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Old 10-31-2016, 08:53 AM
 
71,463 posts, read 71,652,652 times
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lets look at the flip side now :

spia's are simple and low cost

as you spend down the cash and bond side of your portfolio , each year you generate less and less interest and burn more and more principal keeping the income stream going .

eventually that side of the equation is zero with nothing left and you have to refill from equity's . so eventually cash and bonds will be zero with nothing left , or you have to sell equity's earlier to refill .

annuity's not only pay a 40-50% higher rate than you can safely spend from yourself but the amount does not diminish each year like your spending does .

that results in less spending down of equity's allowing your equity's to grow longer . it is the equity's that provide your inflation protection and growth .

the odds of one of a couple living to 85 is 74% . a joint annuity stands odds of more than breaking even and are odds you would not want to bet against .

the first 5 years are critical in retirement , the first 15 years determine the entire outcome . get hit with even a modest down tern that is extended and your own investing can be in trouble , annuity's establish a base like a pension does .

unlike your own investing which is limited to what you can safely draw because you need to keep quite a bit of dry powder to allow for sequence risk , annuity's have zero sequence risk . you need not keep dry powder for worst case scenario's happening on the annuity side .

insurers rarely go belly up and when they do the states insurance boards merely roll the clients over . states have various insurance guarantee funds in place as well .

but the main thing is today insurance company's are tightly regulated as to the insurance part of the business . about the worst scenario was what happened to aig .

while they needed a bail out the insurance end was strong and solvent and would have done just fine on its own . the aig insurance end was never at risk or in trouble even the likes of 2008 .


an integrated strategy for a couple using a single spia , your own investing and life insurance for a spouse or heirs can provide 100% tax free income to your spouse unlike a joint annuity . no rmd's , no taxable income .

in 10,000 different scenarios run by researcher dr wade pfau , an integrated strategy
using a single spia , a 60/40 mix and a permanent life insurance policy beat out buy term and invest the rest 67% of all scenarios .

while buy term and invest the rest always had a higher balance at 65 , it dropped the ball after that point .

in 100% of the cases you always had a higher safer income with the integrated strategy and in 67% of the cases just assuming normal life expectancy you had a bigger balance too . mostly as a result of the tax free insurance money .

so there are lots of advantages for using insurance products and a lot of who shot john spewed for not .

you don't buy an annuity for liquidity anymore than you contribute to a pension for liquidity . you are buying an income stream for life not a bunch of accessible money , that is what your own investing is for .

it is not the annuity by itself but how it integrates and supports other investments and aspects of your plan diversifying you away from markets and rates and in to something you could never diversify in to on your own , DEAD BODY'S .

those who die pay for those who live

Last edited by mathjak107; 10-31-2016 at 10:11 AM..
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Old 10-31-2016, 09:08 AM
 
71,463 posts, read 71,652,652 times
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one other factor is your spouse .

structuring for income is not only going to be a personal thing unique to you but the amount of discretionary spending in your budget is a big factor as well as who are you investing for.

pulling a little draw and aiming to leave heirs a pile of money is different than investing more for yourself and a life time of income .


the less discretionary spending you have the less you should be in equities. with little area to cut spending from in downturns if need be , you can do more harm than good. if everything is a need and not a want. if you have mostley needs and very little wants in the budget i suggest avoiding the volatility and risk of equity investing if that is ones case..

you can't pay 1/2 the rent if markets fall 40% and stay down for years.

ironically it is those who need the boost the most who should do it the least in my opinion.

the more descretionary spending in the budget the more aggressive someone can be and that goes for men too.

i would never give you personal advice but i can tell you how i intend to eventually structure with the premise my wife will outlive me.

80% of married men die married while 80% of married women die alone.

that is a huge planning factor.

while i am happy doing my own investing for all our income my wife would not be.

so with her in mind the plan is to eventually lock in all our basic spending into an spia , single premium annuity and ladder them so she gets a pay check each month and cannot out live the income stream , a big relief for her .

the spia has no extra fees ,commissions or expenses other than the stated draw rate. it is like buying a cd and annuity salesmen rarely sell them . generally you have to request the product as it is something salesmen are not interested in selling, not enough of your money goes to them..

you can check out the products at immeadiateannuity.com.

that may take 25% of assets in our case..

the rest stays invested in our income and capital preservation model portfolio which runs about 37-40% equity at the moment but i will increase that to 50/50 through retirement .

that portfolio comes from a newsletter i have been following for more than 25 years. each week fidelity insight which is the newsletter sends an e-mail as to any fund swaps to nudge the portfolio better towards the big picture.

they have a few different model portfolios to choose from.

i used to use the growth model but today have about 75% in the income and preservation model and 25% in the the growth and income model. each model holds 5 or 6 different funds, all fidelity though.

eventually it will all be just the income and preservation model for simplicity with perhaps an index fund added to beef up equites by 2% a year through my retirement making the model even more inflation proof while shielding us early on from any devastating losses.


30 seconds of reading a week and nothing else for her to worry about knowing or doing except swap a fund per instructions every so often.. .

that portfolio is used for her wants , heirs and inflation adjusting.

it is called THE LMP METHOD, LIABILITY MATCHING PORTFOLIO and is something bill bernstein recommends.


most men fail to realize while they are these experienced aggressive investors many of our wives women are not nor have an interest in it.

i married a widow who was left in that situation by her first husband.

she trusted the broker at the bank and he lost 1/2 her savings in tech and dot com funds.

as if we didn't know it ,women are different creatures than men. they think different ,have different needs ,wants and requirements.

any good financial planner will tell you:

men are more interested in growing wealth , they care about allocations ,investments , getting the biggest bang for the buck ( no pun intended),beating indexes , etc .

women clients are different as far as what brought them to that planners office and it is nothing like the mans reason. a mans reason is usually facts and figures , a womens reason is she has a story to tell. ( don't they always? ha ha ha


women have very different concerns and it is usually centered around the fact they have visions of being alone eventually and being the proverbial bag lady under the bridge after they out lived their money.

women want security , I know that because when I approach women in clubs they usually call out security ,security, ha ha ha

women live longer than men , a big point when planning but more important while 80% of all men die married ,80% of all women die alone.

I think that sentence requires reading a 2nd time as there is a huge difference in situation for a woman.

women usually don't like to take on much volatility,especially a widow who just lost a social security check or someone alone..

so just some food for thought , and reasons that escape most folks in their planning .

the reverse can be true too , the women are the risk takers and the men aren't .

Last edited by mathjak107; 10-31-2016 at 09:57 AM..
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Old 10-31-2016, 09:13 AM
 
Location: Massachusetts
207 posts, read 131,902 times
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"The lady doth protest too much, methinks."

- William Shakespeare (Hamlet)
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Old 10-31-2016, 09:19 AM
 
71,463 posts, read 71,652,652 times
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the two sides presented here are why the biggest mistake we make is never sleeping with the enemy .

we tend to listen to , adopt the views of , parrot and high five only those who support our view .

or we take one of their views and make it our own .

but we never really get intimate with the other side . so we have half a head of knowledge .

i can't tell you how many times i switched sides about things once i got in to the enemy's camp and saw the parts i didn't realize .

i thought annuity's were bad , roths were not worth it , delaying ss was not the best way for us and i can tell you once i learned all about the opposite side my views changed
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Old 10-31-2016, 09:21 AM
 
71,463 posts, read 71,652,652 times
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Quote:
Originally Posted by HopHillers View Post
"The lady doth protest too much, methinks."

- William Shakespeare (Hamlet)
hamlet ? wasn't that written by bacon ?

not many know shakespeare lived in a walk up apartment . one night he came home drunk and forget which apartment was his . so he kept asking himselft 2B OR NOT 2B
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Old 10-31-2016, 09:45 AM
 
Location: Somewhere in deep in Maine
3,658 posts, read 2,807,585 times
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Quote:
Originally Posted by jasperhobbs View Post
Yikes! I have not heard many good things about annuities and considering your experience, I am avoiding them.
IMO, if you are looking to invest, then get a bunch of good publications and then invest with a broker. If you want long term safety, then put it in T-Bills or CD's, or even bonds. If you are afraid of down times, then put it in precious metals and metal certificates(Mocatta for example). if you are really adventurous, put it in foreign currencies, like Swiss Francs.

I've done all of it. In the period of 1996 - 2010, when I ran out of real investing capital after paying for two very expensive college educations, what paid off the greatest was land and precious metals. The market tanked, but I got out of that in 1997 when then Fed Chair Greenspan said it was showing wild exuberance, and predicted a crash. After paying out more than $130,000 in college expenses from 1998 to 2005, I actually gained $20,000 above the $130,000 I paid out---using a wide investment pattern: foreign currencies, precious metals, land, REITs, certain growth stocks, and a small amount in CD's.

Insurance annuities are for people who want several layers between you and the market, and don't mind paying through the nose for it. whether they can even beat 5 year CD's is another question.
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Old 10-31-2016, 09:54 AM
 
71,463 posts, read 71,652,652 times
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you can buy mygas that pay slightly more than 5 year cd's .

there are so many different types of annuity products out there that you can't paint with a broad brush .

like i said i can show you a real live prudential variable bond annuity , that sucks as a bond investment because of fees but it is a very good proxy for cash instruments and will blow the doors off what you can get on your own .

it is merely using a product for its minimum guarantees rather than trying to compare its over stated investment returns
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Old 10-31-2016, 10:38 AM
 
3,567 posts, read 2,367,776 times
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Quote:
Originally Posted by HopHillers View Post
The hard cold reality is that SPIAs suffer from the following problems:
I'm gonna respond to these point-by-point:

1. Illiquidity - Your premium dollars are permanently gone and you have no control over that money. You are out of luck if you need the money for an emergency or some other unexpected purpose.
This is why various more complex annuities exist with withdrawal provisions, if you think this is a concern. However, I think it's simpler to just limit how much you invest in the annuity. Yeah, if you withdraw the money you can resolve your emergency, but then what are you supposed to pay rent with afterwards? This is just trading one catastrophe for another. One would hope that most emergencies have applicable insurance, if it goes beyond the amount of cash you reserve to have on-hand.

2. Premium Recovery - You may not live long enough to recover the money you put into the SPIA.
That's true, but it's the point of the SPIA. Without an annuity, you might die quickly and save yourself from spending your savings (yay!), but you might also outlive your savings and have nothing. The purpose of buying an annuity is to eliminate this trade-off. If you would rather gamble on your longevity yourself, then you should not buy an annuity. This is no different than opting not to get renter's insurance or the like, because if you don't use it you paid the premium and got nothing.

3. Your Heirs Get Nothing – Your heirs inherit nothing from your SPIA unless you buy an expensive a guaranteed period rider.
If you outlive your savings and they have to pay your rent, they don't get anything then either.

4. Inflation – SPIA income payments are fixed. You can solve the inflation problem by purchasing an inflation rider, but you create another one. Inflation riders are expensive and will significantly lower your monthly payouts.
Yes, inflation protection is a service which costs money. You can self-insure it somewhat by buying inflation-indexed bonds or the like, as an alternative to riders.

5. Lousy Pricing – Lousy pricing means monthly payouts are lower than they should be. This means that, in the aggregate, insurance companies win and buyers lose.
Like any other product, some companies over-price. If you can't find a viable product, you'll have to self-insure your longevity. However, when you're weighing cost-benefit, it's important that you consider the trade-offs independently. For example, the risk that you die early and don't get your premium back does not by itself mean the annuity is overpriced. The best comparison is to calculate the income you can achieve from your savings given a lengthy lifespan (like if you live to 90 or 100). If you're happy with those results compared to an annuity, skip the annuity.

6. Unfavorable Taxation – A portion of SPIA payouts is taxed as ordinary income and the remaining portion is not taxed because it is return of your principal. Insurance companies use IRS tables to determine the taxable/non-taxable split. The tables are based on actuarial life expectancy. Once you live past your life expectancy, 100% of payouts are taxed as ordinary income. There are two problems with this arrangement. The first is that you are paying taxes on a portion of your payouts for the first 15 to 20 years for what amounts to as a return of your principal. The second problem is a more serious one. That’s the taxation of 100% of your payouts at ordinary income rates once you reach approximately 85 years old.

Keep in mind that if you invest your savings and collect income, you're still subject to taxes. But you should make sure you aren't increasing your taxes by taking SPIA money away from tax-advantage accounts or something.

7. Default Risk – While bankruptcy is unlikely with financially sound companies, it’s not a sure thing. The bigger problem you face is that the solid insurance company you purchased your SPIA from sells it to a financially weaker insurance company.

You can hedge this a bit by buying from AA companies and by buying from multiple companies. Also make sure that your annuity is covered by the state guarantee fund (a little like FDIC for banks, but not exactly).
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Old 10-31-2016, 10:48 AM
 
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taxes on spia's and deferred annuity's are quite different .

since you have no actual return on an spia until you die the irs imposes taxes based on a life expectancy chart creating a phantom income yearly .

the reality is for the first 15 or 16 years you are just handed back your own money at a draw rate that is larger than you can take it safely from yourself . it is not until after you get all your money back and go on their dime that you actually see a return .

no different than delaying ss . you have no return until you pass break even years later even though ss increases yearly if you delay .

deferred annuity's not in an ira are taxed differently . all gains are assumed drawn first .

that can create more taxes up front and less down the road .

that can be a better way if when rmd's kick in if the lower taxes on the annuity help you because now it is the reverse and mostly considered principal .

nygas have special tax benefits too over cd's . unlike a cd that comes due at maturity and taxable if the interest was not taxed all along , you can roll over a myga in to another contract and defer taxes in a non retirement account .
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Old 10-31-2016, 11:49 AM
 
Location: Central IL
15,200 posts, read 8,504,300 times
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Quote:
Originally Posted by mathjak107 View Post

as if we didn't know it ,women are different creatures than men. they think different ,have different needs ,wants and requirements.

any good financial planner will tell you:

men are more interested in growing wealth , they care about allocations ,investments , getting the biggest bang for the buck ( no pun intended),beating indexes , etc .

women clients are different as far as what brought them to that planners office and it is nothing like the mans reason. a mans reason is usually facts and figures , a womens reason is she has a story to tell. ( don't they always? ha ha ha


women have very different concerns and it is usually centered around the fact they have visions of being alone eventually and being the proverbial bag lady under the bridge after they out lived their money.

women want security , I know that because when I approach women in clubs they usually call out security ,security, ha ha ha

women live longer than men , a big point when planning but more important while 80% of all men die married ,80% of all women die alone.

the reverse can be true too , the women are the risk takers and the men aren't .
Women have different wants and needs because when the hubby is gone they are ALONE...and older...and THEY may be expected to leave a legacy even though they have to find a way to eat!

The hubs died off 10 years ago while things were probably as good as they were gonna get and she gets stuck with paying taxes as a single.

So she may not be conservative because she is MEEK but because HER situation is completely different from HIS now that he's gone.

As a single woman now, I was 100% equity until I hit 52...then I went 75%...I'm trying to build up NOW but later I just may have some different objectives. Let's not paint with too broad a brush.

People who aren't confident are usually conservative...people who THINK they know are overly aggressive - men trade too much...women stay in the market and do better - guys hate to hear that!
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