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I immediately question that chart because it goes all the way back to 1926! That unfairly skews the whole study because today's markets are a completely different beast. We're not gonna have a 1929 style crash of 90% due to over valuation caused by lack of transparency, fraud, etc. Too much pension money, money managers, 401K money invested that's not exiting the market. Glass Steagall act followed the 29 crash, the SEC was created, etc.
Did they use TOTAL RETURN data or price return data? That would have a huge impact on that chart if they threw out dividends. For example Yahoo Finance uses price return data (no dividends).
Did they factor in a simple strategy of rebalancing annually? I doubt it.
The way I see it remains the same. You're taking about 1% more in annual payments in exchange for losing your original principal. The insurance companies make out like bandits in the end. Heirs get nothing.
no you are not talking a 1% increase in annual payments,. you are talking 20% more money that is spendable in annual payments, do not confuse the rate with the payment .
do the math,, 4% withdrawl rate is 4k on 100k , 5% withdrawl rate is 5k. that is a 20% raise in income.
3% withdrawal rate on 1,000,000 is 30k. 4% withdrawal rate is 40k. that is a 25% bigger annual payment.
when coupled with your portfolio that is a lot of income difference that does not have to be suicked out of your portfolio each year and can be left to compound .
yes all dividends are assumed reinvested in the charts ,those use the updated trinity study data.
researchers can only use data we know as fact. however i will say this .
with low interest rates and high stock valuations being in uncharted territory and a horrible combo there is a good chance returns going forward will be less than average.
my prediction is not only will more and more insurance products be boughht but they will be needed to diversify away from the whims of markets and interest rates and in to dead bodies.
i believe we will couunt very heavily on our own investing and some sort of pensionized income not tied to markets and rates.
to bad we can't invest in dead bodies too directly..
Last edited by mathjak107; 10-17-2014 at 04:25 AM..
I immediately question that chart because it goes all the way back to 1926! That unfairly skews the whole study because today's markets are a completely different beast. We're not gonna have a 1929 style crash of 90% due to over valuation caused by lack of transparency, fraud, etc. Too much pension money, money managers, 401K money invested that's not exiting the market. Glass Steagall act followed the 29 crash, the SEC was created, etc.
Did they use TOTAL RETURN data or price return data? That would have a huge impact on that chart if they threw out dividends. For example Yahoo Finance uses price return data (no dividends).
Did they factor in a simple strategy of rebalancing annually? I doubt it.
The way I see it remains the same. You're taking about 1% more in annual payments in exchange for losing your original principal. The insurance companies make out like bandits in the end. Heirs get nothing.
you bring up a point about the data being from different times.
yes that is true but thanks to the work of MICHAEL KITCES and the ability now to crunch huge chains of numbers quickly we learned some interesting things recently.
while events change the math never changes. michael was able to find the common denominator where in the lab a 4% inflation adjusted return has gone bust befor the end of 30 years.
what he arrived at was very interesting. every failure in history has resulkted in a portfolio return of under 2% real return over the first 15 years of a 30 year retirement.
it didn't matter the events leading to those numbers , it didn't even matter what happened after those first 15 years.
so knowing that is a big deal now.
if as we go along and get closer to that 15 year mark if your average real return is under 2% you better cut some spending or risk failure. in fact you would be wise to have cut well before ,perhaps stop inflation adjusting the budget.
how hard has it been to get that 2% real return?
well going back 15 years from today the s&p with all dividends reinvested is at about 1.22% .
those that retired a year after 2000 are doing much better and have seen better than 2%.
so the deadly combo now of low rates and high valuations may very well be a problem maintaining a 2% real return average over the next 15 years as well.
it is something i will be watching closely as i am retiring july 31st at 4:30pm.
new research is showing that as much as immediate annuities have increased the odds of never running out of money SINGLE PREMIUM DEFERRED ANNUITIES coupled with your own investing are showing even greater results according to famed researcher dr wade pfau because they are far cheaper and can add an even bigger boost to the income stream.
think about how much more you could spend a year if you knew the day you were going to die and found out it is 80 or 85.
well the deferred annuity lets you plan until only 80 or 85 and spend a whole lot more enjoying more money while alive. the deferred annuity is very cheap and pays alot in mortality credits so you plan with your own money to age 85 and if by some chance you live longer the annuity kicks in.
if not ,well dead is dead and you didn't spend much for it in the first place.
you really can not make a decision about any of this stuff until you decide what is more important to you.
do you want all the income you can safely spend to live on and enjoy while alive ?
do you not need much income and want legacy money?
do you want a balance of income and legacy money and if so in which direction.?
what risk do you want to take to get that income?
you just can't just compare investments with guarantees with investments that may or may not pan out well.
i mean ideally i would love to have zero market and interest rate stresses. after 26 years of riding the ups and downs of markets that torture has become a way of life but a fantasy would be to do away with watching that statement or market each day.
a perfect plan to me would be to leave enough emergency spending cash ,throw all our money in to laddeered annuites , have a 200k a year income from it and buy life insurance policy's for the kids to inherit.
we could do that with our nest egg at this point but it is only something i fantasize about ,i could never get myself to do it.
but the point is guarantees for at least some of your income can be a major stress saver.
you will find most of those who talk against such things are not yet trying to live off their portfolios and paying bills .
it is a whole different stress level when your lifesavings falls by 40-50% and you are dependent on it to live.
that is why more and more research is showing if you want to plan around living these annuity products (not variable annuities which are crap) can add a far greater chance of success , a bigger more consistant income and in most cases more money for heirs in the long run than trying to do it on your own with zero guarantees.
while you still have retirees looking to get richer in retirement ,especially those with pensions that cover most expenses, there are just as many retirees who look at retirement as no longer the place to grow richer ,but now it is a place not to grow poorer.
many do not want the stress that comes with generating that income only by themselves, they want to enjoy as much income stress free as they can , have something for heirs and not be ravaged by inflation ,all at the same time.
there are low cost products now that can help you do that with gurantees and while not for everyone they do mesh nicely with many investment plans.
Last edited by mathjak107; 10-17-2014 at 07:35 AM..
new research is showing that as much as immediate annuities have increased the odds of never running out of money SINGLE PREMIUM DEFERRED ANNUITIES coupled with your own investing are showing even greater results according to famed researcher dr wade pfau because they are far cheaper and can add an even bigger boost to the income stream. Why Retirees Should Choose DIAs over SPIAs
Cheaper than what? Open market investing? A lot of these researchers assume that the investor is using an asset manager who charges them perhaps 1% or more per year, and that would be a false choice. Buying, holding and rebalancing is not rocket science. No need for an asset manager.
1% of 100K is $1,000. It might be 20% but it's still not a lot of money and whatever they're paying as FIXED payments will be worth a lot less in 20 - 25 years due to inflation.
If someone has a high net worth it starts to become contradictory to put money in an annuity. They're ALREADY rich. They don't need the guarantee. If the markets underperforms (at 4%) they are STILL rich.
And putting perhaps 1/2 of one's money in the SPIA is only likely to get them $500 more spending money (assuming a 100K annuity).
Putting upwards of 75% of one's money in a SPIA starts to REALLY presents a liquidity disaster. Again there's a thousand reasons why someone might need their money (that they can't get back).
Also after a 1930 or even a 1940 market environment, insurance companies would not be paying what they are paying today. Their mathematicians and economists know what they can and can't promise. A better comparison would be more RECENT times. After each market crash, new measures are put in place to protect against over valuation, fraud, panic selling, etc.
Again, it looks like insurance companies are paying somewhere in the neighborhood of 1% more than one is likely to earn in bonds and stocks annually. For that 1%, unless the annuitant lives far beyond their life expectancy then they pretty much gave away all of their original principal and got a ROI of zero.
you are arguing hypothetically against actual numbers . the most successful results of any combo today is 25% spia and 75% your own portfolio.
here is a secreat i learned a long time ago and it is the most important secreat one can learn.
the key to making good knowledgable decisions is one needs to stop believing their own bull-sh$t as it is called and learn to sleep with the enemy to really learn.
what that means is what hurts folks the most is only believing what they think should be an outcome and only reading articles or hanging out and befriending those that have the same viewpoint. they end up parroting what other mis-informed people say and eventually make it their own view point.
but as i learned that view point is not always the correct view point. to really understand the truth you need to sleep with the enemy. you need to read ,understand and spend time with the other camp.
i have to tell you , yearly my views change on methods ,products and old wives tales just because i realize that what i knew about these things was not the complete picture once i looked at the facts figures and actual calculations when i slept with the enemy.
my view of utilizing certain annuity products, whole life as a strategy , long term care insurance and even the fact i was not so in love with roths all shifted as i made myself sleep with the enemy.
today my views are totallky opposite what i believed was true prior to getting that education from the other side.
word to the wise is stop dreaming up hypothetical situations that support your views , sleep with that enemy by reading those white papers filled with real math ,calculations,fact and numbers from researchers who are a whole lot smarter than we are and don't cut your education short by believing your own bull-sh$t so to speak.
Last edited by mathjak107; 10-18-2014 at 02:55 AM..
you are arguing hypothetically against actual numbers . the most successful results of any combo today is 25% spia and 75% your own portfolio.
word to the wise is stop dreaming up hypothetical situations that support your views.
Who is talking about hypothetical??? I'm presenting real data based on market performance and stating the facts about SPIA's which you don't seem to like. I still think you're an insurance salesman or are very close to someone who sells annuities because you repel facts like a 911 truther.
It is a fact that if you live to your life expectancy or less then your return on investment will be ZERO! The insurance company simply gave you back your original principal. If you live longer then won't be much better.
And during the last 14 years, starting on 1/1/2000 when we went straight into a recession and two double dip stock declines, nobody lost their original principal while taking 5.5% per year and rebalancing their 75/25 portfolio on January 1st of every year. NO LOSS of their original principal after 14 years!!! That's because bonds and stocks work TOGETHER. When stocks lag one year, bonds perform well, and vice versa. For anyone who wants to crunch the numbers themselves, here's the factual return data. Numbers talk, BS walks!
If you think taking out about 1% more per year is worth throwing away $100,000 to an insurance company then that's for you to decide. I'll bet a lot of people will think that's a raw deal.
My point to the OP and others is that the annual payment rate that you get with a SPIA is fool's gold. It's not return on investment. ROI is the benchmark for evaluating an investment (or any "a place where you put your money"). Keep your eye on the ball, with the ball being your original principal. Lose it all and your ROI goes waaaaay down.
Last edited by Big-Bucks; 10-18-2014 at 04:35 AM..
i am pretty much finished with the topic. you can believe what you want. anyone who wants to fully understand just why the success rate goes up can read the actual papers and studies out there and decide for themselves . .
for starters you can read
" Life Annuities: An Optimal Product for Retirement Income.” it is an excellent book written by one of the worlds greatest authorities on the subject dr moshe milevsky.
it is a whole lot more educational than the babble of opinions from most ill-informed folks on the internet.
I suggest that anyone thinking about dumping their money into an immediate type annuity read this Forbes Magazine article that covers the exact same factual stuff that I have been "babbbling" about in all of my "ill-informed folksiness". Knowledge is power...
i would suggest folks spare themselves the wasted time reading the forbes article.
that forbes article has zero in it about how it functions when used in conjunction with your own investing. that makes it useless , short sighted ,not accurate as far as its intended use as it relates to this discussion and defeats the whole purpose of using it.
perhaps you should read dr pfaus work or moshe milevsky instead of that useless article written by someone who is far from an authority on the subject or even has done his homework before doing that article.. i could have written a better informed article and i am far from qualified to do that.
that is exactly what is meant by learn to sleep with the enemy to learn the complete picture as the article is skewed and leaves out the biggest working advantage which is how it interacts with your own investments to produce the success rates it does..
it is easy to skew a view when you leave out the crutial data that supports the other side of things.
Last edited by mathjak107; 10-18-2014 at 04:06 AM..
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