Article regarding bonds/no bonds in investment account (annual fee, income, stock market)

[StealthRabbit]

whatever...

I've never had a default in my private lending (in 47 yrs).
I'm not counting on it (very well researched and positioned, and collateralized)
Of course there are risks, thus I'm diversified on all sides / allocations (including cash), and plenty of equities.

YMMV.

You do you, and enjoy the journey.

There are reasonable and available diviersified options to Bond equivalents. (for Joe Average... me!)

[mathjak107]

there are those who call crypto alternatives to bonds too .

but that doesn’t mean they are …

there are reasons that retirement planning uses certain assets with a certain function and role to play .

i would have no argument for taking some of the equity money and putting it in the things on your list , as reits , private lending , crowd funding , preferred stock and dividend stocks can share that role . those certainly are equity alternatives.

so can high yield bonds be an equity alternative.


but i certainly would argue their place on the bond / fighter cover for the portfolio side when it comes to others doing it

[loves2read]

Originally Posted by mathjak107

they really are not a replacement …you can not rebalance an annuity yearly ..you can not sell a piece of the annuity for a large purchase or emergency .

an annuity is not part of a portfolio, it’s part of the income stream , like ss ,pension and social security.

it can reduce the income needs on a portfolio but as far as allocation and balance of one’s portfolio annuities do not replace bonds

Yes—I agree that annuities are not really a tit for tat “replacement” for bonds
But it is more than an ‘income stream” because people HAVE invested their money to gain an income stream
Just like people who invest and buy dividend stocks for that recurring monthly, quarterly or whenever dividend

As for bonds, most investors now buy bond funds vs individual bonds to hold for the duration

I guess FIA are considered a more stable investment than bond funds because it is a reliable/predictable income stream as MathJak noted—so that they provide a regular cash injection as bonds can do with their interest payments
Where as bond funds can lose value based on their market price—which goes up/down depending on many factors

Pfau could have considered a CD ladder except there is no way to quantify what the offered rate might be in 3-4-5 yrs when the ladder rungs may need to be renewed/reinvested for income

But unlike SS annuities, a FIA does not have an inflation index and isn’t coming from the Federal government
Which may or may not be a positive depending on how you range the dependability of the Fed
My SIL has frankly stopped depending on being able to have a SS annuity that will offer a decent return when he turn 66 or 67 or whatever the FRA is when he gets there

I just thought it was interesting that Pfau seemed to cross off bonds period in favor of annuities

[leastprime]

Originally Posted by loves2read

Yes—I agree that annuities are not really a tit for tat “replacement” for bonds
But it is more than an ‘income stream” because people HAVE invested their money to gain an income stream
Just like people who invest and buy dividend stocks for that recurring monthly, quarterly or whenever dividend

As for bonds, most investors now buy bond funds vs individual bonds to hold for the duration

I guess FIA are considered a more stable investment than bond funds because it is a reliable/predictable income stream as MathJak noted—so that they provide a regular cash injection as bonds can do with their interest payments
Where as bond funds can lose value based on their market price—which goes up/down depending on many factors

Pfau could have considered a CD ladder except there is no way to quantify what the offered rate might be in 3-4-5 yrs when the ladder rungs may need to be renewed/reinvested for income

But unlike SS annuities, a FIA does not have an inflation index and isn’t coming from the Federal government
Which may or may not be a positive depending on how you range the dependability of the Fed
My SIL has frankly stopped depending on being able to have a SS annuity that will offer a decent return when he turn 66 or 67 or whatever the FRA is when he gets there

I just thought it was interesting that Pfau seemed to cross off bonds period in favor of annuities

The FIA that we have (2012) has a either a Index Crediting to the Account Value and/or a 5% step up (compounding IRRC) annually to the Income Value. In the era of low interest rates <1% shortterm and <3% long-term, the 5% step-ups (2012-2017 but had a 10 year period) allowed for a lot future inflation if one understand cycles.. Since the FIA was IRA money, I was only looking for Income Value increases. In addition, the contract owner could begin withdrawals at the rate of 6.5% of the Income Value after 5 years of holding and age 70. [A analogy is Public Employee Pension Plan that era, where there is a Pension Current Account value vs Income Obligation Value (my terminology)] [SS also has multiple books: Actual Account and Future Account. The Actual Account will run short for new retirees in ~2030. Current SS recipients are annuitized]

This discussion on GLWB FIA is pretty much useless you already have a GLWB FIA.
Why? IMO and JMHO:
1. GLWB is a zero-sum problem;
2. Annuity companies are slow to implement corrections But the Consumer is much faster to recognize imbalances and market changes;
3. GLWB are sold thru licensed Financial Advisors;
4. Only a certain type of person will look and eventually buy annuities. GLWB annuities will appear to more informed and higher wealth clients. However, higher wealth clients have less of a need for GLWB as their wealth increases...they can afford the Market risk and not pay for fees and yield loss to the annuity company.
5. The FIA Consumer's goal to maximize Income and get to a Zero dollar in Account Book (couple of reasons). This is different from a GLWB Variable Annuity; There are other reasons, ie Risk management (Pfau)
6. GLWB, what pseudo search, 4 years ago, I came up with unattractive features vs the Market alternatives. Markets today are favorable vs GLWB, if you can find one;
7. Annuity companies that sold a lot of this type of annuity are constrained in many ways. Readers may want to read some 10-Ks.
Probably some other IMO's but 7 is a nice number.
YMMV

[mathjak107]

Originally Posted by loves2read

Yes—I agree that annuities are not really a tit for tat “replacement” for bonds
But it is more than an ‘income stream” because people HAVE invested their money to gain an income stream
Just like people who invest and buy dividend stocks for that recurring monthly, quarterly or whenever dividend

As for bonds, most investors now buy bond funds vs individual bonds to hold for the duration

I guess FIA are considered a more stable investment than bond funds because it is a reliable/predictable income stream as MathJak noted—so that they provide a regular cash injection as bonds can do with their interest payments
Where as bond funds can lose value based on their market price—which goes up/down depending on many factors

Pfau could have considered a CD ladder except there is no way to quantify what the offered rate might be in 3-4-5 yrs when the ladder rungs may need to be renewed/reinvested for income

But unlike SS annuities, a FIA does not have an inflation index and isn’t coming from the Federal government
Which may or may not be a positive depending on how you range the dependability of the Fed
My SIL has frankly stopped depending on being able to have a SS annuity that will offer a decent return when he turn 66 or 67 or whatever the FRA is when he gets there

I just thought it was interesting that Pfau seemed to cross off bonds period in favor of annuities

buying an annuity is not the same as buying dividend stocks ..



you no longer own that money ,especially in an spia ..

you hand them 100k and it’s spent .

they dole it back to you over 13-15 years a bit each year ..maybe you will get back less then you gave them .

you hope you live long enough to at least get back what you handed them .

that money you spent is gone and can no longer be spent , rebalanced or swapped for equities. , bonds , gold , etc ,like owning a stock or fund can be , because you own the entire value of a stock or bond


it’s all your money to spend or pass to heirs

so buying an income stream is buying a pension and hoping you live long enough to get back what you spent on it.

with dividend stocks you own the entire amount and are simply handed a small withdrawal of YOUR OWN MONEY .

BUT ITS ALL YOURS TO SPEND , REBALANCE OR SWAP just like money in a bank account is yours. ..

[BeerGeek40]

Originally Posted by mathjak107

buying an annuity is not the same as buying dividend stocks ..



you no longer own that money ,especially in an spia ..

you hand them 100k and it’s spent .

they dole it back to you over 13-15 years a bit each year ..maybe you will get back less then you gave them .

you hope you live long enough to at least get back what you handed them .

that money you spent is gone and can no longer be spent , rebalanced or swapped for equities. , bonds , gold , etc ,like owning a stock or fund can be , because you own the entire value of a stock or bond


it’s all your money to spend or pass to heirs

so buying an income stream is buying a pension and hoping you live long enough to get back what you spent on it.

with dividend stocks you own the entire amount and are simply handed a small withdrawal of YOUR OWN MONEY .

BUT ITS ALL YOURS TO SPEND , REBALANCE OR SWAP just like money in a bank account is yours. ..

Annuities are for the uninformed, and/or lazy.

[leastprime]

Originally Posted by mathjak107

buying an annuity is not the same as buying dividend stocks ..



you no longer own that money ,especially in an spia ..

you hand them 100k and it’s spent .

they dole it back to you over 13-15 years a bit each year ..maybe you will get back less then you gave them .

you hope you live long enough to at least get back what you handed them .

that money you spent is gone and can no longer be spent , rebalanced or swapped for equities. , bonds , gold , etc ,like owning a stock or fund can be , because you own the entire value of a stock or bond


it’s all your money to spend or pass to heirs

so buying an income stream is buying a pension and hoping you live long enough to get back what you spent on it.

with dividend stocks you own the entire amount and are simply handed a small withdrawal of YOUR OWN MONEY .

BUT ITS ALL YOURS TO SPEND , REBALANCE OR SWAP just like money in a bank account is yours. ..

Just for clarification for GLWB FIA, which is the main focus of this thread;
GLWB FIA's Account Value can be partially or wholly withdrawn by the contract owner at any time. However, owner cannot replace the withdrawn funds. The Account withdrawn funds are subject to remaining sales and recurring fees depending on how taken. Annually you are allowed up to 10% to be withdrawn without sales fees. There is a death benefit on remaining Account balance, if this fee option is chosen.

Indexing and Fix Interest is rebalance and any changes in method of Indexing is chosen once per year at anniversary. [GLWB Variable, fund selection and changes can be done at any time, without charges, by the contract owner]

YAMV

[lenora]

Originally Posted by mathjak107

so buying an income stream is buying a pension and hoping you live long enough to get back what you spent on it. <snip>

I agree that you are buying a pension, but I do not agree that you are necessarily hoping to live long enough to get back what you paid for it. Both pensions and investments have a place in retirement. Those who are not yet heading into retirement but see the writing on the wall, are justified in believing future Social Security benefits may not be as secure or generous as many have been led to believe. Nor can they count on maintaining their financial acumen as they age. A guaranteed monthly check can remove some of the uncertainty.

[Lizap]

Originally Posted by BeerGeek40

Annuities are for the uninformed, and/or lazy.

Not necessarily. SPIAs are designed to provide an income stream. They provide a guaranteed source of income, and may be especially suitable for those with no pension and small amounts of SS. Its critical to analyze each individual's portfolio and the possible role of SPIAs. There is 'no one size fits all'.

[mathjak107]

Originally Posted by lenora

I agree that you are buying a pension, but I do not agree that you are necessarily hoping to live long enough to get back what you paid for it. Both pensions and investments have a place in retirement. Those who are not yet heading into retirement but see the writing on the wall, are justified in believing future Social Security benefits may not be as secure or generous as many have been led to believe. Nor can they count on maintaining their financial acumen as they age. A guaranteed monthly check can remove some of the uncertainty.

the reality is that all insurers are subject to the same thing all our own investing is ..

anything that would cause a 4% safe withdrawal rate to fail ,which by the way has not happened since 1966 would tumble insurers in mass just the same

so in both cases there is about the same odds of your income stream holding in good and bad times .

those who think they are magically isolated from the markets are just seeing another case of the emperors new clothes .

not 2000 nor 2008 caused any problem with drawing 4% inflation adjusted from at least 35% equities nor caused much disruption with insurers .

so those that like referencing 2008 in favor of annuities don’t understand it was no problem for drawing a safe withdrawal rate either .

neither comes close to what we saw in 1966.

so , while i can see a part of the bond budget being used for an spia , those annuity dollars spent are now outside the confines of the portfolio .

they now bought an income stream like ss or pension .

but what remains as the actual portfolio is still only the liquid assets themselves that form the portfolio , not the income streams , which get added to what the portfolio can safely generate with its pile of assets