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.
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 need to be 380k to just equal a simple s&p fund .
that annuity bought today would buy almost 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
I'm ok with big insurers owning much real estate - an additional proof that they have big reserves :-). I am also ok with deferring a secure income, from someone who has been continuously fully solvent since before the Civil War, for several decades, considering that I have other solid resources in the meantime.
Again, I am not an investor. As I mentioned in another thread, all I have invested is some play money (which I can afford to lose) in a growth fund heavily oriented towards technical innovation, because I think AI is on the verge of huge expansion. If that doesn't pan out, I don't care too much. But if a huge growth really does happen, I won't be paying any taxes on it, since it is in Roth account. It would feel wonderful to get back to the welfare queens that I supported for two decades with huge taxes I was paying, so if I get a big profit from the growth fund in Roth, I'd be able to say to welfare queens "nya-nya nya-nya nyaa nyaa- you don't get any of this! and I got back all the proceeds of my hard work that your own mother stole from me while I was working!". That would be highly satisfying if it happens, but I certainly don't NEED that to happen; I live normally from other proceeds of my work (with which I purchased laddered annuities).
the money tied up in their real estate or tied up in investments won’t help their reserve requirements being raised in the short term .
all the banks that recently were declared insolvent had huge asset bases , but they lacked the liquidity to beef up reserves and were declared insolvent.
reserves have to be increased when the insurance dept tells them , not when they can finally sell assets
Last edited by mathjak107; 08-22-2023 at 09:03 AM..
I'm ok with big insurers owning much real estate - an additional proof that they have big reserves :-). I am also ok with deferring a secure income, from someone who has been continuously fully solvent since before the Civil War, for several decades, considering that I have other solid resources in the meantime.
Again, I am not an investor. As I mentioned in another thread, all I have invested is some play money (which I can afford to lose) in a growth fund heavily oriented towards technical innovation, because I think AI is on the verge of huge expansion. If that doesn't pan out, I don't care too much. But if a huge growth really does happen, I won't be paying any taxes on it, since it is in Roth account. It would feel wonderful to get back to the welfare queens that I supported for two decades with huge taxes I was paying, so if I get a big profit from the growth fund in Roth, I'd be able to say to welfare queens "nya-nya nya-nya nyaa nyaa- you don't get any of this! and I got back all the proceeds of my hard work that your own mother stole from me while I was working!". That would be highly satisfying if it happens, but I certainly don't NEED that to happen; I live normally from other proceeds of my work (with which I purchased laddered annuities).
as i say over and over , it isn’t just about you..you have your reasons .
whether they are good decisions or poor decisions is going to be viewed differently by others.
you can argue that you aren’t an investor and for you it may be true .
but that doesn’t mean these are good financial decisions for others who need to make efficient use of their money so others have to understand why that is the case , so they can make better informed decisions.
i would never recommend someone buy deferred annuities unless they were pretty well off .
few can give up a decade or two of gains waiting for a relatively meager sum of money to kick in , compared with the odds of buying a much larger annuity later on when it’s time.
a 50/50 diversified portfolio has never had a down ten or twenty year period to date so for someone who wants the odds on their side i wouldn’t choose a deferred annuity of any type.
but everyone needs enough information both pro and con to make their own decisions
Last edited by mathjak107; 08-22-2023 at 08:53 AM..
Location: Was Midvalley Oregon; Now Eastside Seattle area
13,078 posts, read 7,519,082 times
Reputation: 9803
It is commendable that you planning now. YMMV
IMO,
think about buckets: However there are other plans and scenarios.
#1 bucket is the living expenses basics (Food, Shelter, Transportation, Utilities, Communications) and $ for some fun stuff.
#2 bucket is for really fun stuff, emergency fund and filling bucket #1.
#3 bucket is for Emergency Use Only. Funds has to be there until the end.
IMO,
Some "Variable" component is necessary in long range planning. You will also see variable returns but it is something that you need for inflation purposes.
Alternatively, you could have laddered Income sources. .
Our Retirement:
A. We pensionized our IRAs into specialized annuities, along with a pension + SS. We can only live on this and only if we shed LTCi and other activities. The purchased annuity component (IRAs) will be in full withdrawal mode in 2024 (74/77 age). Some of our variable annuities have been in RMD
B. Our rental income is about 40% of our Income. It is Variable Income, but has been so far good with virtually no down time, repairs, and tenant issues. The Pension Income (A) + Rental Income (B) is in excess and we bank the excess for the really fun stuff, emergency, and medical/dental which is getting larger as we age.
C. We have trading accounts (losing). We have small Deferred Income that will kick in 2026 and 2028 (79 and 82) which we may roll further into the future or put into Bucket 1, 1-2, or 2.
We have smallish PLUS debt which will be fully amortized in 2028 (above deferred income) and that $ will directly convert to spendable Income. No other debt.
We do have LTCi, our biggest retirement expense. LTCi will get larger and what proportion of our budget is unknown. Hopefully our future Income will be enough. However, we could drop the coverage and use the funds as Income.
Last edited by leastprime; 08-22-2023 at 09:17 AM..
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.
Ok, you cannot live on your pension + ss alone. That is an important info.
My early interest in annuities stemmed from the fact that I was in the immigration processing limbo for decades, and I could have been sent on a relatively short notice back to where I came from (where I would have frankly had to hide to save my life, and there was no chance I would have been able to work). So, my question was what to do if I should lose the ability to support myself with work. Investing was not the safest answer that presented itself to me :-). Granted, this was long ago, and before wide availability of index funds, which are safer than most of the market, though not that safe if you have to support yourself on a daily basis from a modest amount invested in them.
In your situation, first, I would work as long as possible. If the job is too stressful, I would try to find an easier one, but continue working. That would increase your pension and TSP, or soc security (if you have to get work outside the federal system), possibly to the point where you actually could live on those resources only.
Second, based on your health and history of longevity, I personally would get a longevity annuity starting at 80. At your present age, premiums for those late-life annuities are still low enough that you could probably get a meaningful monthly payout after 80 without spending all your TSA funds on the premium.
That is what I would do. If you were 30 years old, an investment in index fund would have decades to grow, but if you need a source of money for your daily expenses, you'd be likely depleting your index fund more than growing it.
So, I would continue working as long as possible, and get a longevity annuity that starts paying at 80, from a solid insurance company (if you look at that link I posted upthread for ImmediateAnnuities.com, that annuity broker sells solid annuities rather than garbage - by all means do NOT get annuity through a bank or maybe even through the employer or through random advertisement!). I would work as long as possible, while first insuring the years in which I know I definitely won't be able to work. That would be my own approach to this.
let's say there is $200,000 in a TSP. Drawing $1,500 a month, that balance is gone in 11 years. ($1,500 a month = $18,000 a year). If I start drawing at age 70, then the money is gone by age 81. However with an annuity, it pays a fixed amount for life. that is how i see the advantage of an annuity, fixed amount for the rest of my life, and if i live to 90 then it works in my favor. i am not concerned with leaving an inheritance at this point because my adult children and grandchildren are very well off. I am concerned with maximizing my income stream in retirement, for peace of mind and to reduce financial burden on family as i age.
again, i know very little about this which is why i'm seeking more information from the collective wisdom of people on CD. thank you. i don't have investments. i don't own property. i rent and i live very modestly. so after i stop working (age 68 or 70, goal is 70) there is FERS pension, plus Social Security, plus TSP income stream. Plus savings which may be around $80,000. That's it. And no debt.
You are not taking into account any money earned through compounding before you use/withdraw nor any reduction of value/spending power due to inflation. If you keep your TSP invested - maybe 60% in C Fund and 40% in F Fund - you should be able to withdraw about $10K/year and adjust it for inflation to cover 30 years, $18K for maybe 20 (depends on assumptions). In contrast, most annuities are fixed so 3% inflation after 5 years is worth some 16% less and 1/3 less after 10 years.
If you invest the $200,000 in the G Fund (currently earning about 4%) - this should get you to about $240K in 5 years and would continue to grow even as you withdraw - probably get closer to 20 years than 11.
Also you can move your TSP to an IRA and use it as anyone else would - no restriction as to venders or investments. TSP also has a little higher costs associated with their funds than some IRA managers like Fidelity or Schwab.
You are not taking into account any money earned through compounding before you use/withdraw nor any reduction of value/spending power due to inflation. If you keep your TSP invested - maybe 60% in C Fund and 40% in F Fund - you should be able to withdraw about $10K/year and adjust it for inflation to cover 30 years, $18K for maybe 20 (depends on assumptions). In contrast, most annuities are fixed so 3% inflation after 5 years is worth some 16% less and 1/3 less after 10 years.
If you invest the $200,000 in the G Fund (currently earning about 4%) - this should get you to about $240K in 5 years and would continue to grow even as you withdraw - probably get closer to 20 years than 11.
Also you can move your TSP to an IRA and use it as anyone else would - no restriction as to venders or investments. TSP also has a little higher costs associated with their funds than some IRA managers like Fidelity or Schwab.
I seriously doubt your statement (bolded).
"In the first table below, you’ll see that the total expense ratio for the C Fund in 2022 was 0.059%. Another way of saying that is that TSP participants’ investments in the C Fund were reduced by 59 cents for every $1,000 invested."
That is substantially LESS than one-tenth of one percent per year. I don't know of ANY public funds that operate at anywhere near that efficiency.
"In the first table below, you’ll see that the total expense ratio for the C Fund in 2022 was 0.059%. Another way of saying that is that TSP participants’ investments in the C Fund were reduced by 59 cents for every $1,000 invested."
That is substantially LESS than one-tenth of one percent per year. I don't know of ANY public funds that operate at anywhere near that efficiency.
Sorry, you are wrong - many other funds are lower cost. Don't get me wrong, TSP costs are fairly low but certainly not close to those available at some of the major Brokerages.
For example while the C Fund is 0.059% cost, Schwab's S&P 500 fund - SWPPX total expense ratio is 0.020%, or about 1/3rd the cost. Fidelity's S&P 500 fund - FXAIX is at 0.015% or about 1/4th the cost. You are also minimizing by using a low amount invested. If invested $200,000, the cost is $118/year for C Fund vs $40 for Schwab and $30 for Fidelity.
For the F Fund at 0.079% vs the Schwab U.S. Aggregate Bond Index Fund - SWAGX at 0.040%, about half as much. The Fidelity U.S. Bond Index Fund - FXNAX is 0.025%, less than 1/3rd the cost.
TSP funds are more loosely tied to indexes and may perform differently. For the last few years, the C Fund has underperformed the S&P 500 index by about 0.04% so now your 0.059% is more like 0.1% - so it costs you closer to $200/year vs $30-40 of the others that match the S&P index.
The other big difference is choice of funds - there is much more choice of funds through an IRA. The TSP C fund is run under a Blackrock contract that is large stocks but technically not the S&P 500 index. They have committed to investing using environmental, social, and governance (ESG) criteria that can skew the results with things like Bud lite boycotts, etc impacting more than otherwise might.
Back to the topic - the TSP annuity interest rate is stated to be 4.2% (it was 1.209% about 3 years ago in 2020). The best rates outside of TSP are more like 6% currently. So if you want an annuity, suggest purchasing it outside of TSP.
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 agree with Mathjak on this. An Annuity is nice if you have Extra money to throw around. However, you may need to use your TSP money to pay an unexpected Medical or Dental bill one year (or some other expense). It would be better to manage that money yourself and have it be your pot of flexible money. You already have the Federal Pension and Social Security that are cost of living adjusted annuities. By the way, do you understand how FEHB and Medicare work together (and how much that's going to cost because this is key to how much out of pocket you might get hit with)?
I would be a tightwad with the TSP money and when you have to take RMD's save it rather than spend it to the greatest extent possible. If you have $200k and you ignore interest or gains and multiply it by a 3% withdrawal rate you could withdraw $6k a year and have it last 33 years; $8k and have it last 25 years. So, $18k a year is really way too much to draw if the balance is $200k.
If you had $500k in the TSP and thought you only really needed $200k then maybe buying an annuity with the rest of it would make sense. If you really do only have the $200k I would not tie that up in an annuity where you lose control and flexibility.
Elnrgby is a special case because she is highly risk adverse as she explained and was a very high earner during her work years.
With both Mathjak and Elnrgby it's like what I tell my friend who worked with Engineers all her life and then tries to mimmick some strategy they used (they have enough money to make mistakes and still be more than fine and you don't). She had Engineer friends who claimed SS early while they were working and she had Engineer friends who had a vacation house they traded for a better vacation house that they moved into full time and a year later repurchased a home closer in (lots of real estate transactional costs in a 2-4 year period). Engineers that made consistently good money over the years and were also rewarded in stock options. It's good that she sees herself on the same level personally, but, financially there's a big difference.
Last edited by Wile E. Coyote; 08-23-2023 at 02:41 AM..
i would never consider any commercial annuity without delaying ss until 70 …
you can not buy any a commercial annuity for the amount of money it would cost you to delay ss until 70 and get as much in payments , cola adjusting , tax favored and potentially going to a spouse .
taking early ss and then buying an spia would not be a good move.
at best i can see an spia used as a part of the bond budget in a diversified portfolio but only after delaying ss first .
i definitely wouldn’t recommend an annuity as a place for the majority of retirement money.
i would avoid complex variable annuities and glwb products .
few are going to understand what they are really getting and they can be very complex to fully understand .
tax structure on variable annuities can be terrible.
longevity annuities are also a double edge sword . they are still deferred annuities with all the loss of good compounding while you wait to collect .
while they seem cheap on the outside , not only are the odds of getting back what you gave them decrease the older you go out but the opportunity cost on that money is very high more often then not .
so make sure you do your homework before going with an annuity product. , and never go by the illustrations the insurer provides .
and remember , it isn’t just about your premiums but about the combined premiums and time value of that money compared to other opportunities.
these insurer illustrations conceal the real deal on these more complex products …they don’t lie but they do portray things in a way that is not representative of what happens once you look under the hood.
i have shown how many times in these forums
Last edited by mathjak107; 08-23-2023 at 04:08 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.
