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Jims mom just started collecting on her LTC. Received a nice healthy refund check for the past 12 months
Her policy, started in the 1980s @150/quarter. She has been in a level II shared room in a highly regarded facility in this area, with the cost about 4500/mo, since 2013.
Physically she is very healthy, but has a progressive dementia that got to the point that LTC consented to the payment. We each have a policy and wouldn't be without it.
We have 1 SPIA at present. I absolutely like the idea for us. This SPIA covered the reduction in Jims CSRS pension when I became eligible and signed up for a survivors pension. We did not include COLA on this SPIA.
Depending on when I take SS, we may purchase a COLA'd SPIA for the difference between when I start claiming SS and my FRA.
Also have it in our game plan to consider a final COLA'd SPIA around age 70.
Using Jim Otars asset multiplier we are just a tad below what I want to have available(approx. 10% higher than what we presently spend). Rest of the article, posted somewhere in this forum maybe even this thread, confirmed what I had been thinking about doing. We also have no kids to pass assets to which makes having multiple SPIAs an easier thing to consider. We will only be using about 40% of our IRA type assets.
there are so many types of annuity's so when discussing them you really need to be specific .
i would not do a variable annuity but if i wanted a steadier guaranteed income flow i would consider an immediate annuity in combo with my own investing .
they add diversification from financial markets that you can never have on your own . they get to invest in dead body's . those who die pay for those who live .
while you safely may be limited to about a 4% initial draw , spia's are close to 6% draws for a 65 year old . that is a huge increase in cash flow .
that helps keep depleting the cash and bond portions of a portfolio sooner requiring refilling from equity's sooner .
Last edited by mathjak107; 12-29-2015 at 04:04 AM..
Annuities have a few very good benefits that the newspaper columnists ignore.
1. They convert risk to guarantees. I would not want 100% of my assets to be at risk for market fluctuations.
2. They guarantee an income stream. I would not want 100% of my assets to have no guarantees.
3. They make it much easier to not spend your savings.
Some of your assets should be in annuities, especially if you don't have income from a defined benefit plan.
I have to disagree with everything you have written. In fact this is the "story" that insurance companies spout to "sell" annuities.
You talk about "guarantees." First of all remember the "guarantee" is limited to the claims paying ability of the insurance company and there is usually a state limit on the maximum insurance for most SPIA's.
And concerning SPIA's why on earth would anyone hand over a bundle of cash to an insurance company and lock in abysmally low interest rates these days? You want an annuity? Create your own.
If you have a million dollars and you put 60% in a Total stock market index fund and 40 % in a total bond fund and withdraw 3-4% (total return) per year guess what? You have created your very own annuity!!!
Sure the market will fluctuate. Keep a bucket of cash on the side to ride out down markets. Reduce your spending or cut the withdrawal rate for a year or two. The upside is that this money remains as part of your estate at the end of your life and can be passed to heirs or a charity. Besides....this is what the insurance companies are doing. They are investing your money and paying you a portion of the profits plus principal. Just do it yourself!
spia's have no interest rate they have a draw that you can't match on your own since a draw at that level is not considered safe .
when used with your own investing they are very powerful . you would need to have only the most favorable outcomes to beat the combo .
just imagine a 50/50 mix of equity's and bonds/cash
a spia today can provide you with just about a 6% cash flow rate at 65 .
with cash at zero and bonds at 3% it would take you not very long before your bond and cash buckets are spent down to zero and now you need to sell equity's to refill spending money .
with the annuity's replacing some or all of the bonds that cash flow not only does not diminish each year as your cash and bonds would be as you deplete principal but they provide a base income forever . that means less equity's need to be sold to refill spending money .
it is the delaying of the selling of equity;s to create more cash flow that works the magic .
so far not even 2008's debacle has effected the ability of any annuity company to pay . most states require a healthy insurer to absorb the customer base .
if every insurer is in trouble , your own investing will have a a whole lot more trouble , you can be sure .
a 4% swr IN YOUR EXAMPLE IS NOT THE SAME THING AS CREATING AN ANNUITY .
THE 4% SWR is dependent on mr markets , inflation and interest rates and most important sequence risk in order to hold that level .
anything worse then the sequences of 1965/1966 and it will fail . in fct anything less that a 2-3% real return average over the first 15 years will have it fail .
the 4% swr also has nothing to do with how much is left at the end , it only has to do with the income flow not the balance for heirs left . ..
study's show that over 70% of every rolling 30 year period since 1926 a combo of your own investing and an spia has not only resulted in a higher draw rate day 1 of retirement but also left more for heirs . only 30% of the time would your 60/40 mix have out performed a mix of spia and your own investing .
so the odds are in favor of the the spia combo outperforming your 60/40 mix over 30 years or longer .
the other issue and a big issue is while many of us MAKE INVESTING A HOBBY AND INTEREST MANY OF OUR SPOUSES DO NOT .
i can tell you my wife does not want to be left with a pile of investments and no pay check monthly .
she does not mind some investments but she wants those non discretionary expenses locked in with as much a guarantee as she can get .
WHILE 80% OF ALL MARRIED MEN DIE MARRIED , 80% OF ALL MARRIED WOMEN DIE ALONE and live longer too .
you better check with your spouses and see what they want as well .
Last edited by mathjak107; 12-29-2015 at 05:08 AM..
I would suggest giving serious consideration to income property. Interest rates are low now, and you can hire a management company to handle rents or do it yourself. Protect yourself by establishing a LLC and purchase the properties in the LLC. This can provide a nice income stream into retirement. College towns can be an excellent place to invest as you can require the student's parents to co-sign the rental contracts.
spia's have no interest rate they have a draw that you can't match on your own since a draw at that level is not considered safe .
I never said SPIA's are based solely on interest rates. It is a fact that the benchmark interest rate for SPIA calculations is the 10 year treasury.....which is now at historic lows. The only way to overcome this is with ripoffs which the insurers cleverly laabel as "riders" at a cost of course.
when used with your own investing they are very powerful . you would need to have only the most favorable outcomes to beat the combo .
Looking at the stock market indices over the past 30 years ....this is simply false. Take the DJIA. On JAn. 2 ,1981 it was 972. Today it is over 17,500. You do not need "the most favorable outcomes." Just average returns. You could be retired for 30 years or more. Being retired doesn't mean a flight to safety...i.e. bonds, cash , annuities. Your biggest risk in retirement is not stock market fluctuations. It's running out of money. What if your SPIA projections fall short? Now you have already handed over that chunk of money to the insurance company.
just imagine a 50/50 mix of equity's and bonds/cash
a spia today can provide you with just about a 6% cash flow rate at 65 .
with cash at zero and bonds at 3% it would take you not very long before your bond and cash buckets are spent down to zero and now you need to sell equity's to refill spending money .
with the annuity's replacing some or all of the bonds that cash flow not only does not diminish each year as your cash and bonds would be as you deplete principal but they provide a base income forever . that means less equity's need to be sold to refill spending money .
You are forgetting the biggest threat to this "base income forever." Inflation. The stock market returns over the long term provide a buffer against inflation. SPIA's do not unless you pay additional for an inflation rider. More money poorly spent.
it is the delaying of the selling of equity;s to create more cash flow that works the magic .
so far not even 2008's debacle has effected the ability of any annuity company to pay . most states require a healthy insurer to absorb the customer base .
if every insurer is in trouble , your own investing will have a a whole lot more trouble , you can be sure .
a 4% swr IN YOUR EXAMPLE IS NOT THE SAME THING AS CREATING AN ANNUITY .
THE 4% SWR is dependent on mr markets , inflation and interest rates and most important sequence risk in order to hold that level .
anything worse then the sequences of 1965/1966 and it will fail . in fct anything less that a 2-3% real return average over the first 15 years will have it fail .
the 4% swr also has nothing to do with how much is left at the end , it only has to do with the income flow not the balance for heirs left . ..
study's show that over 70% of every rolling 30 year period since 1926 a combo of your own investing and an spia has not only resulted in a higher draw rate day 1 of retirement but also left more for heirs . only 30% of the time would your 60/40 mix have out performed a mix of spia and your own investing .
so the odds are in favor of the the spia combo outperforming your 60/40 mix over 30 years or longer .
the other issue and a big issue is while many of us MAKE INVESTING A HOBBY AND INTEREST MANY OF OUR SPOUSES DO NOT .
i can tell you my wife does not want to be left with a pile of investments and no pay check monthly .
she does not mind some investments but she wants those non discretionary expenses locked in with as much a guarantee as she can get .
WHILE 80% OF ALL MARRIED MEN DIE MARRIED , 80% OF ALL MARRIED WOMEN DIE ALONE and live longer too .
you better check with your spouses and see what they want as well .
I realize you will promote annuities because obviously you own them. It just surprises me that someone with your financial knowledge would actually think they are appropriate as a retirement option providing income. They are insurance products cleverly disguised as investments for the ill informed and unsophisticated. They are expensive with outrageous commissions.
i own zero annuity's nor may i ever . . i just make it a point of educating myself .
wrong again , an spia includes mortality credits . right now it is just shy of a 6% draw for a 65 year old single life annuity . it consists of a draw based on rates and current mortality credit .
the 10 year treasury is about 2.25% . try drawing that rate of cash flow off of your cash and bond buckets . you will deplete them to zero and have to sell equity's to refill .
average returns mean little when spending down , it is all about sequence of returns .
i suggest you learn about drawing down . you can start with moishe milevsky's now famous paper . retirement ruin and sequence of return risk .
you keep talking about market returns but returns account for very little when spending down . spia's have no sequence of return risk so no extra powder needs to be kept dry for poor sequencing .
the same exact average returns can have your money lasting a difference of 15 years just based on sequence risk .
remember we are not talking about just buying an spia , we are talking combining that spia with your own investing . your own investing handles the inflation proofing .
in fact i challenge you to find one accredited study that shows that unless the most favorable sequencing happens that your own investing will produce both a higher success rate and figuring average life expectancy more money left over for heirs. you can't because none can show that .
70% of the time an spia /equitys will surpass bonds/cash /equity's both in success rate over much longer periods of time and money left for heirs .
Last edited by mathjak107; 12-29-2015 at 08:47 AM..
i own zero annuity's nor may i ever . . i just make it a point of educating myself .
wrong again , an spia includes mortality credits . right now it is just shy of a 6% draw for a 65 year old single life annuity . it consists of a draw based on rates and current mortality credit .
the 10 year treasury is about 2.25% . try drawing that rate of cash flow off of your cash and bond buckets . you will deplete them to zero and have to sell equity's to refill .
average returns mean little when spending down , it is all about sequence of returns .
i suggest you learn about drawing down . you can start with moishe milevsky's now famous paper . retirement ruin and sequence of return risk .
you keep talking about market returns but returns account for very little when spending down .
the same exact average returns can have your money lasting a difference of 15 years just based on sequence risk .
remember we are not talking about just buying an spia , we are talking combining that spia with your own investing . your own investing handles the inflation proofing .
in fact i challenge you to find one accredited study that shows that unless the most favorable sequencing happens that your own investing will produce both a higher success rate and figuring average life expectancy more money left over for heirs. you can't .
This for us is the kicker, as we will still have 60% of our remaining $$ in the market, at possibly a higher equaity % than might normally be considered prudent. Plus Jims CSRS pension is approx. 50% of our estimated income wanted, not necessarily needed, is COLA'd as will be my SS in a couple of years.
Everyone has different needs and abilities. For us I am confident that what we are considering is appropriate. We have not kids but will want to donate to a couple of charities. As I do the math, assuming we do the 2nd SPIA at age 66, we will have over 80% of our desired income will have some level of protection attached. This allows me to sleep much more comfortably.
thank you for all the comments, it's giving us a lot of think about. Like several of the above posters mentioned, we are already invested in the market through 401ks, IRAs including Roth and traditional IRAs.
Regarding spouses, we can't predict the future but I can say I come from long-lived grandparents and parents whereas DH is obese and the males in the family seem to barely ever reach retirement age. A guaranteed minimum income sounded good in case I outlive DH many years...horrible to contemplate but it's true many women outlive their spouses.
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on LTC and SPIAs
