16, 2018 10:32 am
To me, the ideal thing is a SPIA that kicks in at 85 years of age. My question is, "do I trust myself at age 85 to know that I need to purchase one at age 85?" Therefore, I probably will purchase the SPIA, which will kick in at age 85, at the time of my retirement (planned for age 62).

gasdoc
SPIA = ¨Single Premium Immediate Annuity¨ where the I stands for immediate, which means that payments start immediately upon payment of the single premium.

What you propose purchasing is actually called a DIA (Deferred Income Annuity). It can be paid for either with a single premium or a sequence of premium payments.

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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by vineviz » Fri Nov 16, 2018 12:20 pm

dodecahedron wrote:
Fri Nov 16, 2018 12:05 pm
gasdoc wrote:
Fri Nov 16, 2018 10:32 am
To me, the ideal thing is a SPIA that kicks in at 85 years of age. My question is, "do I trust myself at age 85 to know that I need to purchase one at age 85?" Therefore, I probably will purchase the SPIA, which will kick in at age 85, at the time of my retirement (planned for age 62).

gasdoc
SPIA = ¨Single Premium Immediate Annuity¨ where the I stands for immediate, which means that payments start immediately upon payment of the single premium.

What you propose purchasing is actually called a DIA (Deferred Income Annuity). It can be paid for either with a single premium or a sequence of premium payments.
Folks might be interested in this Morningstar discussion of SPIA vs DIA.

https://www.morningstar.com/videos/6661 ... types.html
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by TravelforFun » Fri Nov 16, 2018 1:43 pm

For those who have SPIA, do you have a COLA SPIA? Thinking about getting one for us.

TravelforFun

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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by bikechuck » Fri Nov 16, 2018 1:59 pm

The Wizard wrote:
Thu Nov 15, 2018 9:32 am
CULater wrote:
Thu Nov 15, 2018 9:10 am

...As a gift from my (relatively) younger self to my older, and likely senile, self I plan to annualize a large portion of my retirement assets even if annuities are a terrible idea. Ending up broke and demented seems like an even worse idea.
Welcome to the club.
Alan actually likes single premium annuities from TIAA, which is what I have.
I annuitized enough for several thousand dollars per month of income at start of retirement in 2013.
And a good portion of my annuities are variable, based on commercial real estate and the broad stock market, to provide some inflation protection over the years...
Wizard, thank you for your post. I have a portion of my portfolio in TIAA Traditional and also TIAA Real Estate and I have always planned to CONSIDER annuitizing this portion of my portfolio when I reach my mid 70s. I plan to delay my decision 1) to allow for more mortality credits and 2) because I believe that interest rates are more likely to increase rather than decrease and both of these things would increase my monthly payments.

I would be very interested in what drove your decision to annuitize your TIAA holdings when you reached your retirement age. I am open to listening and learning from others and I would value your input and your reasoning.

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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by boomergeneration » Fri Nov 16, 2018 2:00 pm

My dad got a non-Cola'd pension from Bethlehem Steel in 1982; it was $800. per month. It is, of course, still $800. per month but he likes getting it. Many, if not most, non-public pensions do not have a Cola.That is how I look at a SPIA. When I was 62, I got a SPIA paying me $1,034 per month. I liked knowing that no matter what the stock market did, I would get my monthly amount. And, yes, I knew inflation would eat into it over the years. But, psychologically, it helps me wait until 70 to take Social Security. For me, it was a great decision. I don't think it was a stupid idea at all.

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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by bikechuck » Fri Nov 16, 2018 2:05 pm

averagedude wrote:
Fri Nov 16, 2018 11:55 am
I find it odd that alot of people that buy annuities, started claiming their social security as soon as possible. Im sure the financial salesperson didnt tell them that waiting to claim benefits until 70 years old is usually the best annuity. Eight percent gains every year you wait and indexed for inflation forever.
Well perhaps that is true but it would first require congressional action signed off on by our president to shore up the system. I am becoming less and less convinced with each passing day, year, decade that, that can/will happen.

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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by Nate79 » Fri Nov 16, 2018 2:56 pm

boomergeneration wrote:
Fri Nov 16, 2018 2:00 pm
My dad got a non-Cola'd pension from Bethlehem Steel in 1982; it was $800. per month. It is, of course, still $800. per month but he likes getting it. Many, if not most, non-public pensions do not have a Cola.That is how I look at a SPIA. When I was 62, I got a SPIA paying me $1,034 per month. I liked knowing that no matter what the stock market did, I would get my monthly amount. And, yes, I knew inflation would eat into it over the years. But, psychologically, it helps me wait until 70 to take Social Security. For me, it was a great decision. I don't think it was a stupid idea at all.
That $800 per month pension in 1982 is only worth about $300 in inflation adjusted dollars. That is a HUGE difference.

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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by vineviz » Fri Nov 16, 2018 4:09 pm

TravelforFun wrote:
Fri Nov 16, 2018 1:43 pm
For those who have SPIA, do you have a COLA SPIA? Thinking about getting one for us.
Inflation-adjusted SPIAs are unusual and, generally, less efficient than an unadjusted SPIA. For most retirees, an unadjusted SPIA (or perhaps one with a fixed increase, say 1% or 2%) taken between the age of 70 and 80 is the best bet.

This almost always the case if the following four conditions are true:

1) Your total SPENDING in Year One of retirement is less than 4% of your retirement portfolio balance;
2) Social Security covers at least 40% of your SPENDING in Year One of retirement;
3) You use no more than half of your retirement portfolio to buy the SPIA;
4) The remainder of your portfolio (after buying the SPIA) contains at least 40% equity and 40% total bond market.
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch

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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by rgs92 » Fri Nov 16, 2018 4:11 pm

You can turn a fixed income stream (more or less) into an inflation adjusted one by investing a portion of the money (30%) into some sort of savings vehicle (like a 60/40 3 fund or 2 fund portfolio).

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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by SGM » Fri Nov 16, 2018 4:47 pm

I do think that SPIAs are more secure than a large portfolio. The Uncle Phan in the HumbleDollar article gave money away, He took a lump sum instead of a pension and blew it. He moved into a shack. The father of the author had the same option and took an annuity instead of the lump sum. He had a continual income stream for life.


In my experience at some point an elderly person with a family will eventually have a family member who will discover fraud. At some point a responsible person has a chance of taking over the finances of an elderly demented persons finances. If a demented person gives, invests or lends someone a large some of money it will be difficult to get that money back. We recovered 50% of a loss to a Ponzi scheme. It took me a year to convince the family members in control that the senior was not just "having fun with his money", but was being cheated. The attorney's advised not to prosecute as then it would be unlikely any of the money would be recovered. Another relative lost a large loan that was unrecoverable. Another lawyer advised that same relative to invest in a start up which became an unrecoverable 100% loss.

My father was giving money away to charities, purchasing magazines and paying for subscriptions far into the future. He also was getting unwarranted car repairs at very high costs. When we discovered this problem we put an end to it. He then was able to live off his SS and pension and actually save and invest money until he went into an assisted living facility. Having a stream of income gives one a better chance of recovering from fraud.

How does a demented person discover the fraud? He does not. Concerned honest relatives are nearly always the ones who discover and rectify the problem as best they can.

Joe Tomlinson, a top notch actuary, has written about how adding SPIAs to delayed SS can greatly increase the longevity of a portfolio. I am planning on buying a ladder of SPIAs. I have been discussing our finances with our grown children and fully expect them to protect our interests if we are no longer able to handle our finances.

An SPIA is not a bad deal if you have longevity. There is some loss due to inflation. One should generally not put all of one's investments into annuities.

GrowthSeeker
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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by GrowthSeeker » Fri Nov 16, 2018 6:17 pm

CULater wrote:
Thu Nov 15, 2018 9:10 am
I plan to annualize a large portion of my retirement assets even if annuities are a terrible idea. Ending up broke and demented seems like an even worse idea.
Good post. Most of what motivates me to dig deep into these financial decisions is ultimately to reduce stress. My own thought at age 66 is to consider as the years go by, if I start to lose mental capacity and also maintain good physical health then, for me, it would be time to consider a SPIA. But for now, I am so focused on things like net worth and total return, I would hate to see the net worth drop from purchasing the SPIA.

SGM wrote:
Fri Nov 16, 2018 4:47 pm
I am planning on buying a ladder of SPIAs.
Interesting. Could you explain the rationale further (re: ladder of SPIAs); thanks.
Just because you're paranoid doesn't mean they're NOT out to get you.

ResearchMed
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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by ResearchMed » Fri Nov 16, 2018 8:21 pm

GrowthSeeker wrote:
Fri Nov 16, 2018 6:17 pm
CULater wrote:
Thu Nov 15, 2018 9:10 am
I plan to annualize a large portion of my retirement assets even if annuities are a terrible idea. Ending up broke and demented seems like an even worse idea.
Good post. Most of what motivates me to dig deep into these financial decisions is ultimately to reduce stress. My own thought at age 66 is to consider as the years go by, if I start to lose mental capacity and also maintain good physical health then, for me, it would be time to consider a SPIA. But for now, I am so focused on things like net worth and total return, I would hate to see the net worth drop from purchasing the SPIA.

SGM wrote:
Fri Nov 16, 2018 4:47 pm
I am planning on buying a ladder of SPIAs.
Interesting. Could you explain the rationale further (re: ladder of SPIAs); thanks.
Not sure if this is a regular SPIA ladder, but we plan to take out one SPIA, and then every few years add another much smaller SPIA as the inflation adjustments.

We'll still keep a significant portion *not* in SPIA's.

RM
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gasdoc
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Re: Why I plan on buying a life annuity - even if it is a stupid idea

Post by gasdoc » Fri Nov 16, 2018 8:22 pm

dodecahedron wrote:
Fri Nov 16, 2018 12:05 pm
gasdoc wrote:
Fri Nov 16, 2018 10:32 am
To me, the ideal thing is a SPIA that kicks in at 85 years of age. My question is, "do I trust myself at age 85 to know that I need to purchase one at age 85?" Therefore, I probably will purchase the SPIA, which will kick in at age 85, at the time of my retirement (planned for age 62).

gasdoc
SPIA = ¨Single Premium Immediate Annuity¨ where the I stands for immediate, which means that payments start immediately upon payment of the single premium.

What you propose purchasing is actually called a DIA (Deferred Income Annuity). It can be paid for either with a single premium or a sequence of premium payments.
Thank you for the clarification!

gasdoc

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