Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
The 5%-8% annual yield assumption, while maybe reasonable for the long run, can suffer severely from withdrawals during downturns, (i.e. sequence risk) and cannot be applied to shorter stretches of time. Have you gotten such a return in the last couple of years?
I haven't.
My retirement income is however securely anchored by a pension, SS, and a single premium immediate annuity (SPIA) purchased from a TSP-like company account which affords me financial security that many desire.
(It also allows me to be more aggressive in my personal portfolio but I realize that is not pertinent to the OP.)
It is important to understand that SPIAs provide a guaranteed income for life based on an underlying interest rate assumption that insurers use, in conjunction with actuarial tables of life expectancy, to provide a monthly draw that is greater than what straight interest alone would yield. That some live longer and others will not is the engine that pulls this train and those who ride it.
And as one who, like the OP, doesn't need to leave a legacy, it was one of the best financial choices I have ever made.
Here is something that you may not have considered. If the OP opts for the annuity, then there is no going back. She can never change her mind or decide to withdraw that money later. Even if she learned that she had a severe terminal illness, she couldn't draw out one single penny more than what her guaranteed monthly draw was set up to be.
OTOH, if she leaves her money in the TSP and draws from it as needed, if she should suddenly learn that she had a terminal illness, she could draw out ALL of her money almost immediately and do with it as she pleases. She could give it to her kids, give it to a favorite charity, or just blow it on a wild final few months of living.
Perhaps if her other income sources were questionable or limited, then an annuity might make sense. However, in her situation, it makes no difference if she lives to be 150 years old, she will still be drawing all her federal pensions including the Social Security. I see no reason at all to give some insurance company $200k in cash that is earning me income in return for them doling it out to me a little at a time on a monthly basis. That's extremely dumb, IMO, especially considering her other guaranteed income sources FOR LIFE.
Here is something that you may not have considered. If the OP opts for the annuity, then there is no going back. She can never change her mind or decide to withdraw that years money later. Even if she learned that she had a severe terminal illness, she couldn't draw out one single penny more than what her guaranteed monthly draw was set up to be.
OTOH, if she leaves her money in the TSP and draws from it as needed, if she should suddenly learn that she had a terminal illness, she could draw out ALL of her money almost immediately and do with it as she pleases. She could give it to her kids, give it to a favorite charity, or just blow it on a wild final few months of living.
Perhaps if her other income sources were questionable or limited, then an annuity might make sense. However, in her situation, it makes no difference if she lives to be 150 years old, she will still be drawing all her federal pensions including the Social Security. I see no reason at all to give some insurance company $200k in cash that is earning me income in return for them doling it out to me a little at a time on a monthly basis. That's extremely dumb, IMO, especially considering her other guaranteed income sources FOR LIFE.
You are absolutely correct that SPIAs limit one's use of the funds forever. Because they are gone.
But we don't know what her financial needs are or how big her income will be, both factors for her to consider.
That is why such a purchase demands an informed decision made in the full context of ones personal life circumstances.
And why one should consider SPIAs REAL 'life insurance'.. because they pay off if you live!
As opposed to 'death insurance' which is marketed by salesmen as 'life insurance' for obvious reasons.
In any case, I hope I helped inform her.
PS.. I have been quite successful over the years with the bulk of my wealth despite not having invested in 'Fund C'.. whatever that is.
You are absolutely correct that SPIAs limit one's use of the funds forever. Because they are gone.
But we don't know what her financial needs are or how big her income will be, both factors for her to consider.
That is why such a purchase demands an informed decision made in the full context of ones personal life circumstances. And why one should consider SPIAs REAL 'life insurance'.. because they pay off if you live!
As opposed to 'death insurance' which is marketed by salesmen as 'life insurance' for obvious reasons.
In any case, I hope I helped inform her.
PS.. I have been quite successful over the years with the bulk of my wealth despite not having invested in 'Fund C'.. whatever that is.
But they are paying you off with your own money! And of course, that's AFTER they take their cut. I would rather just manage my own money and leave them completely out of the picture. I have much greater flexibility that way and can spend it or give it away as I choose.
BTW, clearly you don't know much about the federal retirement system or you would know what the "C" fund is.
I would rather just manage my own money and leave them completely out of the picture.
Most would seem to agree with you since not many people buy a TSP annuity. In 2022 fewer than 1000 were sold. (For reference, in 2022 over 102,000 federal employees retired).
The 5%-8% annual yield assumption, while maybe reasonable for the long run, can suffer severely from withdrawals during downturns, (i.e. sequence risk) and cannot be applied to shorter stretches of time. Have you gotten such a return in the last couple of years?
I haven't.
My retirement income is however securely anchored by a pension, SS, and a single premium immediate annuity (SPIA) purchased from a TSP-like company account which affords me financial security that many desire.
(It also allows me to be more aggressive in my personal portfolio but I realize that is not pertinent to the OP.)
It is important to understand that SPIAs provide a guaranteed income for life based on an underlying interest rate assumption that insurers use, in conjunction with actuarial tables of life expectancy, to provide a monthly draw that is greater than what straight interest alone would yield.
That some live longer and others will not is the engine that pulls this train and those who ride it.
And as one who, like the OP, doesn't need to leave a legacy, it was one of the best financial choices I have ever made.
spias are not comparable to interest or your own investing at all .
for the first 13-16 years your return is zero as they hand you back the money you gave them .
so you can’t say what your return is until your dead
a 50/50 has left you with more then you started with 30 years later ,90% of all 123 rolling 30 year periods to date .
the SPIA leaves your heirs with nothing .
ALSO KEEP IN MIND, we have had no time frame since 1966 that would have caused a failure in that 4% inflation adjusted draw rate .
any time frame bad enough to see that 4% income stream fail , will likely take down insurers in mass too since they are not isolated.
and noooo 2008 didn’t even make it on the retirement draw charts as a worst case outcome period like 1907 ,1929 ,1937 , 1965 and 1966.
we have some here who like to mention how the insurers survived 2008.
well 2008 was a speed bump in comparison to the real poor outcome periods we had.
insurers are loaded with the riskiest segment of the bond market there is , BBB .
it’s 10x what it was in 2008 .
that is the last rung on the investment grade ladder and the current sweet spot for bonds .
any credit down grades and all these institutions that can only hold investment grade bonds will have to dump them .
with the main buyers no longer able to own them it can be a blood bath in a severe down turn .
to be considered solvent an insurer would have to come up with 4x the reserves in a non liquid market .
so don’t count on insurance products being any more secure then your own investing would be
Last edited by mathjak107; 08-22-2023 at 02:57 AM..
To each his/her own, but I have been super happy with annuities. They are a stable, predictable income, regardless of what is happening with the markets, and life annuities never run out. I have had one annuity paying out for 18.5 years already, and the monthly amount is still significantly helpful (and btw, it has returned the entire premium about a year and a half ago... I am 63 and from a long-lived family, so there is a potential of decades of free money here :-).
With my longevity annuities, if I live to 99 like one of my grandfathers, I will receive from the annuity about ten times my total premium. There is no way, no how that I, with my zero investment skills could have made my premium money grow ten times in 30 years any other way. If I die before I can collect the payout, who cares; I don't need or want to leave inheritance.
Annuities are good for peace of mind, longevity, and people without heirs. I do agree that in OP's situation they are unnecessary if she has a decent pension that goes up with inflation. My laddered annuities essentially replace that (since I was self-employed).
If I were the OP, I would maybe just leave the $ in TSP, unless there is a tax advantage to buying an annuity. In that case, I would buy a longevity annuity starting to pay at 80 (since the OP is healthy, and has genes favoable for a long life). The premium should not be too high (it takes into account average life expectancy, but OP's personal life expectancy likely exceeds that by 10 years at least).OP is more concerned about being a burden to her kids than about leaving them money, and in that case, a longevity annuity could come handy.
She could very likely (though not certainly) make more $ long-term with investments, but does she want to start investing at 70, without withdrawals, so the money has time to grow by the time she is 90? Rather than just happily nibble on the guaranteed annuity income? I don't know; that is up to her.
IMHO, the statement that an annuity is equal to the market risk, if you buy it from a large insurance company which has been in business since the Civil War, and has not blinked at several big and extended market crashes, is..... well, figure out for yourself what to think about that :-) .
I also want to say: if I live to 80, my first longevity annuity pays back its premium in 2.5 years. If I live to 85, that annuity pays back the premium in 1.5 year. If I live to 90, it pays back the premium in 9.5 months. The last two premiums cost me only about $40k and $29k respectively, for additional payout of $2k and $3k per month (which, assuming 4% annual inflation, should have purchasing power of around $1k + $1k. An extra $2k per month will be more meaningful to me at 90 if I live that long, than $70k was in my 50s, considering how much I was earning. Among other things, just those two small supplemental annuities by themselves would pay the monthly cost of my preferred nursing home in Thailand).
Btw, of course, don't buy annuities from some fly-by-night insurer. The oldest 5 or so insurance companies in the US have stupendous reserves. Short of global Armageddon, in which case it will be impossible to get money from anywhere, big insurers are as safe as you can get. Plus, your state insures your annuity premium up to $250k per insurance company (check that it's applicable to your insurance comp, which it will be if you go with major insurers).
the input and information shared in this thread is very helpful and i appreciate it.
I am NOT able to live entirely on SS and my FERS pension alone. I don't know if FERS pension increases over time to adjust for inflation. That is something to look into also.
And yes, i am very cautious and conservative when it comes to keeping risk low with regards to TSP funds.
Frankly if i were to be told of terminal illness that would be a relief in a way. Not to sound morbid, because I am a happy person, but in reality that renders all financial planning moot and not to be worried about. It solves all problems in its own way.
I also want to say: if I live to 80, my first longevity annuity pays back its premium in 2.5 years. If I live to 85, that annuity pays back the premium in 1.5 year. If I live to 90, it pays back the premium in 9.5 months. The last two premiums cost me only about $40k and $29k respectively, for additional payout of $2k and $3k per month (which, assuming 4% annual inflation, should have purchasing power of around $1k + $1k. An extra $2k per month will be more meaningful to me at 90 if I live that long, than $70k was in my 50s, considering how much I was earning. Among other things, just those two small supplemental annuities by themselves would pay the monthly cost of my preferred nursing home in Thailand).
Btw, of course, don't buy annuities from some fly-by-night insurer. The oldest 5 or so insurance companies in the US have stupendous reserves. Short of global Armageddon, in which case it will be impossible to get money from anywhere, big insurers are as safe as you can get. Plus, your state insures your annuity premium up to $250k per insurance company (check that it's applicable to your insurance comp, which it will be if you go with major insurers).
if they are deferred annuities your cost is not just what you paid .
getting your own money back a decade later or two decades later can have a very costly time element to it .
as an example 100k in a deferred annuity a decade ago would be 380k in just a simple s&p fund .
that is as of last jan 1 …it is higher today
that annuity bought today would buy more then 4x the payment if one bought an spia today as opposed to a deferred annuity a decade ago and instead left that money invested for another decade.
to some of us that was a huge price to pay for what you get back.
you may be fine with that choice , but that doesn’t mean there weren’t better choices or there isn’t going to be a big price to pay typically for a deferred annuity product.
which is why big insurers can own so much real estate here. the money they make on life and annuity products is crazy
Last edited by mathjak107; 08-22-2023 at 08:39 AM..
Please register to post and access all features of our very popular forum. It is free and quick. Over $68,000 in prizes has already been given out to active posters on our forum. Additional giveaways are planned.
Detailed information about all U.S. cities, counties, and zip codes on our site: City-data.com.
Please register to participate in our discussions with 2 million other members - it's free and quick! Some forums can only be seen by registered members. After you create your account, you'll be able to customize options and access all our 15,000 new posts/day with fewer ads.
