50% in SPIA

[Johm221122]

Just watching Stan the Annuity man and he said you can only put 50% maximum in a single premium immediate annuity.

So if you put 50% in a single premium immediate annuity on the day you retire can you buy more later down the road?

[Leesbro63]

50% of what?

[dbr]

This refers to the idea that a retiree with some amount of wealth in investments can't shift more than half of that away into an SPIA.

One can see there might be a rationale for the concept, but I have no idea where the enforcement would be based on what insurance industry regulation. I also have no idea what would prevent successive purchases of more and more annuities.

Maybe this an urban legend or perhaps just a financial planning rule of thumb.

[JoMoney]

I've heard that many insurance sales agents will limit how much of your assets you can put into an annuity at any one time. Despite how horrible some annuity products are, they have to be licensed by the state to sell insurance, and are held to some sort of suitability requirements.

It would probably be more useful if OP had provided a link and/or more context about whatever it is they're asking about.

[Rex66]

It’s bc in the past people in particular elderly had issues where a big cost came up but now are stuck bc all tied into annuity. Also keep in mind most don’t have true inflation protection.

https://www.stantheannuityman.com/limit ... -purchases

[Johm221122]

50% of what?

Your investable assets

[Johm221122]

I've heard that many insurance sales agents will limit how much of your assets you can put into an annuity at any one time. Despite how horrible some annuity products are, they have to be licensed by the state to sell insurance, and are held to some sort of suitability requirements.

It would probably be more useful if OP had provided a link and/or more context about whatever it is they're asking about.

https://youtu.be/tETVbnpoTLY

[JoMoney]

I've heard that many insurance sales agents will limit how much of your assets you can put into an annuity at any one time. Despite how horrible some annuity products are, they have to be licensed by the state to sell insurance, and are held to some sort of suitability requirements.

It would probably be more useful if OP had provided a link and/or more context about whatever it is they're asking about.

https://youtu.be/tETVbnpoTLY

He explains why that is the "SUGGESTION" he follows, that is recommended by the National Association of Insurance Commissioners, in the video.

[Johm221122]

It’s bc in the past people in particular elderly had issues where a big cost came up but now are stuck bc all tied into annuity. Also keep in mind most don’t have true inflation protection.

https://www.stantheannuityman.com/limit ... -purchases

That's for link

If I reach my goal (which by historic returns I should pass it by a lot), 50% in a SPIA would cover 100% of my desired spending.
I want to retire and not think about sequence of returns. It would be nice to just keep laddering SPIA's.
I want to spend every last dime I've saved enjoying my retirement. Which will be harder if I'm worried about sequence of returns(it will be hard enough because I'm cheap to actually spend this money but the sequence of return risk I feel will hamper this even more)

[Rex66]

It’s bc in the past people in particular elderly had issues where a big cost came up but now are stuck bc all tied into annuity. Also keep in mind most don’t have true inflation protection.

https://www.stantheannuityman.com/limit ... -purchases

That's for link

If I reach my goal (which by historic returns I should pass it by a lot), 50% in a SPIA would cover 100% of my desired spending.
I want to retire and not think about sequence of returns. It would be nice to just keep laddering SPIA's.
I want to spend every last dime I've saved enjoying my retirement. Which will be harder if I'm worried about sequence of returns(it will be hard enough because I'm cheap to actually spend this money but the sequence of return risk I feel will hamper this even more)

My parents have a lot of their money in such vehicles including g pension and SS. Although SS is inflation adjusted the others are not. They worry and complain a lot about inflation. To me it’s a trade.

[Johm221122]

I've heard that many insurance sales agents will limit how much of your assets you can put into an annuity at any one time. Despite how horrible some annuity products are, they have to be licensed by the state to sell insurance, and are held to some sort of suitability requirements.

It would probably be more useful if OP had provided a link and/or more context about whatever it is they're asking about.

https://youtu.be/tETVbnpoTLY

He explains why that is the "SUGGESTION" he follows, that is recommended by the National Association of Insurance Commissioners, in the video.

And I'm assuming I can ladder SPIA's as I age even though I originally put 50% in. Hopefully the other 50% would grow enough to make the original 50% irrelevant because of inflation and portfolio growth

[JoMoney]

I've heard that many insurance sales agents will limit how much of your assets you can put into an annuity at any one time. Despite how horrible some annuity products are, they have to be licensed by the state to sell insurance, and are held to some sort of suitability requirements.

It would probably be more useful if OP had provided a link and/or more context about whatever it is they're asking about.

https://youtu.be/tETVbnpoTLY

He explains why that is the "SUGGESTION" he follows, that is recommended by the National Association of Insurance Commissioners, in the video.

And I'm assuming I can ladder SPIA's as I age even though I originally put 50% in. Hopefully the other 50% would grow enough to make the original 50% irrelevant because of inflation and portfolio growth

And since it's a "suggestion"/"recommendation", not a hard rule, if it's appropriate for your situation you shouldn't have problems finding an agent that will assist you with that.

[Johm221122]

It’s bc in the past people in particular elderly had issues where a big cost came up but now are stuck bc all tied into annuity. Also keep in mind most don’t have true inflation protection.

https://www.stantheannuityman.com/limit ... -purchases

That's for link

If I reach my goal (which by historic returns I should pass it by a lot), 50% in a SPIA would cover 100% of my desired spending.
I want to retire and not think about sequence of returns. It would be nice to just keep laddering SPIA's.
I want to spend every last dime I've saved enjoying my retirement. Which will be harder if I'm worried about sequence of returns(it will be hard enough because I'm cheap to actually spend this money but the sequence of return risk I feel will hamper this even more)

My parents have a lot of their money in such vehicles including g pension and SS. Although SS is inflation adjusted the others are not. They worry and complain a lot about inflation. To me it’s a trade.

I agree it's a trade of risks.
But I know me and if I had a bad sequence of returns I would cut my spending drastically. Of course on the other hand inflation could eventually cut my spending power but hopefully not until way later in life.

[nedsaid]

I think 50% of a portfolio in a Single Premium Immediate Annuity is too much. For one thing, you are taking a terrible inflation risk. If you bought one, you would probably want some kind of annual adjustment, you can buy annuities with annual adjustments of 1, 2, 3, 4, or 5 percent. If you wanted to match historical U.S. inflation numbers, 3% wouldn't be a bad guess. We don't know what inflation rates will be in the future. Perhaps 20% to 30% of a portfolio dedicated to an annuity would be more like it.

You could choose to live off your portfolio until you could claim your maximum Social Security benefit at age 70. By doing this, you are in essence buying an inflation adjusted annuity that will last the rest of your life.

[Olemiss540]

I think 50% of a portfolio in a Single Premium Immediate Annuity is too much. For one thing, you are taking a terrible inflation risk. If you bought one, you would probably want some kind of annual adjustment, you can buy annuities with annual adjustments of 1, 2, 3, 4, or 5 percent. If you wanted to match historical U.S. inflation numbers, 3% wouldn't be a bad guess. We don't know what inflation rates will be in the future. Perhaps 20% to 30% of a portfolio dedicated to an annuity would be more like it.

You could choose to live off your portfolio until you could claim your maximum Social Security benefit at age 70. By doing this, you are in essence buying an inflation adjusted annuity that will last the rest of your life.

I don't understand. If 50% of your portfolio in a SPIA means you are taking on a terrible inlationary risk, than you merely undersaved. The OP's 50% SPIA covers 100% of current spending, I don't believe inflation or anything else short of the end of the modern economy will be a risk to their solvency.

A SPIA in my uneducated understanding, maximizes withdrawal rate of one's portfolio at the tradeoff of have zero left when one passes.

[dbr]

Another factor might be to consider what fraction of the income would end up in annuities. A person already funding more than half their income from Social Security and pensions might be less advised to buy an SPIA than someone with no annuitized income or only a minor fraction. This would be especially true if a fixed SPIA is placed on top of a fixed pension, both at risk to inflation. Stock investment or some asset that can/should on average outrun inflation is needed to offset the loss of purchasing power in the fixed pension.

[dbr]

I think 50% of a portfolio in a Single Premium Immediate Annuity is too much. For one thing, you are taking a terrible inflation risk. If you bought one, you would probably want some kind of annual adjustment, you can buy annuities with annual adjustments of 1, 2, 3, 4, or 5 percent. If you wanted to match historical U.S. inflation numbers, 3% wouldn't be a bad guess. We don't know what inflation rates will be in the future. Perhaps 20% to 30% of a portfolio dedicated to an annuity would be more like it.

You could choose to live off your portfolio until you could claim your maximum Social Security benefit at age 70. By doing this, you are in essence buying an inflation adjusted annuity that will last the rest of your life.

I don't understand. If 50% of your portfolio in a SPIA means you are taking on a terrible inlationary risk, than you merely undersaved. The OP's 50% SPIA covers 100% of current spending, I don't believe inflation or anything else short of the end of the modern economy will be a risk to their solvency.

A SPIA in my uneducated understanding, maximizes withdrawal rate of one's portfolio at the tradeoff of have zero left when one passes.

Yes, once you have much more wealth than you need then all sorts of options are quite possible.

I don't think it is established that diverting part of the portfolio to an SPIA maximizes withdrawal rate. Showing that is really true is a big ask and I am not sure such a thing has been convincingly shown. Pfau wrote something on that, but I don't recall the result was impressive. Maybe I am wrong. It does seem (trying to remember) that the payout on inflation indexed annuities when they did exist was not better than a 30 year 4% SWR. It is still problematic to trade-off the longevity benefits of the SPIA and so on. When not inflation indexed SWRs can be as high as 6% worst case while today an SPIA purchased at age 60 has a payout of 6.8%, so it is higher by a bit and life guaranteed. But also note that 6% SWR is worst case. SWRs not inflation indexed year by year can range from 6% to maybe 10% and when conditions are good for an SPIA purchase conditions are also good for SWR (maybe, meaning that bond yields are good). It is hard to see obvious choices.

When real TIPS yield is up around 1.5% then the 30 year payout of a TIPS ladder is about 4.1% for 30 years, so that tactic forces you down to the worst case presented by a portfolio withdrawal approach. Again there is a lot to think about when considering the advantages of diverting invested wealth into income streams.

[Stinky]

I've heard that many insurance sales agents will limit how much of your assets you can put into an annuity at any one time. Despite how horrible some annuity products are, they have to be licensed by the state to sell insurance, and are held to some sort of suitability requirements.

It would probably be more useful if OP had provided a link and/or more context about whatever it is they're asking about.

https://youtu.be/tETVbnpoTLY

He explains why that is the "SUGGESTION" he follows, that is recommended by the National Association of Insurance Commissioners, in the video.

And I'm assuming I can ladder SPIA's as I age even though I originally put 50% in. Hopefully the other 50% would grow enough to make the original 50% irrelevant because of inflation and portfolio growth

I’d ask a real insurance agent about this “laddering” plan.

On second thought, ask two or three agents. Stan the Annuity Man, immediateannuities.com, Blueprint Income, etc.

[Wrench]

I have been involved in two different SPIA purchases, one for me and one for my MIL. Different agents, different companies. In both cases the application required the purchaser to provide a statement of total investable assets, and the amount in any existing annuities, if any. When I questioned why, in both cases the agent said that the companies had limits on the total percentage of investable assets that could be invested in an SPIA. They would not say what the limit was, but they implied it was around 50% of investable assets. So I am pretty sure one would not be able to purchase multiple annuities that would use all their assets.

Wrench

[Rex66]

I have been involved in two different SPIA purchases, one for me and one for my MIL. Different agents, different companies. In both cases the application required the purchaser to provide a statement of total investable assets, and the amount in any existing annuities, if any. When I questioned why, in both cases the agent said that the companies had limits on the total percentage of investable assets that could be invested in an SPIA. They would not say what the limit was, but they implied it was around 50% of investable assets. So I am pretty sure one would not be able to purchase multiple annuities that would use all their assets.

Wrench

Correct

U can get maybe up to 60% with a lot of assets

The insurance companies love to take your money. You should realize that the rule is there for a reason.

[Johm221122]

I've heard that many insurance sales agents will limit how much of your assets you can put into an annuity at any one time. Despite how horrible some annuity products are, they have to be licensed by the state to sell insurance, and are held to some sort of suitability requirements.

It would probably be more useful if OP had provided a link and/or more context about whatever it is they're asking about.

https://youtu.be/tETVbnpoTLY

He explains why that is the "SUGGESTION" he follows, that is recommended by the National Association of Insurance Commissioners, in the video.

And I'm assuming I can ladder SPIA's as I age even though I originally put 50% in. Hopefully the other 50% would grow enough to make the original 50% irrelevant because of inflation and portfolio growth

I’d ask a real insurance agent about this “laddering” plan.

On second thought, ask two or three agents. Stan the Annuity Man, immediateannuities.com, Blueprint Income, etc.

Yes, when the time comes I definitely will. I'm just on home stretch and really like the idea of SPIA's.

[Johm221122]

I have been involved in two different SPIA purchases, one for me and one for my MIL. Different agents, different companies. In both cases the application required the purchaser to provide a statement of total investable assets, and the amount in any existing annuities, if any. When I questioned why, in both cases the agent said that the companies had limits on the total percentage of investable assets that could be invested in an SPIA. They would not say what the limit was, but they implied it was around 50% of investable assets. So I am pretty sure one would not be able to purchase multiple annuities that would use all their assets.

Wrench

This was exactly what I was interested in, the actual mechanics of application process

[ReadyOne]

Deleted

[Leesbro63]

Are you saying that insurance agents can't/won't sell SPIAs to someone unless they declare, in writing, their investable net worth?

[randomguy]

I think 50% of a portfolio in a Single Premium Immediate Annuity is too much. For one thing, you are taking a terrible inflation risk. If you bought one, you would probably want some kind of annual adjustment, you can buy annuities with annual adjustments of 1, 2, 3, 4, or 5 percent. If you wanted to match historical U.S. inflation numbers, 3% wouldn't be a bad guess. We don't know what inflation rates will be in the future. Perhaps 20% to 30% of a portfolio dedicated to an annuity would be more like it.

You could choose to live off your portfolio until you could claim your maximum Social Security benefit at age 70. By doing this, you are in essence buying an inflation adjusted annuity that will last the rest of your life.

I don't understand. If 50% of your portfolio in a SPIA means you are taking on a terrible inlationary risk, than you merely undersaved. The OP's 50% SPIA covers 100% of current spending, I don't believe inflation or anything else short of the end of the modern economy will be a risk to their solvency.

A SPIA in my uneducated understanding, maximizes withdrawal rate of one's portfolio at the tradeoff of have zero left when one passes.

Yes, once you have much more wealth than you need then all sorts of options are quite possible.

I don't think it is established that diverting part of the portfolio to an SPIA maximizes withdrawal rate. Showing that is really true is a big ask and I am not sure such a thing has been convincingly shown. Pfau wrote something on that, but I don't recall the result was impressive. Maybe I am wrong. It does seem (trying to remember) that the payout on inflation indexed annuities when they did exist was not better than a 30 year 4% SWR. It is still problematic to trade-off the longevity benefits of the SPIA and so on. When not inflation indexed SWRs can be as high as 6% worst case while today an SPIA purchased at age 60 has a payout of 6.8%, so it is higher by a bit and life guaranteed. But also note that 6% SWR is worst case. SWRs not inflation indexed year by year can range from 6% to maybe 10% and when conditions are good for an SPIA purchase conditions are also good for SWR (maybe, meaning that bond yields are good). It is hard to see obvious choices.

When real TIPS yield is up around 1.5% then the 30 year payout of a TIPS ladder is about 4.1% for 30 years, so that tactic forces you down to the worst case presented by a portfolio withdrawal approach. Again there is a lot to think about when considering the advantages of diverting invested wealth into income streams.

Nominal SWR for a 50/50 portfolio are around 6.5% so the SPIA isn't really paying out anymore. But that nominal SWR has a really bad failure case for 1929. And 2000 is going to be a nail biter. I wish I could find annuity rates for the 60s,70s to see how they would have helped hurt during that time period but so far I haven't had much luck. Wade's paper is pretty convincing that in normal times that replacing like 20% of your bonds with an annuity is a solid play.

[Stinky]

Are you saying that insurance agents can't/won't sell SPIAs to someone unless they declare, in writing, their investable net worth?

Those are questions asked by all insurance companies to determine “suitability”. Such questions are required by state regulators.

[Wrench]

Are you saying that insurance agents can't/won't sell SPIAs to someone unless they declare, in writing, their investable net worth?

I don't know about "can't/won't" but the two times I was involved the applicant had to fill in the form of other assets and had to sign the application affirming that the information provided was accurate.

Wrench

[nedsaid]

I think 50% of a portfolio in a Single Premium Immediate Annuity is too much. For one thing, you are taking a terrible inflation risk. If you bought one, you would probably want some kind of annual adjustment, you can buy annuities with annual adjustments of 1, 2, 3, 4, or 5 percent. If you wanted to match historical U.S. inflation numbers, 3% wouldn't be a bad guess. We don't know what inflation rates will be in the future. Perhaps 20% to 30% of a portfolio dedicated to an annuity would be more like it.

You could choose to live off your portfolio until you could claim your maximum Social Security benefit at age 70. By doing this, you are in essence buying an inflation adjusted annuity that will last the rest of your life.

I don't understand. If 50% of your portfolio in a SPIA means you are taking on a terrible inlationary risk, than you merely undersaved. The OP's 50% SPIA covers 100% of current spending, I don't believe inflation or anything else short of the end of the modern economy will be a risk to their solvency.

A SPIA in my uneducated understanding, maximizes withdrawal rate of one's portfolio at the tradeoff of have zero left when one passes.

There is a whole thread that discusses these issues, I don't feel like recreating all of that here. Bill Bernstein: "Playing Inflation Russian Roulette in Retirement"

viewtopic.php?t=391371

[Leesbro63]

I think 50% of a portfolio in a Single Premium Immediate Annuity is too much. For one thing, you are taking a terrible inflation risk. If you bought one, you would probably want some kind of annual adjustment, you can buy annuities with annual adjustments of 1, 2, 3, 4, or 5 percent. If you wanted to match historical U.S. inflation numbers, 3% wouldn't be a bad guess. We don't know what inflation rates will be in the future. Perhaps 20% to 30% of a portfolio dedicated to an annuity would be more like it.

You could choose to live off your portfolio until you could claim your maximum Social Security benefit at age 70. By doing this, you are in essence buying an inflation adjusted annuity that will last the rest of your life.

I don't understand. If 50% of your portfolio in a SPIA means you are taking on a terrible inlationary risk, than you merely undersaved. The OP's 50% SPIA covers 100% of current spending, I don't believe inflation or anything else short of the end of the modern economy will be a risk to their solvency.

A SPIA in my uneducated understanding, maximizes withdrawal rate of one's portfolio at the tradeoff of have zero left when one passes.

There is a whole thread that discusses these issues, I don't feel like recreating all of that here. Bill Bernstein: "Playing Inflation Russian Roulette in Retirement"

viewtopic.php?t=391371

How is this different than, say, the Commonwealth of Pennsylvania teacher’s retirement annuities? Public school teachers here retire on close to their final pay. But it never rises for inflation. And for most, this represents the bulk of their retirement income/assets. I know a 98 year old retired teacher who has not had a raise in over 20 years.

Put another way: many annuity based retirements represent most or all of the retirees income & assets. Why cannot an individual make the same choice?

[ScubaHogg]

The OP's 50% SPIA covers 100% of current spending, I don't believe inflation or anything else short of the end of the modern economy will be a risk to their solvency.

It wouldn’t take the “end of the modern economy” for even mild (by international historical standards) inflation to devastate the spending power of a nominal SPIA.

May I suggest William Bernstein’s “Deep Risk” as a good resource

https://www.amazon.com/Deep-Risk-Histor ... 0988780313

[z3r0c00l]

Already have a pension and social security so I doubt any more income will be needed, but if I didn't have a pension I would seriously consider buying an annuity with a portion of my retirement portfolio. Over 50% seems excessive, you can spend what you have as easily as spend a monthly check. Balance out market fluctuations against inflation and hold both.

[ScubaHogg]

How is this different than, say, the Commonwealth of Pennsylvania teacher’s retirement annuities? Public school teachers here retire on close to their final pay. But it never rises for inflation. And for most, this represents the bulk of their retirement income/assets. I know a 98 year old retired teacher who has not had a raise in over 20 years.

Put another way: many annuity based retirements represent most or all of the retirees income & assets. Why cannot an individual make the same choice?

Because until the past 18 months we had very, very mild inflation for the last 20 years. Indeed, there was even a little bit of mild deflation for a little bit in there.

Imagine if your friends pension had lost 75% of its purchasing power during those 20 years? Would that have made no difference to her? Because that’s about what 7% annual inflation for 20 years would do, which is a number that wouldn’t even register on an international list of bad inflation episodes

If someone wants to take a giant, heaping spoonful of inflation risk, that’s their choice. But we shouldn’t pretend the risk isn’t there.

[Leesbro63]

If someone wants to take a giant, heaping spoonful of inflation risk, that’s their choice. But we shouldn’t pretend the risk isn’t there.

But according to the insurance rules, it's NOT their choice. That's the point. Financial planning is very individualistic. There may be many situations where annuitizing everything entirely makes sense.

[Wrench]

If someone wants to take a giant, heaping spoonful of inflation risk, that’s their choice. But we shouldn’t pretend the risk isn’t there.

But according to the insurance rules, it's NOT their choice. That's the point. Financial planning is very individualistic. There may be many situations where annuitizing everything entirely makes sense.

+1
We chose to purchase an SPIA for my recently widowed, 89 year old MIL using life insurance proceeds from her husbands death. We did not get any annual increases. Why? Because she is likely to live only 6-10 more years and in that time frame even moderate inflation will reduce buying power insufficiently to make a big difference to her. When I purchased my deferred income annuity (DIA) at age 65 I absolutely wanted inflation protection because the payout was likely to continue for 20-30 years when even ~2% annual inflation could leave me with ~1/2 the buying power. That would leave us in a much worse situation. Every case is different - what works in for some, may not work for others.

Wrench

[Leesbro63]

If someone wants to take a giant, heaping spoonful of inflation risk, that’s their choice. But we shouldn’t pretend the risk isn’t there.

But according to the insurance rules, it's NOT their choice. That's the point. Financial planning is very individualistic. There may be many situations where annuitizing everything entirely makes sense.

+1
We chose to purchase an SPIA for my recently widowed, 89 year old MIL using life insurance proceeds from her husbands death. We did not get any annual increases. Why? Because she is likely to live only 6-10 more years and in that time frame even moderate inflation will reduce buying power insufficiently to make a big difference to her. When I purchased my deferred income annuity (DIA) at age 65 I absolutely wanted inflation protection because the payout was likely to continue for 20-30 years when even ~2% annual inflation could leave me with ~1/2 the buying power. That would leave us in a much worse situation. Every case is different - what works in for some, may not work for others.

Wrench

Yes, this was the situation I was thinking about. Someone pretty old to begin with who is at the point where they want as much income as possible and doesn't care if there is no nest egg left.

[petulant]

Taylor Larimore's suggestion to purchase a SPIA later in life is convincing. Starting at age 70 or later makes inflation much less of a concern since the expected period might be only 10-20 years, and the mortality credits for this later purchase make it a better deal. Starting later to create the "terminal" spending plan with social security and RMDs also makes sense; one's 60s can be more or less dedicated to Roth conversions and other asset clean-up like realizing capital gains or selling rental properties, and the retiree still has the mental acuity for careful evaluation and strategic change. Fixed income assets can be set up in a ladder or otherwise consumed directly out of a portfolio during one's 60s. Once SS has started and around the time RMDs will begin, it is an excellent time to finalize things in a way that protects against longevity and future mental decline. A SPIA is an excellent tool for that point. But moving up SPIAs to age 65 or earlier adds another 10 years of inflation risk, which can compound to a much bigger problem by one's late 80s, and the taxable income realized from a SPIA directly reduces opportunities for Roth conversions and other "clean-up" during what I call the "bridge" stage.

[Johm221122]

The OP's 50% SPIA covers 100% of current spending, I don't believe inflation or anything else short of the end of the modern economy will be a risk to their solvency.

It wouldn’t take the “end of the modern economy” for even mild (by international historical standards) inflation to devastate the spending power of a nominal SPIA.

May I suggest William Bernstein’s “Deep Risk” as a good resource

https://www.amazon.com/Deep-Risk-Histor ... 0988780313

Yes I agree but it will be 50% of portfolio in worse case scenario. Hopefully markets can give me a good return over my home stretch ( I'm being very cautious with my estimates). I'm hoping it could be 30% to 40% I would annuitize.
My planned retirement is almost 50% discretionary spending and the reason I want to annuitize is because I want to spend my money without the worry of sequence of return risk (I know myself and I will not spend money if I have a bad sequence of returns. The annuity takes that risk away and inflation risk for me is low)

[Olemiss540]

The OP's 50% SPIA covers 100% of current spending, I don't believe inflation or anything else short of the end of the modern economy will be a risk to their solvency.

It wouldn’t take the “end of the modern economy” for even mild (by international historical standards) inflation to devastate the spending power of a nominal SPIA.

May I suggest William Bernstein’s “Deep Risk” as a good resource

https://www.amazon.com/Deep-Risk-Histor ... 0988780313

I was referring to the OP's financial financial spending power, not the general impact inflation has on SPIAs.

If a SPIA purchased with 50% of your assets covers 100% of your current spending, there is not a realistic nflationary scenario that's going to provide "risk" to meeting your spending requirements.

[michaeljc70]

It’s bc in the past people in particular elderly had issues where a big cost came up but now are stuck bc all tied into annuity. Also keep in mind most don’t have true inflation protection.

https://www.stantheannuityman.com/limit ... -purchases

That's for link

If I reach my goal (which by historic returns I should pass it by a lot), 50% in a SPIA would cover 100% of my desired spending.
I want to retire and not think about sequence of returns. It would be nice to just keep laddering SPIA's.
I want to spend every last dime I've saved enjoying my retirement. Which will be harder if I'm worried about sequence of returns(it will be hard enough because I'm cheap to actually spend this money but the sequence of return risk I feel will hamper this even more)

How do you know that? Do you know what inflation will be in the future?

[Leesbro63]

It’s bc in the past people in particular elderly had issues where a big cost came up but now are stuck bc all tied into annuity. Also keep in mind most don’t have true inflation protection.

https://www.stantheannuityman.com/limit ... -purchases

That's for link

If I reach my goal (which by historic returns I should pass it by a lot), 50% in a SPIA would cover 100% of my desired spending.
I want to retire and not think about sequence of returns. It would be nice to just keep laddering SPIA's.
I want to spend every last dime I've saved enjoying my retirement. Which will be harder if I'm worried about sequence of returns(it will be hard enough because I'm cheap to actually spend this money but the sequence of return risk I feel will hamper this even more)

How do you know that? Do you know what inflation will be in the future?

You don't. But all you have is history. Over most 30 year periods, inflation has eroded spending power. Some periods were worse than others. So fixed annuities carry significant inflation risk. That being said, it still doesn't make sense that some money police prevents someone from putting more than 50% of their investable assets into one.

[michaeljc70]

It’s bc in the past people in particular elderly had issues where a big cost came up but now are stuck bc all tied into annuity. Also keep in mind most don’t have true inflation protection.

https://www.stantheannuityman.com/limit ... -purchases

That's for link

If I reach my goal (which by historic returns I should pass it by a lot), 50% in a SPIA would cover 100% of my desired spending.
I want to retire and not think about sequence of returns. It would be nice to just keep laddering SPIA's.
I want to spend every last dime I've saved enjoying my retirement. Which will be harder if I'm worried about sequence of returns(it will be hard enough because I'm cheap to actually spend this money but the sequence of return risk I feel will hamper this even more)

How do you know that? Do you know what inflation will be in the future?

You don't. But all you have is history. Over most 30 year periods, inflation has eroded spending power. Some periods were worse than others. So fixed annuities carry significant inflation risk. That being said, it still doesn't make sense that some money police prevents someone from putting more than 50% of their investable assets into one.

History? Inflation is 6.5% now! If an annuity pays 4% you are losing 2.5% in the first year.

[Johm221122]

It’s bc in the past people in particular elderly had issues where a big cost came up but now are stuck bc all tied into annuity. Also keep in mind most don’t have true inflation protection.

https://www.stantheannuityman.com/limit ... -purchases

That's for link

If I reach my goal (which by historic returns I should pass it by a lot), 50% in a SPIA would cover 100% of my desired spending.
I want to retire and not think about sequence of returns. It would be nice to just keep laddering SPIA's.
I want to spend every last dime I've saved enjoying my retirement. Which will be harder if I'm worried about sequence of returns(it will be hard enough because I'm cheap to actually spend this money but the sequence of return risk I feel will hamper this even more)

How do you know that? Do you know what inflation will be in the future?

I don't, but
Social Security will cover all my basic needs and is inflation adjusted (actually I'm waiting till 70 and I could easily live off Social Security at 67 ish)

My plan would be to annuitize less than 50% at first (hopefully 40% or less) and invest the rest at probably a 60/40 portfolio

Discretionary spending is just about 50% of my retirement budget goal.(I do want to spend money in retirement but it wouldn't be the end of world to keep my current lifestyle)

I don't spend money on myself, I'm extremely cheap when it comes to myself. I would be happy with just Social Security if it came too that.

[Leesbro63]

It’s bc in the past people in particular elderly had issues where a big cost came up but now are stuck bc all tied into annuity. Also keep in mind most don’t have true inflation protection.

https://www.stantheannuityman.com/limit ... -purchases

That's for link

If I reach my goal (which by historic returns I should pass it by a lot), 50% in a SPIA would cover 100% of my desired spending.
I want to retire and not think about sequence of returns. It would be nice to just keep laddering SPIA's.
I want to spend every last dime I've saved enjoying my retirement. Which will be harder if I'm worried about sequence of returns(it will be hard enough because I'm cheap to actually spend this money but the sequence of return risk I feel will hamper this even more)

How do you know that? Do you know what inflation will be in the future?

You don't. But all you have is history. Over most 30 year periods, inflation has eroded spending power. Some periods were worse than others. So fixed annuities carry significant inflation risk. That being said, it still doesn't make sense that some money police prevents someone from putting more than 50% of their investable assets into one.

Right. But most fixed income is now being outpaced by inflation. For some investors, mostly older ones, annuitizing still might be the least bad solution. Over the long haul equities gave been better inflation hedges. But older investors don't have a long haul.

[Johm221122]

It’s bc in the past people in particular elderly had issues where a big cost came up but now are stuck bc all tied into annuity. Also keep in mind most don’t have true inflation protection.

https://www.stantheannuityman.com/limit ... -purchases

That's for link

If I reach my goal (which by historic returns I should pass it by a lot), 50% in a SPIA would cover 100% of my desired spending.
I want to retire and not think about sequence of returns. It would be nice to just keep laddering SPIA's.
I want to spend every last dime I've saved enjoying my retirement. Which will be harder if I'm worried about sequence of returns(it will be hard enough because I'm cheap to actually spend this money but the sequence of return risk I feel will hamper this even more)

How do you know that? Do you know what inflation will be in the future?

You don't. But all you have is history. Over most 30 year periods, inflation has eroded spending power. Some periods were worse than others. So fixed annuities carry significant inflation risk. That being said, it still doesn't make sense that some money police prevents someone from putting more than 50% of their investable assets into one.

History? Inflation is 6.5% now! If an annuity pays 4% you are losing 2.5% in the first year.

SPIA'S pay more than 4%(of course some of that is principal)
And inflation won't be that high forever, at least we hope

[michaeljc70]

That's for link

If I reach my goal (which by historic returns I should pass it by a lot), 50% in a SPIA would cover 100% of my desired spending.
I want to retire and not think about sequence of returns. It would be nice to just keep laddering SPIA's.
I want to spend every last dime I've saved enjoying my retirement. Which will be harder if I'm worried about sequence of returns(it will be hard enough because I'm cheap to actually spend this money but the sequence of return risk I feel will hamper this even more)

How do you know that? Do you know what inflation will be in the future?

You don't. But all you have is history. Over most 30 year periods, inflation has eroded spending power. Some periods were worse than others. So fixed annuities carry significant inflation risk. That being said, it still doesn't make sense that some money police prevents someone from putting more than 50% of their investable assets into one.

History? Inflation is 6.5% now! If an annuity pays 4% you are losing 2.5% in the first year.

SPIA'S pay more than 4%(of course some of that is principal)
And inflation won't be that high forever, at least we hope

Hopefully it won't. My point is that you are typically buying an annuity to reduce risk but there is definitely inflation risk. You could also drop dead the day after you buy the annuity. For those reasons, I won't be buying one. Insurance companies also don't sell products they don't make money on.

[Johm221122]

How do you know that? Do you know what inflation will be in the future?

You don't. But all you have is history. Over most 30 year periods, inflation has eroded spending power. Some periods were worse than others. So fixed annuities carry significant inflation risk. That being said, it still doesn't make sense that some money police prevents someone from putting more than 50% of their investable assets into one.

History? Inflation is 6.5% now! If an annuity pays 4% you are losing 2.5% in the first year.

SPIA'S pay more than 4%(of course some of that is principal)
And inflation won't be that high forever, at least we hope

Hopefully it won't. My point is that you are typically buying an annuity to reduce risk but there is definitely inflation risk. You could also drop dead the day after you buy the annuity. For those reasons, I won't be buying one. Insurance companies also don't sell products they don't make money on.

Yes there is inflation risk, but not everybody's inflation risk isn't the same
Leaving a legacy is not my goal
And you probably shouldn't buy one by reading your statement it doesn't fit your situation but we all have different situations. (And mine is I want the peace of mind to be able to spend money)

[michaeljc70]

You don't. But all you have is history. Over most 30 year periods, inflation has eroded spending power. Some periods were worse than others. So fixed annuities carry significant inflation risk. That being said, it still doesn't make sense that some money police prevents someone from putting more than 50% of their investable assets into one.

History? Inflation is 6.5% now! If an annuity pays 4% you are losing 2.5% in the first year.

SPIA'S pay more than 4%(of course some of that is principal)
And inflation won't be that high forever, at least we hope

Hopefully it won't. My point is that you are typically buying an annuity to reduce risk but there is definitely inflation risk. You could also drop dead the day after you buy the annuity. For those reasons, I won't be buying one. Insurance companies also don't sell products they don't make money on.

Yes there is inflation risk, but not everybody's inflation risk isn't the same
Leaving a legacy is not my goal
And you probably shouldn't buy one by reading your statement it doesn't fit your situation but we all have different situations. (And mine is I want the peace of mind to be able to spend money)

Understood. Using a constant dollar withdrawal amount (adjusted for inflation including my SS) FiCalc tells me that I will die with a portfolio between $0 and $13M! Because of that I am using a variable withdrawal method and should die close to broke.

[Johm221122]

History? Inflation is 6.5% now! If an annuity pays 4% you are losing 2.5% in the first year.

SPIA'S pay more than 4%(of course some of that is principal)
And inflation won't be that high forever, at least we hope

Hopefully it won't. My point is that you are typically buying an annuity to reduce risk but there is definitely inflation risk. You could also drop dead the day after you buy the annuity. For those reasons, I won't be buying one. Insurance companies also don't sell products they don't make money on.

Yes there is inflation risk, but not everybody's inflation risk isn't the same
Leaving a legacy is not my goal
And you probably shouldn't buy one by reading your statement it doesn't fit your situation but we all have different situations. (And mine is I want the peace of mind to be able to spend money)

Understood. Using a constant dollar withdrawal amount (adjusted for inflation including my SS) FiCalc tells me that I will die with a portfolio between $0 and $13M! Because of that I am using a variable withdrawal method and should die close to broke.

I've actually considered a fixed percentage withdrawal say 5% every year on the first of year (say a 60/40 portfolio) because SS will cover my living expenses but I know I'd be anxious in bear market. The annuity is just a way not to focus on market in retirement

[nedsaid]

I think 50% of a portfolio in a Single Premium Immediate Annuity is too much. For one thing, you are taking a terrible inflation risk. If you bought one, you would probably want some kind of annual adjustment, you can buy annuities with annual adjustments of 1, 2, 3, 4, or 5 percent. If you wanted to match historical U.S. inflation numbers, 3% wouldn't be a bad guess. We don't know what inflation rates will be in the future. Perhaps 20% to 30% of a portfolio dedicated to an annuity would be more like it.

You could choose to live off your portfolio until you could claim your maximum Social Security benefit at age 70. By doing this, you are in essence buying an inflation adjusted annuity that will last the rest of your life.

I don't understand. If 50% of your portfolio in a SPIA means you are taking on a terrible inlationary risk, than you merely undersaved. The OP's 50% SPIA covers 100% of current spending, I don't believe inflation or anything else short of the end of the modern economy will be a risk to their solvency.

A SPIA in my uneducated understanding, maximizes withdrawal rate of one's portfolio at the tradeoff of have zero left when one passes.

There is a whole thread that discusses these issues, I don't feel like recreating all of that here. Bill Bernstein: "Playing Inflation Russian Roulette in Retirement"

viewtopic.php?t=391371

How is this different than, say, the Commonwealth of Pennsylvania teacher’s retirement annuities? Public school teachers here retire on close to their final pay. But it never rises for inflation. And for most, this represents the bulk of their retirement income/assets. I know a 98 year old retired teacher who has not had a raise in over 20 years.

Put another way: many annuity based retirements represent most or all of the retirees income & assets. Why cannot an individual make the same choice?

This is a free country, folks can do as they please. I think it is foolish to ignore the inflation risk in retirement. For various reasons, I think there is a pretty fair chance that inflation will run higher. Just easier to print money than to make hard policy decisions. Not talking hyperinflation or anything like that, but running 3% to 4% rather than 1% to 2%. Fortunately, Social Security is indexed for inflation and that helps. Unfortunately, Social Security will be running into a funding problem, the system isn't broke only about 1/4 broke and that will be in 2034. It is 2023, so that doesn't seem so far off.

[Leesbro63]

I think 50% of a portfolio in a Single Premium Immediate Annuity is too much. For one thing, you are taking a terrible inflation risk. If you bought one, you would probably want some kind of annual adjustment, you can buy annuities with annual adjustments of 1, 2, 3, 4, or 5 percent. If you wanted to match historical U.S. inflation numbers, 3% wouldn't be a bad guess. We don't know what inflation rates will be in the future. Perhaps 20% to 30% of a portfolio dedicated to an annuity would be more like it.

You could choose to live off your portfolio until you could claim your maximum Social Security benefit at age 70. By doing this, you are in essence buying an inflation adjusted annuity that will last the rest of your life.

I don't understand. If 50% of your portfolio in a SPIA means you are taking on a terrible inlationary risk, than you merely undersaved. The OP's 50% SPIA covers 100% of current spending, I don't believe inflation or anything else short of the end of the modern economy will be a risk to their solvency.

A SPIA in my uneducated understanding, maximizes withdrawal rate of one's portfolio at the tradeoff of have zero left when one passes.

There is a whole thread that discusses these issues, I don't feel like recreating all of that here. Bill Bernstein: "Playing Inflation Russian Roulette in Retirement"

viewtopic.php?t=391371

How is this different than, say, the Commonwealth of Pennsylvania teacher’s retirement annuities? Public school teachers here retire on close to their final pay. But it never rises for inflation. And for most, this represents the bulk of their retirement income/assets. I know a 98 year old retired teacher who has not had a raise in over 20 years.

Put another way: many annuity based retirements represent most or all of the retirees income & assets. Why cannot an individual make the same choice?

This is a free country, folks can do as they please. I think it is foolish to ignore the inflation risk in retirement. For various reasons, I think there is a pretty fair chance that inflation will run higher. Just easier to print money than to make hard policy decisions. Not talking hyperinflation or anything like that, but running 3% to 4% rather than 1% to 2%. Fortunately, Social Security is indexed for inflation and that helps. Unfortunately, Social Security will be running into a funding problem, the system isn't broke only about 1/4 broke and that will be in 2034. It is 2023, so that doesn't seem so far off.

Again, folks CANNOT do as they please. I have no argument with your concerns about inflation; mine are the same. But that has nothing to do with the fact that there are many many issues affecting inputs to Financial Planning. And that some sort of nanny state regulation prevents people from doing what they please. Again, there are some times when annuitizing more, perhaps way more, than half of one's investable net worth, is the right move. The regulation preventing that should, at the very least, have exceptions available or some sort of form where people can opt to do what they want to do by signing the form.