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Old 04-11-2014, 02:56 PM
 
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Some very good thoughts and insights reflecting a lot of good been there along with future planning. For better than the norm and it reflects how complex it can be. That being said it also reflects why a lot of folks are and will be in trouble.
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Old 04-11-2014, 03:04 PM
 
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I want to thank all of you for your input. We have a LOT of reading and research to do. I did find a fee for service independent financial advisor that we will be going to in the near future. There will be a gap of needed income and we have to find a way to close that gap. We are both skeptical of annuities, but have started to realize that in some situations they are worthwhile. I wish we weren't in this situation, but we are. After finding this site last summer I started a montly expense report. It has helped tremendously because we can accurately show where we are spending and how much our expenses are. But it is so scary when suddenly you are in this situation. Again, thank you for your help.

Mathjak...firecalc no longer likes me!!!
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Old 04-11-2014, 03:12 PM
 
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Quote:
Originally Posted by Cnynrat View Post
It really depends on the individual situation. True, a 6% withdrawal rate looks good compared to the commonly suggested 4% safe withdrawal rate from savings.

OTOH, if you look at the effective NOMINAL return on the money put in an annuity at those withdrawal rates, it's about 3.75% if the annuitant lives for 20 years, and about 5% if they live to 90. Compare that to the common view that a balanced portfolio should achieve 3-4% REAL return over 30 years, and the annuity looks less attractive particularly if inflation rears it's head.

If the fixed income sources and savings are marginal to support the needed income, then an annuity can be a good way to insure against the risk of outliving one's savings. In a less marginal situation that insurance may not be the best approach. I don't think the OP has provided enough information to make any really clear recommendations one way or the other.

Dave
an annuity has no more of a return than a pension does in reality. they are insurance and not investments.

today work by some of the smartest brains on the subject find there are loads of benefits to having at least a partial base of pensionized income.

top notch researchers like dr pfau, michael kitces ,bill bernstein and moshe milevsky to name a few have found incorporating a partial annuity in to many plans leaves you not only with a higher success rate of maintaining that income but a bigger balance for heirs than not buying the annnuity assuming you do not die to early on.

the greater success rate comes because to generate a safe , consistant ,reliable income you really need to keep a lot more money in bonds and cash , coupled with keeping more powder dry to deal with bad markets and poor sequencing.

having the higher cash flow of the annuity lets you allocate more to equities or any other faster growing asset you want.

that extra growth eventually offsets the cost of the annuity.

you also can utilize the annuity as longevity insurance . you can plan only to 80-85 instead of 90-95 and have way way more money to spend from savings . if you happen to live longer than you thought the annuity kicks in.

they are very cheap when bought as longevity insurance.

any financial planner who makes a broad comment like annuities are bad is not someone i would consider at the top of their game and in tune with what new data and current research is teaching .
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Old 04-11-2014, 03:14 PM
 
Location: Gilbert, AZ
3,180 posts, read 1,956,881 times
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In a lot of situations it's better to draw from savings to pay your living expenses while waiting to take SS at a later date, rather than using the same savings to buy an immediate annuity. You can work through both scenarios for your own situation and see which one gives you a higher income stream.

hikernut
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Old 04-11-2014, 03:20 PM
 
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As I recall there are three broad categories of income:
Earned
Passive
Portfolio

Some would lump Passive and Portfolio together. I might suggest the IRS doesn't. True retirement means earned income is no longer in our lives and the struggle is to craft our existence out of the other two. Thus annuities become a possible tool for consideration. If you differentiate passive from portfolio income, diversification of income streams becomes even more important to some. Take MathJak as a masterful example of what some might consider a well thought out plan or perhaps a few might say over kill. Many of us strive and or have a variety of income streams including REITS etc. Just think about the diversification in a six fund portfolio, total market type of funds etc. Annuities can have their place.

Last edited by TuborgP; 04-11-2014 at 03:30 PM..
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Old 04-11-2014, 03:50 PM
 
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Quote:
Originally Posted by hikernut View Post
In a lot of situations it's better to draw from savings to pay your living expenses while waiting to take SS at a later date, rather than using the same savings to buy an immediate annuity. You can work through both scenarios for your own situation and see which one gives you a higher income stream.

hikernut
depends on the base level of income you need. ideally one would try to lock in their non descretionary bills with ss and an annuity if ss can't do it alone. then other investments are used to inflation proof , provide discretionary income and pehaps even grow.

the more conservative the retiree the more the annuity can help sustain income,.
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Old 04-11-2014, 03:55 PM
 
71,511 posts, read 71,674,131 times
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Quote:
Originally Posted by hikernut View Post
In a lot of situations it's better to draw from savings to pay your living expenses while waiting to take SS at a later date, rather than using the same savings to buy an immediate annuity. You can work through both scenarios for your own situation and see which one gives you a higher income stream.

hikernut
we will spend savings up front as i intend to hold off until 66. but i still may introduce an immediate annuity as a small part of our plan if it allows me to keep my equity positions a bit lower so i have less volatility.

by filling in those valleys and smoothing them out with a bit of pensionized income the ride can be a lot smoother.
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Old 04-11-2014, 04:08 PM
 
Location: Gilbert, AZ
3,180 posts, read 1,956,881 times
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I see Bill Bernstein being mentioned in this thread. He's a pretty sharp guy, and here is what he has to say about the subject...

If you have a reasonable life expectancy, delay taking Social Security until you are 70; it is the cheapest, safest “annuity” you can “buy.”

If you do a web search on Bernstein AND annuity AND "social security" you'll find a number of articles where he discusses this, and even gives numbers for some scenarios.

hikernut
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Old 04-11-2014, 04:12 PM
 
Location: North Idaho
2,172 posts, read 2,081,550 times
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Quote:
Originally Posted by mathjak107 View Post
an annuity has no more of a return than a pension does in reality. they are insurance and not investments.
This is comment makes no sense. When I retire I will get a DB pension benefit that I contributed $0 to. How do you compare the return on that to an annuity where I would need to put in a big chunk of my own money? A pension is not insurance.

Quote:
Originally Posted by mathjak107 View Post
today work by some of the smartest brains on the subject find there are loads of benefits to having at least a partial base of pensionized income.

top notch researchers like dr pfau, michael kitces ,bill bernstein and moshe milevsky to name a few have found incorporating a partial annuity in to many plans leaves you not only with a higher success rate of maintaining that income but a bigger balance for heirs than not buying the annnuity assuming you do not die to early on.
I follow all these guys. I've read all of Bernstein's books. None of these advisors would make a blanket statement that annuities are right for everyone. As I said earlier, they are great in some cases, particularly where the retirement assets are only marginally able to support the desired retirement budget.

Would you recommend that someone with $20M in assets and a desired retirement income of $200k/year buy annuities? I hope not, because that person doesn't need the income insurance that an annuity provides, and they would be better off investing their assets elsewhere. I realize that's an extreme case, and probably not the OP's situation, but I'm just making the point that annuities are not the best solution in all cases.

Quote:
Originally Posted by mathjak107 View Post
they are very cheap when bought as longevity insurance.
The way you should think about it is they cost what they cost. They aren't any cheaper just because you use them for longevity insurance. The relevant questions are does purchasing income insurance make sense in light of your financial situation and your retirement objectives, and/or does your risk tolerance indicate you would sleep better if you hedged a portion of your income with an annuity.

Quote:
Originally Posted by mathjak107 View Post
any financial planner who makes a broad comment like annuities are bad is not someone i would consider at the top of their game and in tune with what new data and current research is teaching .
Show me where I made a broad comment that annuities are bad? I said it depends on the individual's situation, and we don't have enough info about the OP's situation to make a call one way or the other.
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Old 04-11-2014, 04:19 PM
 
71,511 posts, read 71,674,131 times
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an annuity is insurance. no one can calculate a return until they are dead and or their spouse dies !. most pensions are contributory at some level, very few pensions require no money on behalf of the employee to be put in..

i would never nor have i ever said annuities are right for everyone,. they are not. but i will say the more conservative the portfolio the greater the success rate of maintaining your income level may be depending what you are asking your portfolio to do.

i never said you said annuities are bad , i was replying to this statement made by stevemorse

"Listen to Sundays radio show at 10 am Ric Edelman. He is on WOR 77.0 am. You can listen on the internet. Maybe even call his firm. The guy is great! Marilyn My opinion is from what I have learned on his shows and advise and he is great is annunities are not the way to go."

i will say it again what i think of an advisor if he made a sweeping broad comment like that .

any financial planner who makes a broad comment like annuities are bad or not the way to go is not someone i would consider at the top of their game and in tune with what new data and current research is teaching .

Last edited by mathjak107; 04-11-2014 at 04:32 PM..
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