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Old 04-26-2016, 06:06 AM
 
Location: Ponte Vedra Beach FL
14,628 posts, read 17,923,045 times
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Quote:
Originally Posted by mathjak107 View Post
ha ha ha don't bet the ranch on that inflation war being dead . those folks in 1966 thought the same thing when inflation was below 2% and there wasn't a hint on the horizon .

i would never make a claim about any of the 4 major scenario's be it recession , depression inflation or prosperity .

i would never make any claim about what rates will be in 20 years or inflation so i certainly would not go 25 year muni instead of a 10 year cd if the cd was what i really wanted . remember we laughed at the 5-1/4% savings account and the christmas club account and said who would ever accept that as an interest rate . the thought that one day we would kill for 5% was as ridiculous and out of the picture as inflation thoughts are today .
.
so never go by what you see or think , it is always the things not on the radar that send us reeling .
I keep an eye on inflation (monthly/yearly not daily). Things like inflation tend to "trend" - and there is an awful lot of room between < 1% YOY (which is what we have now) and even 3% YOY (which we haven't seen since 2011).

I especially keep an eye on our personal inflation rate. Which matters a lot more than any generic basket of goods/services. As of today - I think the type of thing that would most likely "upset our apple cart" would be needing something new/expensive. Like - for example - a new expensive drug for a new disease. As opposed to a large unexpected price increase for something that is currently in our "basket".

FWIW - we also have some fixed income products that offer inflation protection. Like IBonds (that we bought in 2001 - when the rates made a lot of sense - and still have 15 years to maturity). They have yielded about 5.5%/year to date - tax deferred (combination of fixed coupon and inflation). They're kind of like TIPs - but a heck of a lot easier to understand (I tried buying individual TIPs years ago - and found them very confusing).

Finally - when I read about what's going on today - things like central banks buying commodities to try to spark some inflation - well I still think the risks are on the deflation side - not the inflation side. Robyn
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Old 04-26-2016, 07:10 AM
 
Location: Ponte Vedra Beach FL
14,628 posts, read 17,923,045 times
Reputation: 6716
Quote:
Originally Posted by BellaDL View Post
I prepared a simple Excel spreadsheet to do these annuity yield calculation but after seeing your post, I did a search and found an online calculator for folks who want to evaluate annuity offers

Annuity Calculator - Bankrate.com

As others have noted, it is apple and orange to compare annuity and CD. Yes, the rates for those long term 10 years CD or 20 year munis are definitely higher than 1.54% but one has to lock in the principal for quite a while.

You are certainly a very savvy and experience investor. IMO, figuring out the best laddering CDs strategy or best AAA muni bond yield are either beyond the skills or scope of interests for the average retirees.

My former employer had offered the choice of lump sum, enhanced annuity or a combination of both for a long time (it was there when I joined the company 24 years ago) so I don't think it was a recent effort to get the pension off its books.

I have been inclined to take the annuity instead of a lump sum when I turn 65 to spread out paying taxes. However, I am now toying with the idea of taking the lump sum either full or some portion of it and rollover to my ROTH IRA. We also plan to rollover some of my husband's IRA to ROTH to reduce his upcoming RMDs so we will have to decide how to divvy up the conversion portions.

There are just so many investment options and choices. I wish that we have more trust in the financial professional. Years ago, we got burned pretty bad by a professional tax/accounting firm (which was highly recommended by a friend). The firm made a $12K mistake on my tax return. I found a small error first and did not trust them so I went to the library to get a bunch of tax forms, instructions and prepared the tax myself (it was a marathon afternoon). When I showed them my calculations, they admit the errors and refunded me the fee. This was the one and only time that I 'hire' a financial/tax expert or tax preparer.
When it comes to locking in principal - it has never bothered me (although we do keep cash on hand for everyday expenses - emergencies - larger things we might reasonably need to buy in a few years - etc.). I think the biggest mistake I've seen older retired people make over the course of the last few decades when it comes to fixed income is relying much too much on short term investments and not locking in rates long term. So - when short term rates go down/collapse (like they have in recent years) - the "income" from "fixed income" just evaporates.

FWIW - both municipal bonds and brokered CDs have secondary markets. The spreads are typically much wider than you'll find when it comes to equities (especially when it comes to brokered CDs). So I would never advise anyone to buy these things if they think they might have to sell them. OTOH - if something comes out of the blue which would force an owner to sell - there is a market.

Note that just about all munis have call provisions. Typically no longer than 10 years. I haven't had a single municipal bond that wasn't called at the earliest possible time for probably more than 20 years now. And - today - almost all of my municipal bonds that are callable in 2016-2018 have been pre-refunded/called. So they will be gone at the earliest possible time too. These actions suggest that the issuers still see a stable/declining interest rate environment.

I agree with you that it takes some time/patience to learn your way around the bond market. But I think it's easier today than 10+ years ago. When you had to go through a broker and deal with a totally opaque market. Today - there are a lot of on-line tools for analysis and trading - most of which are free. You can even get very close to real time price reporting (for free). So you know whether or not the price you're getting is decent. This website in particular is incredibly useful:

Municipal Securities Rulemaking Board::EMMA

Also - my brokerage firms all have decent screening tools. There might be 20k+ municipal bond offerings on any given day (there are 35,000 at Fidelity today). But - if you have some idea what you're looking for in terms in various criteria - credit quality - maturity date - yield - the nature of the bond (general obligation/revenue) - state of issuance - etc. - you can narrow things down a lot. I have a screen that usually doesn't yield more than 10-20 bonds. Which is very manageable.

I tend to agree with you about "professional" help (although we've had the same accountant for 25+ years and trust him 110%). I got burned in the 1970's when it came to some municipal bond unit trusts sold by Merrill Lynch. That's when I started to do things myself (or - more correctly - tried to do things myself in the "pre-internet" days).

I never had the option of buying an annuity versus taking a lump sum when we terminated our law firm's qualified pension and profit sharing plans. So I just took the money and rolled it over into a traditional IRA (Roths didn't exist then). I've done a few small Roth IRA conversions over the years. But haven't done any for a while (they didn't make sense in terms of our personal tax situation). So I don't know what I'd do if I were in your shoes. About my only suggestion would be to run things through a good tax calculator first (the extra tax as a result of a conversion was often more than I thought it would be because of things like reduced medical deductions). Robyn
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Old 04-26-2016, 07:14 AM
 
71,511 posts, read 71,674,131 times
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Quote:
Originally Posted by Robyn55 View Post
The principal is "poof" if you spend it. And - if you don't spend it - but only spend the interest component - what's the point of the product? You might as well just buy a plain vanilla fixed income product - like a CD. And skip the fees/insurance company profit. Robyn
i can't imagine buying a short term annuity for any other reason then income , you get a higher cash flow yearly then most cd deals which is why it is used for these purposes .

if i ever did it , i would do one just because it offers the highest cash flows for the equivalent rates .

cd's are really a saving vehicle while the short term annuity's are spending vehicles . the returns are close but the distributions are different .

some cd's allow some principal a year without penalty . so in effect they are actually acting as short term annuity's issued by a bank .
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Old 04-26-2016, 07:16 AM
 
Location: Ponte Vedra Beach FL
14,628 posts, read 17,923,045 times
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Quote:
Originally Posted by leastprime View Post
We tried to finance a home purchase off of Income from SS and pension. It is difficult. We said the heck with this and purchased this Seattle rental condo, for cash. So ironically now that we have income from the rental, we can easily do a HELOC or a 1st.

If one is in retirement getting a HELOC, a CC of more than $5000 is more difficult even though you have a guaranteed SS income and money in the bank. If in a catastrophic situation, that situation may limit one's ability to meet the qualification--perhaps because of no-doc-no-asset-no-job era.
CC = credit card? If so - we've never had an issue getting cards with credit limits in 5 figures. Perhaps these things are more dependent on one's personal credit history than one's income sources.

Have never tried getting any kind of mortgage/HELOC/similar - so I don't know what the story is there. Robyn
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Old 04-26-2016, 08:28 AM
 
30,071 posts, read 47,312,423 times
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We have friend who was partner with small group who invested in o/g properties, would enhance production flow, and then sell properties...this was 10 or more yrs ago and not with any horizontal drilling...they made quite a bit of money..his share grew larger the longer he stayed. It was enough the last time that he took his proceeds and retired...
Don't think he was even 55. The investment advisor he had was someone he and my husband worked with at prior company who had become financial advisor when he was laid off/company sold in late 90s...guy was CPA and accountant already and supposedly good with money as people say...

They took almost all of his last sale (over a million I think) and bought laddered muni bonds--tax free to help reduce his tax profile...of course that income goes into the MAGI on tax return so if it is large enough over the year, you can still see tax bite...and since it was before 2008 the rates were well above what they are now...

Plus they already owned their home and had other investments like 401K from former employer, had created trusts for their 3 adult children who were out of college with some of previous sales...

That was before 2008 when market for bonds and stocks went down tubes...
They were very worried because even though he got the monthly cash flow, the overall value of investment was down...now I imagine it is quite the reverse...
Neither one of them is old enough for Medicare yet and don't think they fit the file/suspend+ spousal option that closes this month...so,don't know if they were planning to do that since her spousal I am sure is much larger than any personal...

They are the only people we know who have put such large portion into munis and were basically living on dividends...
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Old 04-26-2016, 02:20 PM
 
Location: Eastern Washington
14,222 posts, read 44,887,015 times
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Quote:
Originally Posted by DaveinMtAiry View Post
I'm not sure why we are comparing an annuity with any form of CD investing. An annuity does exactly what it was designed to do, specifically provide a monthly payout. By definition a CD does just the opposite, withholds every penny until the specified time expires. It's not apples and oranges it's apples and elephants.
Not entirely - you can set up a CD to pay the interest to you monthly, or annually. You have locked up the principal, but the interest can be made available for spending.
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Old 04-26-2016, 02:31 PM
 
Location: Ponte Vedra Beach FL
14,628 posts, read 17,923,045 times
Reputation: 6716
Quote:
Originally Posted by mathjak107 View Post
i can't imagine buying a short term annuity for any other reason then income , you get a higher cash flow yearly then most cd deals which is why it is used for these purposes .

if i ever did it , i would do one just because it offers the highest cash flows for the equivalent rates .

cd's are really a saving vehicle while the short term annuity's are spending vehicles . the returns are close but the distributions are different .

some cd's allow some principal a year without penalty . so in effect they are actually acting as short term annuity's issued by a bank .
So then - like I said - your principal is "poof" at the end of 10 years.

When it comes to straightforward CDs for savings - I can't imagine not being able to better the rates I've seen here (although I don't know if they're typical). FWIW - there are various online resources where you can see the best deals on CD rates these days. Both national deals and local deals (some of the better deals can often be found at local credit unions - many of which allow you to join if you're "a local"). They also discuss early withdrawal penalties (which can be a factor for some people). For example:

https://www.depositaccounts.com/blog/cd-rates-survey/ (this is perhaps my favorite)

CD Rates - compare highest CD rates at bankrate.com

And then - of course - there are brokered CDs. Which work best for me most of the time because I'm dealing with IRA accounts in brokerage firms. Robyn
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Old 04-26-2016, 02:54 PM
 
Location: Ponte Vedra Beach FL
14,628 posts, read 17,923,045 times
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Quote:
Originally Posted by loves2read View Post
They took almost all of his last sale (over a million I think) and bought laddered muni bonds--tax free to help reduce his tax profile...of course that income goes into the MAGI on tax return so if it is large enough over the year, you can still see tax bite...and since it was before 2008 the rates were well above what they are now...

That was before 2008 when market for bonds and stocks went down tubes...
They were very worried because even though he got the monthly cash flow, the overall value of investment was down...now I imagine it is quite the reverse...
Municipal bond interest is included in MAGI. The only way "plain vanilla" (as opposed to "alternative minimum tax" or taxable*) municipal bond income affects most people tax-wise in in terms of SS taxation (we'll never be under 85% taxable so I don't worry about it). Other possible areas of impact are high income Medicare surcharges and the newer "high income" Medicare tax. But those things don't affect many people - especially if they're married - unless they're still working and earning high incomes - have a significant capital gains event - or similar. Perhaps there are other things - but none comes to mind. Most important - our medical expenses deduction - our largest deduction - is computed based on AGI (which doesn't include municipal bond income) - not MAGI.

Just about every type of bond went down in late 2008 - except for treasuries (which went up a lot). Because there were fears of municipal/corporate insolvencies. There have been a couple of similar municipal bond scares since then (like the short-lived meltdown after the Meredith Whitney call on 60 Minutes). I consider these general panics a lot of noise - buying opportunities.

OTOH - I do pay very careful attention to credit quality in terms of what I buy and what I hold. And tend to avoid states where I think that finances are questionable. Of course - anyone who has bought anything in Puerto Rico for the last umpteen years is either a moron - or a junk bond trader willing to take on a lot of risk. If I want a lot of risk - well that's what biotech stocks are for . Robyn
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Old 04-26-2016, 03:07 PM
 
Location: Ponte Vedra Beach FL
14,628 posts, read 17,923,045 times
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*There are some taxable municipal bonds. Today - when it comes to high quality taxable bonds - the yields are almost the same as those on tax-free munis. And they don't make much sense to me.

A while back - and only for a short period of time (< 2 years) after the 2008 financial crisis - there was a program that financed what were called "Build America Bonds".

https://en.wikipedia.org/wiki/Build_America_Bonds

These were taxable municipal bonds with various federal government guarantees. They had great yields. I bought a fair amount (in my IRA). Alas - the program expired 6 years ago. Although these bonds are still available on the secondary market today - I don't recommend them. Because most/all sell at huge premiums. And most/all have various provisions that allow them to be called at par on short notice. Not selling any I own - but not buying any new ones either. Robyn
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Old 04-27-2016, 06:05 AM
 
1,696 posts, read 609,966 times
Reputation: 1771
Quote:
Originally Posted by leastprime View Post
We tried to finance a home purchase off of Income from SS and pension. It is difficult. We said the heck with this and purchased this Seattle rental condo, for cash. So ironically now that we have income from the rental, we can easily do a HELOC or a 1st.

If one is in retirement getting a HELOC, a CC of more than $5000 is more difficult even though you have a guaranteed SS income and money in the bank. If in a catastrophic situation, that situation may limit one's ability to meet the qualification--perhaps because of no-doc-no-asset-no-job era.
What you are describing confirms what I said, that one needs to fully own a home (any kind of home, it could be a condo, even a rental condo) before retirement, so one qualifies for HELOC (home equity line of credit) in case of a major emergency. You say you could not finance a home purchase off ss+pension, then you bought a condo for cash (which condo you decided to rent), and now you easily qualify for HELOC. Exactly. But what qualifies you for HELOC is not additional rental income from the condo - it is the fact that you fully own all equity in at least one property (eg, a condo that you purchased for cash).

So my approach is to have annuities as ongoing income (with additional deferred annuities starting later, to have the ongoing income keep up with inflation) and have my home fully paid off so I can qualify for HELOC in case of unexpected extraordinary expense.
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