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Location: Miami (prev. NY, Atlanta, SF, OC and San Diego)
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a friend has been pushing me hard on annuities as a way of guaranteed income (in addition to social security) without being exposed as much to losses in a down stock market...however, here are my thoughts.
I already will be taking a monthly payout from my pension (single, not planning on leaving my $ to anyone, which is why I am doing this vs. lump sum), which already acts like an annuity.
I can still invest in the stock market but have stop losses in place while maintaining far more liquidity than I would with annuities.
You have the basic right idea. I had friends who rode the market down from 2007 to 2009 and sold at the bottom with a 50% loss. That mistake pretty much ruined their retirement. Realize that to recover from that, you need a 100% gain.
However, a stop really only works in markets that trade 24/7 like currencies or ES mini futures. A stop on a stock or an ETF can become ineffective when the market opens and gaps down.
Most retirees are invested in mutual funds; I don't know of any that allow stops. But I think you can use a "mental stop", i.e. create a model that works for you. For example, it the market drops 10%, sell x% of your holdings and put it into cash.
Your not missing anything. Annuities are okay but if you have pension which it sounds like you do, you are already covered for that. If you have money you want to invest you can just open a brokerage account and manage it on your own. You can even get the brokerage company (Vanguard, Fidelity, Charles Schwabb, etc...) to set up a monthly payment back to you or something along those lines. Even most IRA's can be converted into an income stream without much thought. Just tell the fund managers what you want and they will do it.
If you get an annuity I would buy it when you needed to start the income flow, not now.
If inflation maybe a problem then maybe when you retire you buy a fixed annuity that starts paying in say 10 years.
No annuity now.
Stop loss is ok but how do you know when to get back in? If you are investing for move than 10 years I would tend to drop the limit idea. Could use for a specific investment but not all.
a stop loss will sell you out at your price or lower ,key word being lower . you would have been sold out at very very low prices despite the price you put if we have another brexit .
some etf's sold out when they plunged 35% at the open by trade imbalances . that would have been your opening level despite the price you put with a stop loss .
after getting sold out below my price only to have it turn around and go up i stopped using them years ago .
a limit order on a sell can be just as bad . you specify the price but if the stock opens a penny less you are not executed . you can ride a plunge down for the sake of a penny difference because it will not execute under your chosen price .
Location: Was Midvalley Oregon; Now Eastside Seattle area
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Quote:
I can still invest in the stock market but have stop losses in place while maintaining far more liquidity than I would with annuities.
What am I missing?
maybe, like "getting killed in a flash crash". I happened to be online during the last flash crash. Everytime I placed a buy order and forced a "review order", the market had fallen further and I changed the buy to a lower price. Eventually, the trading was halted and I never did get the chance to execute a buy. Some however, "got killed."
I always keep my limit orders to 1-3 days; Never over the weekend. Always know my risk tolerance.
ymmv
disclaimer. Have a bunch of GLWB annuities 2008-2012. Average compounded growth 9% (doubled initial value in 8 years)(net fees, liquidation value). We were looking for Market Insurance followed by Income; Investing purposes came in 3rd place. We are 3x our trading portfolio since 2012.
YMMV Always remember YMMV
Last edited by leastprime; 05-21-2017 at 01:41 PM..
disclaimer-without actually analyzing your policy no one here would or should accept any annuity claim on its return as the real deal . there is far to much smoke and mirrors as you saw with the one i posted here a few times .
folks argue they are getting 5.50% and while they are , they really are not the way it is dispersed .
nothing personal , but without us actually reading that policy all claims are to be taken with a grain of salt here .
i had one pitched to us that sounded amazing . they promised us a 10% minimum return for 10 years regardless of what the underlying assets did .
they really did give you that 10% but the way it is done on a phantom account that is for annuitizing only it wasn't the deal you thought you were getting when they show you that 10% each year added on .
Don't waste your time with annuities. Investing in a index fund will provide better returns with not too much risk. I would never take an annuity. I have mutual funds already above 12% YTD. Taking an annuity is doing yourself a disservice.
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Always remember YMMV
