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Wade Pfau is a very recognized authority in investing circles—usually given credit for accurate insight
This article is an analysis of a recent paper Pfau has presented that advocates using fixed income annuities vs bonds in investment accounts
The author of the linked article takes issue with Pfau’s analysis
Location: Was Midvalley Oregon; Now Eastside Seattle area
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Do your Due Diligence.
Annuities has always been a replacement for bonds, at least during the accumulation phase. That's how we used annuities. There are other reasons for annuities.
We do have Fixed-Indexed (GLWB option) annuities (2012 vintage, no longer offered).
YMMV
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
Location: Was Midvalley Oregon; Now Eastside Seattle area
13,060 posts, read 7,493,946 times
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Quote:
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
We could rebalance and can still rebalance annually in GLWB withdrawal mode. IRA too. The rebalancing is limited to one of 2 type of indexing mode or current - minimum interest rate determined by annuity company. Due Diligence is required.
Anyone buying any annuity should not make premature withdrawals; Kinda defeats the purpose of annuities.
Due Diligence is absolutely a must.
JMO, CD's look attractive 1-3 years @+5% yield, B+ and better. Bought a little today.
Did a 1035 variable annuity to fixed, in July, @4.65% 3 year MYGA, B+. We may do another deferred annuity beyond 2026 (age 79) or take best annuity offer.
YMMV
Last edited by leastprime; 09-07-2023 at 10:56 AM..
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 .
Rebalancing is not much of an issue because traditionally, fixed assets are normally a bigger part of the portfolio as you age but the value of an annuity decreases as funds flow out. So most of the time, a rebalance would be towards the bond type asset type so not really an issue for withdrawal to rebalance.
It is possible to redeem a portion (or all) of an annuity if needed. It is also possible to move an annuity to change terms through a 1035 exchange. But it can get expensive if inside of the surrender charge period (6-10 years normally) for a reason not covered - some contracts waive the surrender charges if withdraw 10% or less or for certain events like a move to a care facility. There also is a federal tax penalty of 10% on the taxable portion most times if done before 59 1/2. Stay away from the companies that want to buy your income stream, they will give little of the actual worth. For most though I would suggest looking at other investments if money is needed.
Annuities, SS and Pensions are fixed income streams and can be treated as such - being in an annuity makes little difference, it should be what you are comfortable with and for many an annuity may suit them fine in place of having to worry about their retirement finances.
Rebalancing is not much of an issue because traditionally, fixed assets are normally a bigger part of the portfolio as you age but the value of an annuity decreases as funds flow out. So most of the time, a rebalance would be towards the bond type asset type so not really an issue for withdrawal to rebalance.
It is possible to redeem a portion (or all) of an annuity if needed. It is also possible to move an annuity to change terms through a 1035 exchange. But it can get expensive if inside of the surrender charge period (6-10 years normally) for a reason not covered - some contracts waive the surrender charges if withdraw 10% or less or for certain events like a move to a care facility. There also is a federal tax penalty of 10% on the taxable portion most times if done before 59 1/2. Stay away from the companies that want to buy your income stream, they will give little of the actual worth. For most though I would suggest looking at other investments if money is needed.
Annuities, SS and Pensions are fixed income streams and can be treated as such - being in an annuity makes little difference, it should be what you are comfortable with and for many an annuity may suit them fine in place of having to worry about their retirement finances.
Rebalancing is not much of an issue because traditionally, fixed assets are normally a bigger part of the portfolio as you age but the value of an annuity decreases as funds flow out. So most of the time, a rebalance would be towards the bond type asset type so not really an issue for withdrawal to rebalance.
It is possible to redeem a portion (or all) of an annuity if needed. It is also possible to move an annuity to change terms through a 1035 exchange. But it can get expensive if inside of the surrender charge period (6-10 years normally) for a reason not covered - some contracts waive the surrender charges if withdraw 10% or less or for certain events like a move to a care facility. There also is a federal tax penalty of 10% on the taxable portion most times if done before 59 1/2. Stay away from the companies that want to buy your income stream, they will give little of the actual worth. For most though I would suggest looking at other investments if money is needed.
Annuities, SS and Pensions are fixed income streams and can be treated as such - being in an annuity makes little difference, it should be what you are comfortable with and for many an annuity may suit them fine in place of having to worry about their retirement finances.
actually if you follow the red zone theory it’s is the reverse .you reduce fixed income as you age and bring equities back up .
plus you can’t easily add more bonds if that what your allocation requires.
in any case it is no replacement for any part of a portfolio.
it’s no different then a pension or ss in that regard .
it is an income stream outside the confines and allocation of the portfolio itself.
the job of an income stream is to reduce demand on what that pile of money you have needs to bring to the party via its portfolio allocation.
it is not part of the portfolio allocation at all
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Agreed. Annuities (I only advocate SPIAs) should not be thought of as investments. As MJ pointed out, they are purchased to provide an income stream.
