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Old 04-28-2016, 03:22 PM
 
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I am not sure what a 6% lifestyle goal is supposed to mean... When I was 50, I looked up the inflation for the prior 50 years. At 50, I needed about $4k per month for my lifestyle, and then I multiplied that by 1/5 of the 1960-2010 inflation for each 10 years following my 50th birthday (which birthday was in 2010). I compared these numbers with what I had in my immediate and deferred fixed annuities, and saw that I had enough for each decade except the 50s. So I got one additional 10-year immediate fixed annuity to cover the 50s. That is all I know how to do (I am not a mathjack but a medicinejill). My estimate of needs is probably too conservative if anything, considering that I factored into it the rampant inflation of the 1970s.
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Old 04-28-2016, 03:26 PM
 
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all it means is a draw rate that starts at 6% day 1 and is inflation adjusted yearly .

6% is used in this case because in order to see the effects of the spia on the success rate you need to have a draw high enough to exhaust the portfolio under many different outcomes .

by exhausting both you can then see the effect on success
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Old 04-28-2016, 03:26 PM
 
Location: Ponte Vedra Beach FL
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Quote:
Originally Posted by elnrgby View Post
At Robyn55 - re difference between 1% interest from bank account vs. annuity:
(1) deferred annuities have much higher interest rates than 1%, depending for how long you defer taking the annuity payments,
(2) deferred life annuities (ie, the ones that pay a certain amount of $ for life) can end up having astronomic interest rates, averaging higher than 100% per year over the course of your life if you get these annuities early and end up living very long (as it may happen to me because my family has routinely lived into their 90s over at least 3 prior generations), and
(3) even with the least favorable immediate time-limited annuities, if you use that annuity as your spending account from which you spend 10% of the initial principal every year, you will get twice as much in interest from that annuity than from a 1% interest bank account that you use in the same way, ie, as your spending account. In other words, if you are drawing, say, $30k per year from your spending account for 10 years based on a $270k principal, you will get 6 months' worth of free money from a 1% bank account, but one year of free money from a 1% annuity over the course of 10 years. Again, this would be the least favorable type of annuity (which I obtained only after I already had enough deferred annuities for real retirement at 60; the question was whether I wanted to invest into something I didn't need and continue to kill myself working, or put money into an immediate fixed 10 year annuity as a spending account for 10 years, and semi-retire at 50. I decided I'd prefer to have 6 months off work per year in my 50s than to chase investments with highest potential returns as well as highest risks).
Can you give me dollar and cents examples of 1 and 2. With all the specifics. So I can run the numbers.

Your rate of return on the 10 year annuity is about 1.5%.

I think you would have been better off maxing out your retirement savings/investment in your 50's (often peak earning period for many people) - than figuring out the fastest ways to spend what little you had. Unless you have reason to believe you will die very young. Robyn
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Old 04-28-2016, 03:28 PM
 
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Quote:
Originally Posted by elnrgby View Post
I am not sure what a 6% lifestyle goal is supposed to mean... When I was 50, I looked up the inflation for the prior 50 years. At 50, I needed about $4k per month for my lifestyle, and then I multiplied that by 1/5 of the 1960-2010 inflation for each 10 years following my 50th birthday (which birthday was in 2010). I compared these numbers with what I had in my immediate and deferred fixed annuities, and saw that I had enough for each decade except the 50s. So I got one additional 10-year immediate fixed annuity to cover the 50s. That is all I know how to do (I am not a mathjack but a medicinejill). My estimate of needs is probably too conservative if anything, considering that I factored into it the rampant inflation of the 1970s.
if it wasn't for the time frames that included the high inflation 70's like those who retired in 1965 or 1966 safe withdrawal rates would not have been reduced to 4% but as high as 6.50% from a 60/40 or 50/50 mix . because the 30 year periods starting in 1907 ,1929,1937 and 1965/1966 were so bad the safe withdrawal rate had to be reduced to 4%
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Old 04-28-2016, 03:39 PM
 
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@Robyn55- I do know the difference between a return of principal and return on principal. I got an annuity because I'd rather have 30k per year than 28k - why not, after I realized in 2008 what the safety is of annuities from even a profoundly compromised company. I am 56, and have lost my healthy, athletic significant other to a sudden heart attack (he was 59; the heart attack was the result of something that happens with blood clotting if you sit in a cockpit of a big commercial plane for 8-9 hours and fly across the Atlantic 3-4 times per week). I saw every form of old age and death in my profession, so I value good life while I can still have it. I am still healthy (as are my parents in their 80s), and when I get a terminal disease, I will want only palliative care.
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Old 04-28-2016, 03:44 PM
 
Location: Ponte Vedra Beach FL
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Quote:
Originally Posted by BellaDL View Post
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.
I got pretty much the same - run out of money in 117 months at 1% - 124 months at 2% - and 132 months at 3%.

OTOH - I seem to look at this a lot different than many people here. I am not in a big hurry to spend down my principal - hand it over to an insurance company. I LIKE having my money. And am not so feeble-minded (yet) that I can't manage it. Plus I have always lived below my means (no hardship at all). Also note to younger people here (and I think many here are younger than I am - I am 68 and my husband is 72) - that you always want to hold something in reserve to live more luxuriously when you get older. Whether it's getting more help - a concierge doctor - traveling first class - etc. Many people will live very long lives - often in relatively good health - these days. Well into their 70's - 80's - or even 90's or older. And who wants to wind up old and poor? Not me. Robyn
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Old 04-28-2016, 03:54 PM
 
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more @Robyn55-
- $100k principal placed in a deferred fixed life annuity at age 55 will pay $1,100 per month for life starting on the 70th birthday
- $100k placed in a deferred 15 year fixed annuity at age 55 will pay $1,000 per month for 15 years starting at age 65 (ie, 65-70)
- $100k placed in a debarred fixed life annuity at age 53 will pay about $4,000 per month for life starting on the 80th birthday

I am away from home so do not have the policies on hand to give you the exact numbers, but the figures above are pretty accurate. Re other comment, I also understand a difference between maxing off income vs. maxing off good life in my 50s, and am more interested in maxing off good life. That's just me. Even my genetically healthy parents have slowed down substantially in their 80s, so I know that I have only 25 good years left at the absolute maximum.
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Old 04-28-2016, 03:55 PM
 
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correction: the 2nd line above should be (65-79)
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Old 04-28-2016, 04:00 PM
 
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keep in mind that before any longevity annuity is purchased the best annuity ever is delaying social security . there is no commercial annuity that comes close because of the cola adjusting . to get any type of inflation adjusted annuity requires a big give back in cash flow
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Old 04-28-2016, 04:15 PM
 
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Right. I factored soc security start at 70 into my plans (and the fact that as will be paying 75% of today's projection by the time I start collecting it). I am used to paying my own health insurance as a self-employed person, so there is no issue with early retirement and Medicare at 65 either.
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