City-Data Forum Is An Annuity Right for Us? (lifestyle, spend, withdrawal, difference)
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04-27-2016, 05:14 PM
 1,736 posts, read 621,943 times Reputation: 1828

And if you give the annuity company \$270k, you will get \$300k over 10 years at the rate of 30k per year, with which you can spend every other month vacationing in a different country... or you can truly invest \$270k, and then spend 10 years glued to stock market diagrams, worrying how your investments are doing, followed by spending your last decade (for which you invested so frantically) enjoying cancer and dementia.

04-27-2016, 07:51 PM
 Location: Columbia SC 8,993 posts, read 7,766,040 times Reputation: 12226
Quote:
 Originally Posted by johngolf Would the person who likes doing spreadsheets compute the following: 1. One puts \$1K in a 1% per year CD. 2. They then draw \$900 per month for 10 years. 3. What will be left of the \$100K (account balance) in 10 years? Also please work out 2% and 3% per year. Thanks
EDIT

While I said a CD forget the vehicle. I am interested in the numbers.

Thanks

04-27-2016, 09:08 PM
 Location: Idaho 1,456 posts, read 1,158,299 times Reputation: 5523
Quote:
 Originally Posted by johngolf EDIT While I said a CD forget the vehicle. I am interested in the numbers. Thanks
Quote:
 Originally Posted by johngolf Would the person who likes doing spreadsheets compute the following: 1. One puts \$1K in a 1% per year CD. 2. They then draw \$900 per month for 10 years. 3. What will be left of the \$100K (account balance) in 10 years? Also please work out 2% and 3% per year. Thanks
John,

I believe that you meant to invest \$100K and not 1K in item 1.

Instead of a CD (which means all \$100K is locked in for the duration of the CD term), you meant any investment which allows monthly withdrawal

I plugged the interest 1%, 2% etc. in my spreadsheet for what I think being the scenario

1. Invest 100K in an account which pays interest but allows monthly withdrawal
2. Draw \$900/month
3. What will be the account balance in 10 years.

Here are the results

1. At 1% interest, the account runs out of money before 10 years: The account has \$489 left at 117th months (9 years and 9 months).

2. At 1.57%, the account runs out of money at the end of the 10 years. This is the same as the 10 years annuity paying \$900/month for \$100K premium.

3. At 2%, the account has \$2470 at the end of 10 years and will run out of money in 10 years and 3 months.

4. At 3%, the account has \$8832 at the end of 10 years and will run out of money in 10 years 10 months.

Bottom line is that one has to find an investment vehicle paying more than 1.57% and allowing the same amount of monthly withdrawal of \$900 for 10 years to be better than the annuity example.

04-28-2016, 03:21 AM
 71,769 posts, read 71,875,234 times Reputation: 49321
a 9% withdrawal rate in practical terms is way to high for any portfolio to sustain if a 30 year retirement is a goal , especially once the returns are not constant and have down years and up years .

for a 65 year old spias are in the 6% range today , as far as cash flow from our own investing we will be lucky if 4% inflation adjusted holds up going forward .

04-28-2016, 06:35 AM
 1,736 posts, read 621,943 times Reputation: 1828
@mathjak107 - my 9% withdrawal is only for 10 years, and only for one annuity (I have other resources besides that annuity even for these initial 10 years, which are not even the full retirement years). In my 60s, my average withdrawal rate will be about 5%, falling down to about 2% in the 70s, and further into actually negative % in my 80s and 90s if I live that long. This is chiefly because I put most of my money, in my 40s and early 50s, into annuities that were deferred for anywhere between 15 and 27 years. These are long accumulation times, and annuity rates were also substantially better in the early-mid 2000s. This 10 year annuity with 9% withdrawal is simply a result of the fact that, at the age of 50, I realized I had enough to support myself after 60 with annuities (plus ss and a minor mutual fund SEP-IRA after 70), so I decided to use the remaining 12% or so of my assets as an immediate 10-year annuity which would allow me to work only part-time in my 50s. If one wants a mostly annuity-based retirement, the main thing is to get annuities as early as possible, and defer the payments for as long as possible. Annuities are generally not something to get at 65 (unless you are deferring withdrawal until 80), but at 40, or 45, or 50. But I don"t know if there are any youngsters reading this forum...

04-28-2016, 08:34 AM
 Location: Columbia SC 8,993 posts, read 7,766,040 times Reputation: 12226
Quote:
 Originally Posted by BellaDL John, I believe that you meant to invest \$100K and not 1K in item 1. Instead of a CD (which means all \$100K is locked in for the duration of the CD term), you meant any investment which allows monthly withdrawal I plugged the interest 1%, 2% etc. in my spreadsheet for what I think being the scenario 1. Invest 100K in an account which pays interest but allows monthly withdrawal 2. Draw \$900/month 3. What will be the account balance in 10 years. Here are the results 1. At 1% interest, the account runs out of money before 10 years: The account has \$489 left at 117th months (9 years and 9 months). 2. At 1.57%, the account runs out of money at the end of the 10 years. This is the same as the 10 years annuity paying \$900/month for \$100K premium. 3. At 2%, the account has \$2470 at the end of 10 years and will run out of money in 10 years and 3 months. 4. At 3%, the account has \$8832 at the end of 10 years and will run out of money in 10 years 10 months. Bottom line is that one has to find an investment vehicle paying more than 1.57% and allowing the same amount of monthly withdrawal of \$900 for 10 years to be better than the annuity example.
Thanks for the numbers. Many need to see hard numbers when thinking about such stuff.

04-28-2016, 10:08 AM
 Location: Portland, Oregon 10,014 posts, read 16,688,406 times Reputation: 6424
Put your money in a Vanguard Managed Payout Fund or in Wellington Income Fund. The latter has a 5 year average return in excess of 8.5%. The above scenarios indicate a withdrawal rate of 10.8% on an investment of \$100,000. Assuming that Wellington's gain is consistent throughout the period you will exhaust your investment in 18 years.

04-28-2016, 10:14 AM
 30,158 posts, read 47,386,444 times Reputation: 16104
Quote:
 Originally Posted by Nell Plotts Put your money in a Vanguard Managed Payout Fund or in Wellington Income Fund. The latter has a 5 year average return in excess of 8.5%. The above scenarios indicate a withdrawal rate of 10.8% on an investment of \$100,000. Assuming that Wellington's gain is consistent throughout the period you will exhaust your investment in 18 years.
What are the odds tho that rate of return/withdrawals will continue into the next 20-30 yrs....

It does not seem very likely scenario with the current interest rate environment and the economic headwinds so many countries are facing...

04-28-2016, 10:19 AM
 Status: "Re-edit status" (set 23 days ago) Location: Was Midvalley Oregon; Now Eastside Seattle area 4,200 posts, read 1,915,270 times Reputation: 3217
Quote:
 Originally Posted by Nell Plotts Put your money in a Vanguard Managed Payout Fund or in Wellington Income Fund. The latter has a 5 year average return in excess of 8.5%. The above scenarios indicate a withdrawal rate of 10.8% on an investment of \$100,000. Assuming that Wellington's gain is consistent throughout the period you will exhaust your investment in 18 years.
Suppose that the assumption that Wellington's gain is Not consistent throughout the period...?
Wouldn't you exhaust your investment (risk) in less than 18 yrs? {rhetorical}

Wellington'sMMV

04-28-2016, 11:25 AM
 71,769 posts, read 71,875,234 times Reputation: 49321
Quote:
 Originally Posted by Nell Plotts Put your money in a Vanguard Managed Payout Fund or in Wellington Income Fund. The latter has a 5 year average return in excess of 8.5%. The above scenarios indicate a withdrawal rate of 10.8% on an investment of \$100,000. Assuming that Wellington's gain is consistent throughout the period you will exhaust your investment in 18 years.
don't forget sequence risk can have you off by many many many years .

average returns mean nothing when spending down .

having negative years in the mix greatly alters the math .

the same exact average return over 30 years can have a 15 year difference in how long the money will last .

my projection for wellesley is about a 4% return going forward with these rates and high valuations .. bonds at 3%, cash at 1%-2% and a projected single digit return going out as far as 8-10 years as an average return on equity's unless profits shoot up drastically to bring valuations down .

it has never happened where returns were not below average over that time frame from these valuations .

all my retirement projections for my 40/50/10 portfolio are based on 4-5% returns . anything better will be an upside surprise but that still does not mean that is what you can draw . holding 4% inflation adjusted withdrawals may be tough depending on the sequences of those gains and losses .

never ever use an average return to project a safe withdrawal rate ----did i say ,ever ?
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