Recommend Single Premium Immediate Annuities (payment, purchasing, sell, interest)

[mathjak107]

An spia has zero return on investment for the first 17 -18 years or so at age 65 .it depends on the age you take it ...it is all about cash flow not return which can not be determined until death.

Keep in mind tax structure on annuities stink .

Spia’s are Taxed on a phantom interest rate ...even though all you are getting back for 17 or 18 years is the money you gave them ,the irs imputes an interest rate yearly based on a chart that is taxed ..So you pay tax on interest you never got

[john3232]

Originally Posted by leastprime

The Names are immaterial because their rates change so often and is the acceptance of longevity risk by the annuity company. The best you can do is get an "ballpark" idea what is your return on that SPIA vs whatever alternatives are out there.

Disclaimer: Approx 20% of our current income is from deferred GLWB annuities and may increase to 30% should we take the options of taking withdrawals on remaining annuities. We are NOT annuitizing. Approx 30%-35% is SS and small pension (no COLA), ~40-45%% is rental income. And somewhere in the mix will be another 0-15% from trading accounts. Sums do not add up to 100% because I try to optimize Income from all Income sources and against each Income source, all the time.

I periodically go thru this exercise with ImmediateAnnuities.com (Hersh Stern, principle) and local representatives. Hersh Stern has a pretty good quarterly pamphlet that gives approximate rates of all the different types of annuities. I used to have a pile of his pamphlets but we had downsized to another state and a smaller home.

Shop till you drop. Any decision may be a decision for "life". As the Knight Templar said to Indiana Jones, "Chose Wisely"
Good Luck

Good Luck.

Well said. The money I got for the sale of my SF home was the paid day. No more big checks for me..

[jasperhobbs]

Originally Posted by mathjak107

An spia has zero return on investment for the first 17 -18 years or so at age 65 .it depends on the age you take it ...it is all about cash flow not return which can not be determined until death.

Keep in mind tax structure on annuities stink .

Spia’s are Taxed on a phantom interest rate ...even though all you are getting back for 17 or 18 years is the money you gave them ,the irs imputes an interest rate yearly based on a chart that is taxed ..So you pay tax on interest you never got

I don't see where annuities are a good idea at all.

[leastprime]

Originally Posted by john3232

O.k. I will look for a state licensed agent. I know what I want: an immediate SPIA for myself which guarantees a yearly amount until I die.

If I sit down with an agent and ask his recommendations on companies I'd like to run them by a recommended list I already have.

I can then ask why the companies he recommends and not the ones which are recommended here.

He or she is a salesperson which doesn't mean they can't be trusted but it does mean their interests comes first.

Neither.
The rate, is the rate. Some rates are better than others. Contract terms make rate less important.
When I look, Vanguard and Fidelity were non competitive for my state. YMMV.
I make no recommendations. Rates change too fast.
Good look.

[john3232]

Originally Posted by mathjak107

Even 2008 couldn’t take down an annuity insurer ...aig insurance division was just fine in 2008

Thanks. That's very good to know. AIG is a company I will file away.

[john3232]

Originally Posted by leastprime

Neither.
The rate, is the rate. Some rates are better than others. Contract terms make rate less important.
When I look, Vanguard and Fidelity were non competitive for my state. YMMV.
I make no recommendations. Rates change too fast.
Good look.

Yes, and three years from now is a lifetime. However, are there any reputable companies you think I should ask an agent about when the time comes? AIG has been recommended and I like Vanguard. Unfortunately, Vanguard no longer offers SPIA.

[leastprime]

Hit you over the head. All the companies are reputable. It's your understanding of what you chose that will keep you out of trouble.
There is very little profit in SPIA for the annuity company. SPIA pricing is a simple function of current long bond and your life expectancy plus factors for standard deviation and profit. We are near the bottom of the rate curve and the pricing may not be advantageous for you. Google, annuity pricing, life annuity pricing.

There are a lot of little things in annuities that can be very advantageous to you or to the annuity company. Likewise the opposite can be said, they can be disadvantageous. Annuities are fairly complex financial instruments compared to other products as CD's, Bonds, stocks, RE. You absolutely need to know what you want and understand what you get. SPIA may be simple but they can bite you very hard if you chose wrong.
Get some free dinners and interview advisers/brokers/fudiciaries. Shop till you drop.
Start with ImmediateAnnunities.com - Hersh Stern's downloadable pamphlets. IMO, He gives a fair representation on the different types of annuities and their "current" pricing. Not all topics will be presented in any one quarterly pamphlet.

Good reading.

[mathjak107]

Originally Posted by jasperhobbs

I don't see where annuities are a good idea at all.

okay follow along .... keep in mind an spia today for a 65 year old is about 6300.00 a year .

you have a 50/50 mix ... equities /bonds and cash , 100k in each

you start spending down the bonds and cash to live .

you can see pulling 4% inflation adjusted , will spend the bond/cash side eventually down to zero and then equities have to be sold to refill . we could refill sooner but that changes nohing since it would just make refilling bonds and cash more frequently .

so the scenario is the 100k in cash and bonds is gone and now we refill the bucket to continue spending .

but now look .

we have our 50/50 portfolio but instead of bonds and cash we buy an spia paying 6300 for that 100k

the first thing you see is that in any case that 100k is gone eventually when we pull 4% inflation adjusted out of it ... it either gets spent to zero or it can buy an spia instead of spending the cash and bonds to zero . .

but that spia is paying out a 6.30% draw rate while your cash and bond side is producing far less .lets assume you draw only the same 4% of it ... what happens now is the bigger cash flow never goes to zero like your bonds and cash do . that means less equities need to be sold ....

that is where the power of an spia is . it allows less selling of equities , which are the portfolio's work horse .

you always have an income floor coming in so refilling takes less selling. so the spia alone likely is really a poor idea . but when combined with your own investing it serves a different purpose , which is allowing more of your equities to grow since less refilling of the spending bucket is needed each time . .

this strategy can become even more powerful when combined with permanent life insurance for the spouse instead of a joint annuity .

that life insurance is tax free .. no taxes no rmd's to a spouse at a time they are filing single .

huge advantage there ....if i leave my wife a million dollar ira she has no clue what she would have left to live on since she has no clue what she owes in taxes on the rmd's off in the future or what markets will do or where rates will be .

but if i spent some of that ira money on a single premium life policy it would cost no where near 1 million ... so i pay the taxes on the amount spent on the policy which is actually leveraged , and we take forever taxable money and make it never taxed money .

the kids inherit what is left in the ira's and the spouse gets 1 million tax free dollars .

so there is value in insurance products when used as a strategy and not in isolation .

just imagine the comprehensive package above with its investment capability , the floor of annuity income and the guaranteed tax free money to a spouse via life insurance .... think a down market would hurt as much or be as worrisome ?

in fact in 10,000 different scenarios run by dr wade pfau , the comprehensive package beat buy term and invest the rest 2/3's of the time assuming someone actually invested the rest . it took only the best outcomes for buy term and invest the rest to win over the comprehensive package which stood up to a far wider range of outcomes .

[jasperhobbs]

Originally Posted by mathjak107

okay follow along .... keep in mind an spia today for a 65 year old is about 6300.00 a year .

you have a 50/50 mix ... equities /bonds and cash , 100k in each

you start spending down the bonds and cash to live .

you can see pulling 4% inflation adjusted , will spend the bond/cash side eventually down to zero and then equities have to be sold to refill . we could refill sooner but that changes nohing since it would just make refilling bonds and cash more frequently .

so the scenario is the 100k in cash and bonds is gone and now we refill the bucket to continue spending .

but now look .

we have our 50/50 portfolio but instead of bonds and cash we buy an spia paying 6300 for that 100k

the first thing you see is that in any case that 100k is gone eventually when we pull 4% inflation adjusted out of it ... it either gets spent to zero or it can buy an spia instead of spending the cash and bonds to zero . .

but that spia is paying out a 6.30% draw rate while your cash and bond side is producing far less .lets assume you draw only the same 4% of it ... what happens now is the bigger cash flow never goes to zero like your bonds and cash do . that means less equities need to be sold ....

that is where the power of an spia is . it allows less selling of equities , which are the portfolio's work horse .

you always have an income floor coming in so refilling takes less selling. so the spia alone likely is really a poor idea . but when combined with your own investing it serves a different purpose , which is allowing more of your equities to grow since less refilling of the spending bucket is needed each time . .

this strategy can become even more powerful when combined with permanent life insurance for the spouse instead of a joint annuity .

that life insurance is tax free .. no taxes no rmd's to a spouse at a time they are filing single .

huge advantage there ....if i leave my wife a million dollar ira she has no clue what she would have left to live on since she has no clue what she owes in taxes on the rmd's off in the future or what markets will do or where rates will be .

but if i spent some of that ira money on a single premium life policy it would cost no where near 1 million ... so i pay the taxes on the amount spent on the policy which is actually leveraged , and we take forever taxable money and make it never taxed money .

the kids inherit what is left in the ira's and the spouse gets 1 million tax free dollars .

so there is value in insurance products when used as a strategy and not in isolation .

just imagine the comprehensive package above with its investment capability , the floor of annuity income and the guaranteed tax free money to a spouse via life insurance .... think a down market would hurt as much or be as worrisome ?

in fact in 10,000 different scenarios run by dr wade pfau , the comprehensive package beat buy term and invest the rest 2/3's of the time assuming someone actually invested the rest . it took only the best outcomes for buy term and invest the rest to win over the comprehensive package which stood up to a far wider range of outcomes .

First of all, I am not an idiot that has to be talked to like a third grader. Second of all, thanks for your detailed analysis of a SPIA and life insurance which makes a lot of sense.

In the past, it has been hard to read your take on annuities. Many times, you have said they are bad tax wise and not a good idea.

[mathjak107]

the okay follow along part is only because i am explaining it , not anything derogatory ...


most people see no need or use for these products so a detailed explanation is always useful .