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Old 05-06-2016, 11:43 PM
 
Location: Los Angeles
2,919 posts, read 1,959,194 times
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Quote:
Originally Posted by PhxBarb View Post
I just gave $100000 to my NY Life financial advisor for an annuity that will give me $900 a month for 10 years..
Well then he sure made out like a bandit! What type of annuity?
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Old 05-07-2016, 02:38 AM
 
71,511 posts, read 71,674,131 times
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something does not make since with that amount , a 5 year cd would have given you 3k a year in gains or 30k in gains in 10 years which is 130k renewed even at the same rate . in 10 years you got back 108k ?

900 x 12 x10 =108k . short term annuity's usually track cd's so something makes little sense
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Old 05-07-2016, 04:23 AM
 
Location: NC Piedmont
3,911 posts, read 2,876,920 times
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Quote:
Originally Posted by mathjak107 View Post
something does not make since with that amount , a 5 year cd would have given you 3k a year in gains or 30k in gains in 10 years which is 130k renewed even at the same rate . in 10 years you got back 108k ?

900 x 12 x10 =108k . short term annuity's usually track cd's so something makes little sense
If you use the ending balance each year, simple 3% interest would give (2.7 + 2.4 + 2.1 + 1.8 + 1.5 + 1.2 + .9 + .6 + .3)K which is 14.5K. I think it sounds more like 2% on the ending balance each year as that would be about 8K. I am ignoring interest on interest in both cases as I did that in my head.
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Old 05-07-2016, 04:27 AM
 
71,511 posts, read 71,674,131 times
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i get less than 1% a year . you gain 8K on 100 grand over 10 years . 1% would give you 110k not 108k .

12 x 900 a month x10 years =108k , there is no compounding effect because it is paid out and not compounded on .

Last edited by mathjak107; 05-07-2016 at 04:40 AM..
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Old 05-07-2016, 06:18 AM
 
Location: Mount Airy, Maryland
10,459 posts, read 5,922,719 times
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Has anyone done the math of keeping that $100,000 you are discussing in a fairly conservative investment and drawing down $900/month. Gotta believe it will last longer than 10 years.
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Old 05-07-2016, 07:10 AM
 
71,511 posts, read 71,674,131 times
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at zero return you can do 900 a month for almost 10 years , that is why this annuity makes no sense . there is either a mistake or more to this story .

Last edited by mathjak107; 05-07-2016 at 07:21 AM..
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Old 05-07-2016, 09:51 AM
 
Location: Columbia SC
8,954 posts, read 7,729,944 times
Reputation: 12164
Quote:
Originally Posted by DaveinMtAiry View Post
Has anyone done the math of keeping that $100,000 you are discussing in a fairly conservative investment and drawing down $900/month. Gotta believe it will last longer than 10 years.
From Post #183

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.
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Old 05-07-2016, 10:27 AM
 
Location: Mount Airy, Maryland
10,459 posts, read 5,922,719 times
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Thanks John. So if the poster's window is 10 years that not such a bad decision after all IMO. Bad idea for me, I would need it to last for life so obviously I'm looking at a smaller monthly payout.


I'm still undecided after all of this. Sure delaying SS and living off of this money is ideal. But I need the money first and that all depends on when the house sells. A 1900 farmhouse could be on the market for a while as it is unusual/unique. Delaying SS may not be an automatic option.
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Old 05-07-2016, 10:32 AM
 
Location: Haiku
4,056 posts, read 2,569,746 times
Reputation: 5976
Quote:
Originally Posted by DaveinMtAiry View Post
Has anyone done the math of keeping that $100,000 you are discussing in a fairly conservative investment and drawing down $900/month. Gotta believe it will last longer than 10 years.
The 10-year US Treasury bond is the gold standard for conservative investing. The current coupon for it is 1.625%. Total return at the end of 10-years would $116,250. The insurance company will invest less conservatively than that.

For a single investor, selling off principal every year to come up with the $10,800 is going to reduce the total return. Insurance companies have a much larger pool and the cash flow they need to generate for payments is not a big fraction of the principal while for an individual it is.

At any rate, if the investor puts his/her money into US Treasuries, and sells off enough every year to come up with the $10,800, she will be able to make all 10 annual payments to herself and have $1241 at the end of 10 years left over. (I did the calculation in a spreadsheet).

PhxBarb did not say what the fee was she paid. But it certainly looks like she could have done it cheaper herself with a very conservative investment. A less conservative investment (like corporate bonds) would come out even better for her.

One other thing to note - even though 10-year US Treasuries are very conservative, there is risk and uncertainty still. The investor has to sell bonds every year to come up with the $10,800 payment. Selling on the open market means taking market prices which will depend on current interest rates. The $1241 difference is really the fee you pay the insurance company to relieve you from any risk.

Last edited by TwoByFour; 05-07-2016 at 10:45 AM..
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Old 05-07-2016, 10:36 AM
 
Location: NC Piedmont
3,911 posts, read 2,876,920 times
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Quote:
Originally Posted by mathjak107 View Post
i get less than 1% a year . you gain 8K on 100 grand over 10 years . 1% would give you 110k not 108k .

12 x 900 a month x10 years =108k , there is no compounding effect because it is paid out and not compounded on .
You are forgetting that there is not 100k for 10 years; only for one month. Then there is 99,9100 and so on. At 5 years, there is only 50K. So 1% doesn't give you 10k in interest; even the first year it would be less than 1k (not much less, but less). The declining balance almost halves the rate over the full period.
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