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Old 04-15-2016, 08:09 AM
 
Location: NC Piedmont
3,911 posts, read 2,878,614 times
Reputation: 6291

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Quote:
Originally Posted by Vacanegro View Post
Seems a bit simplistic and more like an investment strategy than a retirement plan. No actual retirement is so straightforward. For example:

What about home equity ? Do you rent or own? How long will you stay there ?
What about SS for both you and your spouse ?
What about your 401K/IRA RMD ?
What about your Roth ?

If I was getting 4K a month from SS and taking a RMD from my 401k why would i want an immediate annuity to be paying me money I am not spending ? That money would be better left in whatever security it is currently invested. What of my home equity ? Perhaps I move to a state with lower COL and I downsize or rent, what do I do with my equity ?

I think it needs to be tied to some real world examples to be really useful.
I like seeing some of these issues separately. This is about turning your retirement savings into an income stream. What constitutes "retirement savings" is another discussion (I don't think of equity as part of mine). Too many of these threads run everything together, IMO. All the issues have to be considered, but not all at once in every thread.
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Old 04-15-2016, 08:51 AM
 
Location: Northern VA
512 posts, read 632,396 times
Reputation: 621
How would the outcomes change if the same withdrawal rate was used for each strategy?
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Old 04-15-2016, 09:14 AM
 
Location: Mount Airy, Maryland
10,461 posts, read 5,928,514 times
Reputation: 16156
Quote:
Originally Posted by mathjak107 View Post
the point is that all three are capable of different safe withdrawal rates .

some can provide more income while others provide more legacy money . that is the purpose of the article . if more legacy money is wanted that will come at the expense of what you can spend and the reverse is true .

you can't safely draw 6.00% from your own investments safely but an spia can do that today with no death benefit . trade off is higher income for giving up legacy money . so depending on goals the 3 choices allow different safe withdrawal rates , which gives you different spending amounts and different legacy amounts left . .
SPIAs are paying 6% now with no death benefits? Wow I'd have to consider that.

Oh yeah, meant to ask: boy or girl?

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Old 04-15-2016, 09:45 AM
 
Location: NC Piedmont
3,911 posts, read 2,878,614 times
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Quote:
Originally Posted by DaveinMtAiry View Post
SPIAs are paying 6% now with no death benefits? Wow I'd have to consider that.
It depends on your age. If you wait and buy one at 90, you can get about 20%.
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Old 04-15-2016, 09:53 AM
 
Location: Idaho
1,454 posts, read 1,155,024 times
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My current investment strategy is roughly a blend of b and c with spending about $40K/year and a 80/20 stock/(bond+cash) portfolio.

We only have to dip into our saving in less than 2 years. Once my husband starts collecting his SS and I start collecting my 'prior' pension in the form of an annuity (the plan was replaced with 401K 7 years after my work start date), we will not need to touch our retirement savings (i.e. 0% withdrawal rate).

Last year, I used Fidelity's calculator to plan my retirement. Using my 401K with ~50/50 stock/bond allocation and SS, I got 100% assurance of not running out of money.

I then added other sources of savings (my husband 401K and our non-retirement investment) with the total more than triple my 401K amount. Of course the financial engine still assures me that that we are 100% safe. However, I got the big warning that our investment mix was too risky because the stock/(bond+cash) ratio has gone up to 80/20!

I do not see any need to dial down our total exposure to stock. Since SS, pension and annuity are guaranteed income and SS with COLA is even much safer than bond. As long as our retirement expenses are covered with them, I only need to put aside some bond/cash to cover any unexpected big expenses. In the long run, stock has always returns the most.
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Old 04-15-2016, 10:59 AM
 
71,584 posts, read 71,751,865 times
Reputation: 49194
when you actually read the article you understand why kitces picked the investments , allocations and the amounts of withdrawals that he did .

they are purposely based on the monte carlo simulation average withdrawals .

average withdrawals are not the worst case scenario's typically used and he did that for a reason which you will see .

so as an example if your primary goal was consistancy of income but not legacy money A the annuity would be best and C the worst .

but if you look at the charts and calculations by cutting B from the 4.50 average to 4% you get a 95% success rate .

worst case would have that out of money in 28 years with a 5% chance of that happening . however looking at average life expectancy for a couple living those 28 years in to their 90's has different results implied on that 5% failure rate and instead it works out to only a 2% chance of failing since odds are they both will not be here .. that may be the better deal then the annuity in safety and legacy money .

cutting spending has effects on all 3 and if you look at the spending chart you see that you can get a better deal from choices that were not top choices before the cut .

when it comes to legacy money kitces points out that growing money is a very different thing depending what you have and can mean totally opposite what you really want .

some one with no savings going from zero to 1 million bucks is very meaningful and life changing . growing from 99 million to 100 million is nothing , going for gains and losing 25% may have way more effect on your lifestyle then gaining a million at that point .

kitces is not saying which is better . he is pointing out that when your are deciding which strategy is better be careful of the measuring stick you use .

altering one parameter can make some other choice the better deal .

it is easier to read then explain .
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Old 04-15-2016, 01:16 PM
 
71,584 posts, read 71,751,865 times
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Quote:
Originally Posted by DaveinMtAiry View Post
SPIAs are paying 6% now with no death benefits? Wow I'd have to consider that.

Oh yeah, meant to ask: boy or girl?

male 65 years old
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Old 04-15-2016, 02:35 PM
 
Location: Mount Airy, Maryland
10,461 posts, read 5,928,514 times
Reputation: 16156
Quote:
Originally Posted by mathjak107 View Post
male 65 years old
I was talking about your news and my bet. I doubt she gave birth to a 65 year old male.


Back to annuities the issue I see here is if you are married and you purchase it in one name the other is shut out rwhen the purchaser passes right? My quick search had only the purchaser's sex which indicates it's for only one person. What kind of rates pay out for a couple where either survivor gets to keep the benefits?
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Old 04-15-2016, 02:48 PM
 
71,584 posts, read 71,751,865 times
Reputation: 49194
you can buy a joint annuity with only about a 1/2 % difference . but what you may want to look in to is a single annuity with the higher payment with a separate permanent life policy .

rather then your spouse get taxable annuity income , the insurance money is tax free .

you may be able to get a life policy that is cheaper then what you give up on the joint annuity .

if the spouse needs more income she can always take some of the money and buy an annuity .

i have not looked in to the price difference .
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Old 04-15-2016, 04:02 PM
 
Location: Central Massachusetts
4,800 posts, read 4,847,776 times
Reputation: 6379
Quote:
Originally Posted by Vacanegro View Post
Seems a bit simplistic and more like an investment strategy than a retirement plan. No actual retirement is so straightforward. For example:

What about home equity ? Do you rent or own? How long will you stay there ?
What about SS for both you and your spouse ?
What about your 401K/IRA RMD ?
What about your Roth ?

If I was getting 4K a month from SS and taking a RMD from my 401k why would i want an immediate annuity to be paying me money I am not spending ? That money would be better left in whatever security it is currently invested. What of my home equity ? Perhaps I move to a state with lower COL and I downsize or rent, what do I do with my equity ?

I think it needs to be tied to some real world examples to be really useful.
It kind of is simplistic but that is what is called for. When you want to muddy up the water then you add those first two lines you have into the mix. The others are part of the investment. What they are putting in the graph and the attached article is the second half of the game in the investment.
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