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Old 12-21-2015, 02:32 PM
 
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Quote:
Originally Posted by Blondy View Post
Agreed but with a question I'll ask later.


In the real life experience with my sister, she would be in a world of hurt if she did not have the life insurance my BIL left to cover 5-6 yrs of living expenses. When he died she immediately lost half a year of his over 6 figure salary as well as the SS they were planning to get for him. Being 10 years his junior she has years to go to collect her own or his SS as well as potential part time earnings he was planning if they needed by doing some easy consulting or online instructing.


She would have had to hit the rest of the portfolio very hard and much faster than they planned to maintain her current lifestyle. It might have worked, but it would have been a lot more stressful and risky.


I don't think most people plan well enough for what happens when the first spouse dies, especially if as there usually is the surviving spouse is facing a big reduction in pension benefits or SS that negatively impact them.


He was still in the process of deciding on an annuity, but she can still do that if she wants. We got the same advice annuitize for the non-discretionary expenses and the peace of mind you have something that cant run out.


What I don't get about that is that unless you have a large fixed rate mortgage, most of these non-discretionary expenses will be going up, up, up. Unless, you buy an inflation protected annuity which gets pricey how do you mitigate that? Wont the annuity end up being almost worthless?
well what you have to realize is that compared to cash/ bond buckets an immediate annuity pays out about 40% more then you could draw from your cash and bonds without depleting them to quickly to zero .

if you have equity's too too you would sell some equity's and refill .

so that cash flow at 40% higher from the annuity should cover you for a quite a while as far as inflation adjusting unless you spend the hole payment ..

but in any case i would never use an annuity alone . it should replace some of the cash and bonds in your portfolio . then your own investments provide the inflation protection .

the problem with going all your own investing with no guarantees is the balance at the end can range from many time what you started with to zero left over . it all depends on the sequence of returns you are blessed with .

Last edited by mathjak107; 12-21-2015 at 02:53 PM..
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Old 12-21-2015, 05:03 PM
 
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One of the realities is that:

76% of Americans are living paycheck-to-paycheck - Jun. 24, 2013

Quote:
Roughly three-quarters of Americans are living paycheck-to-paycheck, with little to no emergency savings, according to a survey released by Bankrate.com Monday.
Fewer than one in four Americans have enough money in their savings account to cover at least six months of expenses, enough to help cushion the blow of a job loss, medical emergency or some other unexpected event, according to the survey of 1,000 adults. Meanwhile, 50% of those surveyed have less than a three-month cushion and 27% had no savings at all.
That being said much of our discussion about retiring planning beyond when to collect SS is not in the wheel house of many American's. That's part of the reason why I tired to phrase simplified questions in my OP.
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Old 12-22-2015, 03:17 AM
 
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which is why these constant savers are hurt by low rates threads here are bull .

most americans have no savings to speak of to get interest on . but with the average debt levels americans have those low rates put far more money in their pockets .
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Old 12-22-2015, 04:20 AM
 
Location: Mount Airy, Maryland
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I'm a bucket guy. I like to have money in different buckets for different purposes. I have 2 Roths in place for our next (last?) car purchases. I will take the money we realize by downsizing and the plan is to put that with our other money and use the investment returns to cover the big unexpected expense such as a washer, new roof, car repair etc. as well as medical deductions/co-pays and year end taxes which will be pretty low. Hopefully those expenses won't match our returns and we will realize growth. I plan on paying all of my bills, including some groceries, with my SS check and I will use my 401 withdraw for spending money. Not sure if the plan is perfect but it seemed to be a good way to start. With this framework I can kind of figure out if I have enough and what my budget will be.
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Old 12-22-2015, 04:31 AM
 
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i am a bucket guy too just because by sticking the years cash in a checking account the beginning of each year we can see exactly where we stand at any point in the year .

i actually keep two years withdrawals at all times plus an emergency fund but in separate accounts so as not to co-mingle the money .

we stay ahead of the curve by already having the cash set a side and for now reinvesting dividends .

the cash gives us lots of flexibility . there is a good chance i can get an aca subsidy in 2017 so we would want to use mostly cash from the taxable account for that year . if it wasn't for the aca plan i might have hit ira cash first to reduce rmd's so it is good to have flexibility . .
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Old 12-22-2015, 06:25 AM
 
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I know that annuities are becoming the flavor of the month since there is no secure long-term return on investments without more risk than people can stomach
I don't see though how an insurance company can make money giving people a 40% return on investment for an immediate annuity (I don't think a variable type was the reference vehicle) with the market as unstable as it is...

Can someone explain the math/research used to support that claim?
Provide a link perhaps?

Our investment guy suggested a variable annuity in 06 or 07 when rates were running over 6% and maybe we should have taken it but my experience is when something sounds too good to be true--it likely is...
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Old 12-22-2015, 06:31 AM
 
Location: Northern Wisconsin
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I don't get all that anal about it. I'm figuring we have enough, but there's no way to really know for sure. An unexpected health problem could change everything. I just go on and trust God. Plus I can always work if I need to to make a little extra money. If you don't take risks and "boldly go where no man has gone before", you'd just sit in your box and never leave.
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Old 12-22-2015, 07:30 AM
 
72,291 posts, read 72,222,083 times
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Quote:
Originally Posted by loves2read View Post
I know that annuities are becoming the flavor of the month since there is no secure long-term return on investments without more risk than people can stomach
I don't see though how an insurance company can make money giving people a 40% return on investment for an immediate annuity (I don't think a variable type was the reference vehicle) with the market as unstable as it is...

Can someone explain the math/research used to support that claim?
Provide a link perhaps?

Our investment guy suggested a variable annuity in 06 or 07 when rates were running over 6% and maybe we should have taken it but my experience is when something sounds too good to be true--it likely is...
a 40% return on investment ? yikes , do you have a misunderstanding of how an annuity works .

an annuity has 40% more cash flow then you can do on your own from cash and bonds , not a 40% return .

annuity's can pay out more then you can draw on your own because they have something you and i can never invest in , DEAD BODY'S . those who die pay for those who live .

imagine giving me 100k and i give you back 6k a year . on your own you can safely take about 4% or so out of your own money because of sequence risk .

so i give you 6k a year , with no reduction the following year like you would spending down principal and interest on your own .

eventually many years later you get all the money you gave me back and you are now on my dime and seeing your first bit of return .

so what you bought was a pension and like a pension there is no real return , only cash flow based on how long you live .


so imagine you have a portfolio with 10% cash /40% bonds and 50% stock . you are getting 1% on cash and 2-3^% on bonds today .

if you try to match that 6% cash flow your bonds and cash will go to zero eventually and you have to sell equity's to refill spending money .


well the annuity never runs out so that income lets you delay selling equity's longer as well as unlike your cash and bonds which eventually go to zero the annuity always provides a floor requiring less selling of equity's .

the higher rate of cash flow from the annuity allows you to invest longer and more aggressively if you like in your other assets and that is where they shine .

i don't recommend just buying an annuity and calling it a day without a strategy for wanting one .

but remember , just like pension , if you die early you lose . you can have annuity's shift to a spouse which is a good deal since now you have two horses running with one bet .


you could beat the annuity investing combo with your own investing by itself but you need only the most favorable outcomes to achieve that .

the best annuity ever is just delay ss . you can't buy a better inflation adjusted annuity .

Last edited by mathjak107; 12-22-2015 at 08:07 AM..
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Old 12-22-2015, 07:31 AM
 
29,925 posts, read 34,981,661 times
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Quote:
Originally Posted by mathjak107 View Post
which is why these constant savers are hurt by low rates threads here are bull .

most americans have no savings to speak of to get interest on . but with the average debt levels americans have those low rates put far more money in their pockets .
A note those on the left love to drive home about the Fed and interest rates.
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Old 12-22-2015, 07:34 AM
 
29,925 posts, read 34,981,661 times
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Quote:
Originally Posted by mathjak107 View Post
i am a bucket guy too just because by sticking the years cash in a checking account the beginning of each year we can see exactly where we stand at any point in the year .

i actually keep two years withdrawals at all times plus an emergency fund but in separate accounts so as not to co-mingle the money .

we stay ahead of the curve by already having the cash set a side and for now reinvesting dividends .

the cash gives us lots of flexibility . there is a good chance i can get an aca subsidy in 2017 so we would want to use mostly cash from the taxable account for that year . if it wasn't for the aca plan i might have hit ira cash first to reduce rmd's so it is good to have flexibility . .
With continued fortune we should soon be phasing our bucket concept out. We are blessed and as you note will just be like any working couple with solid reserves plus. Sorta didn't wrap around everything this far into retirement.
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