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Old 05-07-2016, 08:32 PM
 
Location: Haiku
4,117 posts, read 2,580,412 times
Reputation: 6073

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It is an interesting question of how to achieve an income stream to fill the gap waiting for SS to kick in. I am in that situation and have simply been making somewhat larger investment withdrawals than I will in 7 years when SS starts. But if the market behaves poorly in that time period I will be in fact just spending down principal, which is really no different than what Barb is doing. She is trading 100k of principal for a guaranteed income stream.

Short term investing is hard because you have less time to recover from hiccups in the market. This is a good illustration of why bucketing can be bad - it is better to think of investing and withdrawing as one continuous process rather than break it down into segments with different goals

Last edited by TwoByFour; 05-07-2016 at 09:05 PM..
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Old 05-07-2016, 09:27 PM
 
Location: Haiku
4,117 posts, read 2,580,412 times
Reputation: 6073
Quote:
Originally Posted by Big-Bucks View Post
Agreed. There are NO "good deals" with annuities. The insurance company always wins.

Of course your efficiency horizon plot won't look like that in today's climate. Bond interest rates averaged a whopping 7.2% for that era and they are now under 2%. And what is really bad is the risk is about the same now as then, but the return is worse.
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Old 05-07-2016, 10:00 PM
Status: "Re-edit status" (set 20 days ago)
 
Location: Was Midvalley Oregon; Now Eastside Seattle area
4,181 posts, read 1,903,923 times
Reputation: 3211
JMO:
One of the better times to Buy an GLWB Income deferred annuity is when your equities/bonds are at a near high.
The other time to Buy is when your equities/bonds are at a near low.

YMMV
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Old 05-07-2016, 10:06 PM
Status: "Re-edit status" (set 20 days ago)
 
Location: Was Midvalley Oregon; Now Eastside Seattle area
4,181 posts, read 1,903,923 times
Reputation: 3211
Should be a poll somewhere to determine who wants to have a self-directed SS retirement or keep the present government sponsored and administrated SS plan.
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Old 05-08-2016, 03:50 AM
 
6,353 posts, read 5,163,159 times
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Quote:
Originally Posted by Big-Bucks View Post
Agreed. There are NO "good deals" with annuities. The insurance company always wins.

Since I created the chart you posted when I was at Ibbotson Associates, let me comment on it.

The 11.6% arithmetic mean return on equities WILL NOT happen again. In 1970 stocks were dirt cheap and interest rates were over 5%. Today stocks are expensive and interest rates are under 3% even for the longest-term bond.

And insurance companies do not always win when they issue an annuity. If you live past the breakeven point, typically age 86-87, you win and the insurance company loses. There is no other way to hedge against living a long time, other than being fabulously wealthy.
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Old 05-08-2016, 03:52 AM
 
Location: Los Angeles
2,919 posts, read 1,962,321 times
Reputation: 2450
Quote:
Originally Posted by TwoByFour View Post
Of course your efficiency horizon plot won't look like that in today's climate. Bond interest rates averaged a whopping 7.2% for that era and they are now under 2%. And what is really bad is the risk is about the same now as then, but the return is worse.
Wrong. Insurance companies aren't stupid. Actuaries are fully aware that interest rates are low. They have lowered their promises. There are no good deals with annuities. Never have and never will be any.
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Old 05-08-2016, 03:57 AM
 
71,651 posts, read 71,777,271 times
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the biggest risk today is from low rates , high valuations and not only sequence risk but the fact that markets today have greater swings then pre 2000 .

if you were happy with a 60/40 mix and the swings let you sleep pre 2000 today those swings are more then you likely bargained for .

the greater the swings the greater effect sequence of returns have on things .

it is getting to the point you either have to cut allocations to get back in to your comfort range or reduce sequence risk by having more income not subject to sequence risk like annuity income .

study's show under all but the best market outcomes partial annuitization and the higher allocation has produced better results then lowering allocations to get in to the same comfort range .

income is a lot harder to maintain today then ever before because we never had this combo before where rates were at such lows and stocks so highly valued .
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Old 05-08-2016, 03:59 AM
 
71,651 posts, read 71,777,271 times
Reputation: 49241
Quote:
Originally Posted by Big-Bucks View Post
Wrong. Insurance companies aren't stupid. Actuaries are fully aware that interest rates are low. They have lowered their promises. There are no good deals with annuities. Never have and never will be any.
wrong again . actuaries get these things wrong all the time , especially the guarantees .

if that was the case both hartford ,pudential and quite a few other company's would not have offered to buy out some of the annuity's they issued or to stop the flow of new money in to certain e annuity's .

the actuaries got these products wrong and investors who bought them won .

moishe milevsky nailed it when he told investors to grab these products as he couldn't see how the actuary's felt they could offer the guarantees they did . turns out he was right and we missed the boat on some great stuff .

---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
By Linda Koco

The term “suspension” is generating quite a stir in variable annuity circles. a couple of big variable annuity carriers—Prudential and Jackson National—are suspending sales of, or deposits into, certain variable annuities, such as those offering guaranteed living benefits.

Other variable annuity carriers are expected to follow, and many have already cut back on features in products they continue to sell.

In general, carriers describe their moves as efforts to protect the interests of existing customers and to ensure that the companies will be able to continue in business—and to meet obligations to customers—for the long-term.

The strain on capital created by today’s prolonged low interest rate environment is the trigger. That strain has made it difficult for insurers to support certain policy guarantees, especially the very popular living benefit guarantees such as the guaranteed lifetime withdrawal benefit and guaranteed minimum income benefit options. Certain of those guarantees were designed for sale in times when interest rates were higher. "

"

Last edited by mathjak107; 05-08-2016 at 04:22 AM..
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Old 05-08-2016, 05:54 AM
 
Location: NC Piedmont
3,911 posts, read 2,880,277 times
Reputation: 6291
I have never been a real gambler, but many years ago I went to the dog track every now and then with a group of friends. Most of us would just place a small bet or two and base it on the name or which dog peed first when they walked them (they had a little ring of hydrants they walked them around before the race) or long odds. The latter was a big draw; everyone wants to win big. But a couple of people I knew consistently bet on favorites (to place; IIRC). Most nights they came out barely ahead and overall they came out ahead. It's because the betting was paramutual so the long shot and random betting skewed the odds away from the favorites more than it should. This is what insurance companies do; they are gambling but they do it with the likely odds skewed in their favor. So they don't win every bet but as long as they win more than they lose they make money.
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Old 05-08-2016, 06:04 AM
 
71,651 posts, read 71,777,271 times
Reputation: 49241
insurers use lots of hedging stratagy's too to protect themselves . they can win even when you do
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