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I imagine sequence risk could be managed a number of different ways without a SPIA. Retirement planning is such a personal thing with a million variables that there is no right plan for everyone. I have 4 years to get my plan down and learn more every day. Sadly, most people don't and either have no plan at all or get sold one by one of those big box advisors. The minority have a clue and actually plan or get hooked up with a good reputable advisor.
I have no doubt that BigBucks and Mathjak will both fare very well in retirement while following different paths. I can see both sides of this argument. A SPIA, properly used as part of a good plan could be useful. It could also be a very poor choice. Again, it depends on the person and their circumstances.
short time frames? 1965-1995 is short? that is a rolling 30 year time frame which represents a standardized retirement time frame . it is also the time frame the 4% rule is based on.,
back to the classroom for you , like i said stop trying t5o prove things wrong and start to learn about what the trinity study is all about . do a little learning about bill bengens's work.
then you will understand a bit about why what you are trying to post is nonesense and how the pieces of the retirement puzzle fit together.
until you learn the basics behind what is being said continuing this discussion with you is silly.
at the end of 30 years see what is left.
Show us how a 70/30 portfolio would have done from 1965 to 1995!! Prove your point with actual data! Stop posting conclusive statements.
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this has zero to do with retirement draw rates. in fact it is off base from this discussion it has less than zero to do with it.
There you go trying to take everyone's eye off the ball (ROI and original principal being GONE with a SPIA). The ball being the fact that heirs get screwed and the annuitant's FIXED payments eventually suffer due to inflation. In 30 years that fixed payment rate is going to SUFFER because the investor was drooling over earning a little more in the early years. There's a trade off. You keep ignoring the basics.
you brought up something very interesting ,and it is the key to this whole debate .
if the 4% rule worked for decades up until now , and a 50/50 mix went bust only 4% of the time why the big push for changing a thing ?
the answer is:
for those retiring within the next 7 years or so these are very unconventional times for us.
never before in our history has low interest rates and high stock valuations been bedfelllows .
that means any retirement planning calculators like firecalc to name a popular one has no data set that ever dealt with the effects of such a combo.
it used to be if markets fell 15% you were whole again in two years and ready to move ahead again .
well those days are gone and researchers now have been looking at monte carlo simulations instead.
that way different combinations of high stock valuations and low interest rates could be forced to play with each other.
the bad news is the results were not pretty. researchers like pfau , blanchett and bernstein saw such a high rate of failures that they found 4% inflation adjusting and not running out of money if you didn't take a pay cut was almost a coin toss.
3% is now proving in the lab to be the new 4%. while the difference between 3 and 4% seem slight that is a 25% pay cut .
sooooo researchers have been looking at ways to get that cash flow up higher with greater success.
over and over and over partial annuitization showed the highest success rate with the highest cash flow.
the more conservative the portfolio the bigger the jump in cash flow and lower risk of going brook.
throw in two other issues :
we are living longer , in fact the last decade we have added 1 more year to life every 4 years.
people are living longer ,staying healthier longer and spending longer before the cut in spending associated with aging cut in.
the sun life study showed many buyers of luxury cars are in their 70's.
while international travel fell off from 70-80 ,domestic travel held strong until the 80's.
people are more and more concerned about outliving their income.
the last reason is kind of like the wife factor. since 2000 market volatility has increased big time.
if for decades you were happy with your 60/40 mix , today the volatility on that mix is far greater and folks are no longer comfortable in retirement with volatility that drives a 60/40 bix down 30% like balanced funds saw in 2008.
more and more retiress want to go more conservative with their portfolio's but not take the income reduction that goes with it .
they are far more comfortable with a 3rd party taking some of that risk off their shoulders. in fact it is a 3rd party that has access to investments you don't. DEAD BODIES is diversification away from markets and rates .
unconventional times may very well call for unconventional investing.
as jack bogle said historically dividends account for 1/3 of the markets gainss. dividends are tied to interest rates and with the dividend rate on the s&p 500 under 2% you are looking at potentially an up coming average return in the 6% range possibly for as long as a decade. . that is below normal and alot of the old rules may no longer apply.
Last edited by mathjak107; 01-07-2015 at 06:15 PM..
Show us how a 70/30 portfolio would have done from 1965 to 1995!! Prove your point with actual data! Stop posting conclusive statements.
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it isn't the action of the portfolio by itself it is the damage pulling out 4% inflation adjusted that destroyed it . i will see what i can find ,that time frame has lots of data.
you should know better than to challenge me with data and facts.
here is your info , michael kitces looked under the hood into the numbers.
but you need to put your listening ears on to understand what made it a horrible time frame and once again why your lack of understanding of the decumulation stage is so apparent
remember mathamatics say if real returns fall below 2% for the first 15 years odds are you will be broke before 30 years trying to pull 4% and adjusting for inflation unless you get over 20% average returns for the next 15 years....
from 1965 to 1995 , a 30 year time frame , stocks averaged 10.23%, bonds averaged 7,85% rebalancing gave you 9.56% and inflation averaged 5.38% .
not bad right ?
except we are talking about a retiree pulling out 4% inflation adjusted through good and bad markets.
what ruined the time frame is real returns the first 15 years were awful causing so much money to be spent down that by the time the greatest bull market got started in 1987 there was to little left to grow.
here are the real returns for the first 15 years .
real returns on stocks averaged minus .13% per year over the first 15 years , bonds 1.08%, rebalanced portfolio .64% over the 15 years ,inflation averaged 5.38%
the first 15 years burned principal at a crazy rate so when the good times came great gains on little amount to little.
we are still waiting for you to produce 1 white paper showing annuitizing partially is not a beneficial thing to do. we are waiting....
You know you keep talking about "adjusting for inflation". It's THE SAME problem for the SPIA!!!! The rates quotes on https://www.immediateannuities.com/ are not inflation adjusted either. What they pay is what they pay constantly. Money paid out is still in dollars whether we're talking about a SPIA or annuity.
Even if you can dig up a long time period in which a portfolio that earned 4% -- although I've haven't seen it in modern times -- we are talking about trying to MAINTAIN one's principal. Through the 2000's someone was able to take out 5 1/2%. The point is that this is done WHILE MAINTAINING their original principal! With a SPIA your principal is GONE! You are comparing apples to oranges. That's why a SPIA is like drugs to a drug addict. They feel good now, but down the line they suffer. They get 6 1/2% now but if they live to be 90 they are stuck earning 6 1/2%, while the guy with the separate account can start taking out more. Or if they die at 80 then their ROI was zero.
I still think you are in the insurance industry because NOBODY spends this much time defending annuities. NOBODY.
duh!!!! the inflation adjusting is what your own portfolio is for.
i don't defend anything in particular . what i do is defend as many folks as i cans fromt bunk like you spew.
you can't say what someone could pull over the 2000's because it is these very same decent returns that have to cover you potentially through the bad times.
if you ever actually got educated on the like of the trinity study you would see how silly all your points are.
duh!!!! the inflation adjusting is what your own portfolio is for.
i don't defend anything in particular . what i do is defend as many folks as i cans fromt bunk like you spew.
you can't say what someone could pull over the 2000's because it is these very same decent returns that have to cover you potentially through the bad times.
if you ever actually got educated on the like of the trinity study you would see how silly all your points are.
and your study is where?.
Your annuity products are rubbish. You got educated by AnnuityCampus.com. That's your problem.
Inflation affects everything... 30/70 portfolios, SPIA payments, etc. It's a constant.
Your "study" conveniently looked at a 50/50 portfolio. Show us a realistic 30/70 portfolio study.
Proof in in the pudding: ROI.
come on ,do you really think i say things without proven data to back it up.
here you go, the work on all allocations has already been done by dr. pfau . all data comes from more than 1,000 combinations of stocks and bonds and spia's spanningt 30 year time frames since 1926. you can read the mechanics of it in dr pfaus actual white paper but the numbers will make your eyes roll so the summary link is below as well as a chart of the results..
30/70 not only had a higher success rate of holding up the income with the spia but had a bigger pile at the end using average life expectancy.
here you go, the work on all allocations has already been done. all data comes right from the historical rlling 30 year time frames since 1926. you can read the mechanics of it in dr pfaus actual white paper. but of course you won't. the summary link is below.
you are not going to understand it anyway so i am done.
YAWN! Apples to oranges insurance industry propaganda. 6% is too much to take out in the early years. And that "study" probably goes back to the 1930's. If so even more deceptive. And again you are comparing one thing (a SPIA) that gives you NOTHING in the end (TOTAL loss of principal!) versus something that if you're sensible in the early years can be increased later so as to keep pace with inflation. You're like a crack dealer selling a high now (6 1/2%) that results in health problems later (diminishing lifestyle later due to inflation and low ROI). That's called smoke and mirrors. A red herring.
5 1/2 percent and no loss of principal after 14 years.
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