Is An Annuity Right for Us? (75+, crying, restaurant, father)

[Robyn55]

Originally Posted by leastprime

Anytime (current year) you want to take my downside risk, for 2-4% on original investment, you'll have my attention.

I was very specific - 1.4% for 10 years. That's a no-brainer when the 10 year note is about 1.9%. 2-4% open ended for the rest of your life? No way. Insurance companies aren't dumb (at least for the most part). And neither am I. I actually had the opportunity to do something along the lines of what you're suggesting quite a while back. My father wanted to give us an early "inheritance" on the condition that we give him (IIRC) a 5% lifetime annuity. He's 97 now - and that inheritance would be long gone by now. Robyn

[mathjak107]

we still have enough cash for this year and next year so i think in january we will start to plan the bridge until ss kicks in . i will be 64 and marilyn 66 so we won't have all that many years left to bridge .

i may end up just using the fidelity insight income portfolio which is about 25-30% equity's as of now .

we can sell a bit off plus channel all dividends and interest from all portfolio's in to building up that 2nd year we hold in reserve .

there is a channce the investor group that bought our lease rights may decide to pay off the balance of what they owe us this year so if they do that will fund us for another year with selling nothing .

[Robyn55]

Originally Posted by loves2read

I think some of your observations are just not as accurate as you think...
Our FL house is just south of Sarasota FL --not a major metro area...probably 1/3-1/2 the jobs are seasonal or tied to seasonal/vacation traffic and therefore under 40K yr but two big business factions are medical (taking care of seniors) and finance (banks and investment firms--again taking care of seniors) which can be well-paid...along with certain % of wealthy retired people--not all senior citizens......

Our SIL gave up a job in May last year because the company wanted him to relocate couple hours away.
It took him until this week to get a viable job offer in Sarasota area...he could have had plenty of options if he had been willing to consider moving to DFWArea so yes--job viability can drive RE prices but some areas have decent jobs and not such high prices...

Sarasota IS however a very expensive housing area because of the nearness to prime Gulf beaches, desireable weather 8-9 mo a yr, and fairly low crime rate...Sarasota county has some of the better public schools in FL as well although the ratio of seniors to younger families is skewed to seniors...

The overbuild in SFR/foreclosures has been eaten up by investors buying for rental properties, out of country investors looking for more stable place for their money. Some areas --like Venice 10 min south of SRQ--have surplus condos on offer but those are often less desireable because of condo rules, or age, or size...Some areas like South Venice are known for no HOA communities--while some people prefer that because of the no-hassle freedom, we knew after driving to look at two homes in that area we couldn't take trailers and cars parked on front yards (not driveways), lackadaisical yard care, and other signs of neglect...

I read your message and I don't think we're disagreeing. If you're saying there are parts of the country where the real estate market isn't totally or primarily job-related/dependent - because they're attractive to various groups of people (retirees - wealthy people - etc.) for other reasons (like weather - recreational opportunities - etc.) - then I agree. For example - Aspen real estate prices don't have anything to do with the local job market there. Robyn

[ReachTheBeach]

Originally Posted by Robyn55

I read your message and I don't think we're disagreeing. If you're saying there are parts of the country where the real estate market isn't totally or primarily job-related/dependent - because they're attractive to various groups of people (retirees - wealthy people - etc.) for other reasons (like weather - recreational opportunities - etc.) - then I agree. For example - Aspen real estate prices don't have anything to do with the local job market there. Robyn

You picked one of the few places that blows a hole in my argument that you can live pretty much anywhere cheaply if you make tradeoffs. The tradeoff you would have to make there is to have a full-time job in the county; it's so expensive that they have a special housing program for people making middle class wages (or below). Some of the ski areas have dorms (or they used to; it has been a while since I was there). Crazy...

[Robyn55]

Originally Posted by ReachTheBeach

Agree with a caveat; I may do a 5 year to bridge to a higher SS payout knowing that it is likely I could do better with an actively managed account I am drawing from but with the declining balance over a short period I might take the security of the set payment amount over having to fiddle with another account and take a very slight risk for what would likely be a smallish gain.

I don't care what anyone does as long as he/she understands what he/she is doing and why (and I think you have a handle on these things when it comes to your personal situation). I think the difference between return *of* principal and return *on* principal is one of those areas where there is often a lack of understanding. I run into this not only when it comes to annuities - but when it comes to other fixed income investments - like closed end funds.

Perhaps there is an element of self-delusion that comes into play as well. Even though my father knows better - he brags about his investment in a closed-end fund that "pays" 6%. Even though the fund "guarantees" 6% by returning principal to get to 6% if necessary (about 50% of that 6% is return of principal these days). BTW - this is a pretty good website in terms of getting information about these things (I look for big discrepancies between income and distribution yields):

Closed-End Funds

His self-delusion about the yield wouldn't be so bad had he allowed me to trade the fund after I started to manage his money (it reached a high of about 40 and is now 16 ). Glad this is only a very small part of his portfolio.

Robyn

[mathjak107]

home prices took a terrible hit in the area in the pocono's where we had owned a 2nd home when the local ski area went under .

the people we bought from paid 265k in 2005 , we bought it for 235k in 2007 and we sold it in 2012 for 235k , they sold it in january 2016 for 175k

demand for the area plummeted

[BellaDL]

Originally Posted by Robyn55

You don't need a CD. Open a 1% high yield savings account - and you can draw $876/month from it. You'll be left with $0 at the end of 10 years. If you absolutely insist on the $900 - you could probably tinker with a 10 year CD ladder. CDs that yield 1.4% or more (easy at the long end - but you can find some at the shorter end of the range with some digging) will get you to the magic $900 number.

Originally Posted by Robyn55

No it isn't. Your rate of return is 1.42%/year. On a 10 year brokered CD - you could easily get 3% until a few months ago - and you can still get about 2.75% today.

Robyn,

I ran a spreadsheet with the numbers provided by PhxBarb:

Premium: $100K
Monthly payment: $900
Term: 10 years or 120 months.
Start with $100K at beginning of Month 1 and end with $0 after 120th month (10 years)

I got 1.574% interest per year.

So this is not too bad of a deal in comparing with 10 year CD ladder. I did a quick search for best CD rates and found

6 months: 1.05%
1 year : 1.35%
2 year : 1.55%
3 year : 1.7%
5 year : 1.98%
10 years : 2.5%

The longer term CDs pay more but one has to lock-in the principal for the durations.

So if one is diligent in finding the best CDs yield and willing to keep track of withdrawal, maturity dates etc then investing in ladder CDs will definitely yield more than this 10year annuity. However, if one is OK with the 1.574% constant yield and don't want to do any extra work then this is not too bad of a deal.

There are definitely different mindsets and inclinations when it comes to managing money and investing. I like to play with the numbers, research, find the best deals, keeping records etc. My husband absolutely hates to deal with finance and investing. He also does not trust financial advisers either so simple things like annuity is likely to appeal to him (if he has to manage our finance).

Even for myself, I have over 150K parked in money market in the last 6 months earning very little interest. I meant to convert some cash into ladder CDs but have not gotten around to do it. In addition, we are planning to do some major home repairs/upgrades (kitchen, floor) this year in preparation to selling the house. I will have to figure out how much easy access cash to put aside for these projects.

P.S.
I ran the spreadsheet for the SPIA which I plan to take from my pension when I turn 65 for different longevity scenarios. The numbers are quite interesting

Projected pension balance or premium: $171K
Projected annuity payment: $1078/month (hope to be higher if interest rises)

1. Break even point: at 77 years and 11 months (collect 1x of premium)
2. Die at 80: effective interest rate is 1.8% (collect 1.13x of premium)
3. Die at 85: effective interest rate is 4.5% (collect 1.5x of premium)
4. Die at 90: effective interest rate is 5.82% (collect 1.9x of premium)

As I mentioned in the previous post, I am not interested in getting the most money by going with annuity. It simply will give me a peace of mind having an additional fixed income source besides SS.

[newt]

Good thread! Thanks for everyone's input on annuities. I'm considering a SPIA and appreciate the discussion.

[ReachTheBeach]

Originally Posted by BellaDL

I ran a spreadsheet with the numbers provided by PhxBarb:

Premium: $100K
Monthly payment: $900
Term: 10 years or 120 months.
Start with $100K at beginning of Month 1 and end with $0 after 120th month (10 years)

I got 1.574% interest per year.

I am not Robyn, but just running this in my head I get 120 x 900 = 108,000 (just 12x9 with the zeroes tacked on). That's an 8% gain in 10 years, so there is no way that is over 1%. Or am I simplifying too much?

EDIT - I am! Forgot about the declining balance...
EDIT AGAIN - Or did I? Dave (below) is right - apples and elephants - if you are just talking about how much you end up with, then you have to ignore the decline.

[DaveinMtAiry]

I'm not sure why we are comparing an annuity with any form of CD investing. An annuity does exactly what it was designed to do, specifically provide a monthly payout. By definition a CD does just the opposite, withholds every penny until the specified time expires. It's not apples and oranges it's apples and elephants.