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Old 04-23-2016, 05:58 AM
 
2,752 posts, read 991,534 times
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It's good to make plans but remember life always throws some wrenches on them. So make one you feel comfortable with and you can adjust it as time goes by.
As I stated on another thread. I have a plan right now where I can retire at 62 use some 403b funds to get me to my FRA of 66.8 without touching my 401k and then collect SS. I will revisit not claiming until 70 as I get close to FRA and look at where we are financially and health wise.

So research and make a plan but don't go too crazy on it because as the old saying goes plans are made to be broken.
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Old 04-23-2016, 06:19 AM
 
Location: Ponte Vedra Beach FL
14,628 posts, read 17,925,663 times
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Let me throw a couple of other factors into the mix.

First - the notion of selling a house (presumably up north) for say $400-600k and finding a wonderful cheap ($100-150k) place (somewhere) in the south is pretty much a pipe dream. Unless you're content to live in a smaller cheaply built place in "the middle of nowhere" (or in a lower end senior community in the middle of nowhere). Because our property values have been going up. Take this house:

140 Fieldcrest Rd, Southern Pines, NC 28387 | Zillow

I am very familiar with this house - because it was my late inlaws' retirement house. Southern Pines isn't in the thick of things - but it isn't in "the middle of nowhere" these days. My inlaws bought this 1650 sf house for about $65k new in 1981 when they retired. Sold it in 2000 or so for about $115k after my MIL died and my FIL moved into a SNF. And now it seems to be worth $200k!

When it comes to areas more "in the thick of things" - well look at my area in NE Florida (St. Johns County/Ponte Vedra Beach). Which is now very popular (in part because of our school district). When we moved here (20 years ago) - you used to be able to find a decent house here for $150-200k - and a really nice one for $250k-350k. Today - entry level houses are more in the $250k range - and nice ones cost a heck of a lot more.

IOW - although this plan might look good on paper/in theory - it might not work out in practice. Not only in terms of dollars - but in terms of "culture shock". If you're used to living in a very developed area with lots of available services/goods - "the middle of nowhere" might not be a good fit. FWIW - both Southern Pines and Ponte Vedra Beach have tons more in the way of services/goods available now than 2-3 decades ago. But those amenities have increased the COL in both places. Best to do a reality check before making this assumption an integral part of a retirement plan.

A totally unrelated point. I think one reason so many people are interested in SPIAs today is because of the current extremely low interest rate environment. But insurance companies can't turn straw into gold any more than an individual investor can. So the current rates of return on SPIAs are very low.

Also - if this interest rate environment continues - many insurance companies are going to have problems staying afloat:

Germany: Where Negative Rates Are Lethal - WSJ

I realize that many states have insurance guaranty associations that guarantee policies (up to various limits). But - at least in Florida - it can take months/years for the fund to pay claims. Also - in Florida - this is not a state guarantee. Payments are made from assessments levied on other insurance companies (which is one reason payments aren't immediate).

Finally - a guaranty association isn't required to make payments to you for the rest of your life. It can pay your claim by giving you the cash surrender value of your annuity (future payments based on life expectancy discounted to present value). Which may not be a lot of money if you're very old. I am dealing with this now (just monitoring the situation). Because one of my father's annuities is with a currently troubled company:

Genworth doubles down on LTC business in challenging market

But - at age 97 - the cash surrender value of his annuity is probably next to zilch. And perhaps my father will predecease the insurance company. I think if I bought an annuity today - I would just wind up worrying about the solvency of the insurance company as opposed to how to do ok in a low interest rate environment. IOW - I would be replacing one problem with another. Robyn
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Old 04-23-2016, 06:55 AM
 
71,515 posts, read 71,694,121 times
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spia's should not be bought for a roi . they are bought for cash flow and zero roi works well .

dead body's enable them to pay a cash flow much higher then you could ever draw safely from your cash and bond allocations even drawing down principal since when you hit zero spending down cash and bonds you need to sell equity's to refill spending money trying to match that draw rate currently 5.65% and a single is even more .

as you do spend your cash and bonds down , each year you get less and less income requiring more and more selling ...

if you don't need that much just take what you need and invest the rest . you don't need to keep as much powder dry with an spia since unlike your investments ,spia's have zero sequence risk so you don't need to hold back so much for poor sequencing .


the fact that after you draw out all your own money from the spia you go on their dime is where it's power is and the fact it has no sequence risk . the income base is forever and requires less equity selling potentially giving you a better roi overall.

but you have to see why you want an annuity .

if you have so much money your looking at 2% withdrawals inflation adjusted just go fixed income , you don't even need equity's for that . but if you are looking at 4% inflation adjusted from a conservative portfolio and need to maximize income then it is likely your outcome can be improved with the spia .

Last edited by mathjak107; 04-23-2016 at 07:14 AM..
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Old 04-23-2016, 07:06 AM
 
Location: Mount Airy, Maryland
10,460 posts, read 5,924,770 times
Reputation: 16151
Quote:
Originally Posted by Robyn55 View Post
Let me throw a couple of other factors into the mix.

First - the notion of selling a house (presumably up north) for say $400-600k and finding a wonderful cheap ($100-150k) place (somewhere) in the south is pretty much a pipe dream. Unless you're content to live in a smaller cheaply built place in "the middle of nowhere" (or in a lower end senior community in the middle of nowhere). Because our property values have been going up. Take this house:

140 Fieldcrest Rd, Southern Pines, NC 28387 | Zillow

I am very familiar with this house - because it was my late inlaws' retirement house. Southern Pines isn't in the thick of things - but it isn't in "the middle of nowhere" these days. My inlaws bought this 1650 sf house for about $65k new in 1981 when they retired. Sold it in 2000 or so for about $115k after my MIL died and my FIL moved into a SNF. And now it seems to be worth $200k!

When it comes to areas more "in the thick of things" - well look at my area in NE Florida (St. Johns County/Ponte Vedra Beach). Which is now very popular (in part because of our school district). When we moved here (20 years ago) - you used to be able to find a decent house here for $150-200k - and a really nice one for $250k-350k. Today - entry level houses are more in the $250k range - and nice ones cost a heck of a lot more.

IOW - although this plan might look good on paper/in theory - it might not work out in practice. Not only in terms of dollars - but in terms of "culture shock". If you're used to living in a very developed area with lots of available services/goods - "the middle of nowhere" might not be a good fit. FWIW - both Southern Pines and Ponte Vedra Beach have tons more in the way of services/goods available now than 2-3 decades ago. But those amenities have increased the COL in both places. Best to do a reality check before making this assumption an integral part of a retirement plan.

A totally unrelated point. I think one reason so many people are interested in SPIAs today is because of the current extremely low interest rate environment. But insurance companies can't turn straw into gold any more than an individual investor can. So the current rates of return on SPIAs are very low.

Also - if this interest rate environment continues - many insurance companies are going to have problems staying afloat:

Germany: Where Negative Rates Are Lethal - WSJ

I realize that many states have insurance guaranty associations that guarantee policies (up to various limits). But - at least in Florida - it can take months/years for the fund to pay claims. Also - in Florida - this is not a state guarantee. Payments are made from assessments levied on other insurance companies (which is one reason payments aren't immediate).

Finally - a guaranty association isn't required to make payments to you for the rest of your life. It can pay your claim by giving you the cash surrender value of your annuity (future payments based on life expectancy discounted to present value). Which may not be a lot of money if you're very old. I am dealing with this now (just monitoring the situation). Because one of my father's annuities is with a currently troubled company:

Genworth doubles down on LTC business in challenging market

But - at age 97 - the cash surrender value of his annuity is probably next to zilch. And perhaps my father will predecease the insurance company. I think if I bought an annuity today - I would just wind up worrying about the solvency of the insurance company as opposed to how to do ok in a low interest rate environment. IOW - I would be replacing one problem with another. Robyn
Not a pipe dream at all Robyn. I'm in my 4th year of doing the research. I have visited Johnson City, TN 3 times and Roanoke, VA twice. These are the 2 finalists and hardly in the middle of nowhere, their sizes vary but both are the city size we are searchng for.

I have met with a real estate agent, researched homes and COL prices. A $150,000 downsize is very doable in both cities, our property taxes will drop from $3,600 to around $1,200. Heating costs will be lower and a yearly golf course membership is all of $800. We have also had 2 agents visit our house and with upgrades that $400,000 figure may be conservative providing the housing market does not tank. We live in a desireable area however a farmhouse built in 1900 will take longer to sell, obviously.

As for another post I totally agree plans can change. That doesn't mean you shouldn't have a plan for one of the most important set of decisions we will ever face.
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Old 04-23-2016, 07:26 AM
 
30,072 posts, read 47,320,143 times
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Originally Posted by TysonL View Post
If you own your own house and don't have any heirs, why not use the equity in your house? If it's locked up in your house it isn't helping you.

You can use a reverse mortgage to have your house pay you every month (tenure) for as long as you live in the house. This money is tax free. You can both delay SS and let your investments grow. If you want to move to a cheaper area, then you can buy a house with this program too. You can buy the house for about half the appraised value and then put additional money into a line of credit against the house (if you want). You still won't ever need to make any mortgage payments for as long as you live in the house. The line of credit will grow at about 6% (Currently. This rate increases with the interest rates.). This amount can be withdrawn at any time tax free, and the withdrawn amount will be added to the mortgage balance (which you won't ever need to pay back). Or you can just purchase the house at about half cost and never make another mortgage payment on it for as long as you live there. You can use the difference for whatever you want.

Source: I work for a reverse mortgage brokerage in Florida.
Do tell...
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Old 04-23-2016, 07:32 AM
 
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as i warn , the income from a reverse mortgage may be far less then you think .

they only use about 1/2 the equity and usually divide it by 100 less your age . that may not be much .

another problem is many of reverse mortgage receivers are now taking lump sum.

that reverse compounding interest can be killer.

even here in long island with the typical home worth more than 500k it can be quite painful.

On a $250,000 lump-sum in ten years the balance will climb to $465,841. Assuming 3% home price appreciation, that would leave about $72,000 in equity based on a home's $537,566 value. In 20 years, the loan balance would reach $868,031, exceeding the home's $722,444 value.

having to relocate can be a real issue . don't forget eventually many who live out of state want to move closer to kids and family if they need care. or what if you can no longer drive and need public transportation where you live only there is none ?

there are just so many negatives to using your home as a piggy bank that we all could make a never ending list as life plays out. many who took these loans just have not reached the point where their location has been a problem health wise or family wise yet..
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Old 04-23-2016, 07:45 AM
 
30,072 posts, read 47,320,143 times
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Quote:
Originally Posted by DaveinMtAiry View Post
I was a big fan of the reverse mortgage idea at one time. But that was before I really looked at the fees. I'd like to hear more about the idea of buying the new house with 1/2 down.


As for the annuity idea I think everyone had made a pretty good argument that this may not be the way to go. That's why I came here, the advice is excellent. When I get off work I'm going to spend a bit of time reviewing the material provided here. Thank you very much for the help everyone.
Google Scott Burns AssetBuilder web site...he wrote article w/in last month about new program (maybe just in FL currently) that allows people to put down 50% on home buy and use that amount to fund reverse mortgage...
He also has several other recent articles about reverse mortgages...HE isn't in the business of selling them just examining investment options that may/may not be appropriate vehicles...
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Old 04-23-2016, 07:49 AM
 
71,515 posts, read 71,694,121 times
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the purchase to buy reverse mortgage has been around a while . i would actually have used that to buy a luxury co-op i always wanted to live in but it was out of budget .

i can't do co-ops with it though so i don't have the option . i would have likely done it .
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Old 04-23-2016, 08:15 AM
 
Location: Fairfield, CT
5,842 posts, read 8,603,714 times
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Quote:
Originally Posted by DaveinMtAiry View Post
I know there are a lot of threads over the years about annuities and after seeing many it's clear that like every other investment question the answer is always "it depends on your situation". Well here is our situation:

No kids, no reason to preserve our estate. Part of our retirement planning is to downsize and move to a less expensive area. I had always planned on using the proceeds of this downsize to fund our big out of pocket costs such as taxes, home insurance, medical out of pockets, car repairs etc. Money for 2 new cars has already been set aside in 2 Roths. The plan was to invest in equities/bonds etc with an anticipated withdraw rate of 4%.

Now I'm thinking about taking say $100,000 of this money and purchasing a fixed rate annuity that will transfer to the surviving spouse when one of us dies. This will produce a much higher return, today it's looking at 5.65% or so, which again could be funneled into an account specifically to help pay for the big ticket items described above without the worry of a market downturn effecting this money. I would take the balance of the money realized, maybe $50,000-$100,000 depending on a lot of things, and put that with our existing brokerage account and invest this semi-conservatively.

Does this plan make sense? Thanks for your input.
If you don't have a pension, I think that it is a good idea to have part of your money in an annuity to provide an income floor, so you won't outlive your money. I have a portion of my money in annuities, and I am building it up, so that I have some level of income that is guaranteed for life. I would never put all my money in an annuity, but I think it makes sense to put some.
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Old 04-23-2016, 08:24 AM
 
Location: Mount Airy, Maryland
10,460 posts, read 5,924,770 times
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No pension. My 4 legs of the table are:

SS
401(k)
Equity from the home sale
Personal savings

My primary income will come from the first two. 401 will remain invested in an equities/bond mix and withdrawn at 4%. Market conditions will have a big effect on this, an annuity will smooth out the rough patches but it will never come close to a large % of our net worth.
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