Annuities Revisted

[barrett]

I know lots of folks on here hate annuities, but for those of you who like and trust the immediate fixed variety, why not annuitize all available money? Let's assume for the sake of clarity that we are only talking about money that could be committed without incurring taxes up front (from the sale of assets that have gains).

[moda0306]

I find immediate fixed annuities to be interesting creatures.

They are essentially one-part longevity risk insurance and one part illiquid bond ladder.  The main reason to not want to annuitize all money is because 1) longevity risk is only one risk at retirement, and 2) a 100% bond portfolio can be dangerous for obvious reasons.

If I were to annuitize, I'd consider its present value part of my long-bond position.

[barrett]

I find immediate fixed annuities to be interesting creatures.

They are essentially one-part longevity risk insurance and one part illiquid bond ladder.  The main reason to not want to annuitize all money is because 1) longevity risk is only one risk at retirement, and 2) a 100% bond portfolio can be dangerous for obvious reasons.

If I were to annuitize, I'd consider its present value part of my long-bond position.

Thanks for that, moda. Really appreciated! In my puny brain I was thinking, well if they really are safe tools, then why not go all in? But obviously I was only considering one kind of risk. And knowing how to think of them in terms of a PP is really valuable too.

Don't want to be overexposed to bonds in case of high inflation, correct?

I've kinda started considering an immediate fixed annuity as a possible sixth leg of the PP (going with Tyler's idea of a paid-off home being the fifth leg). Maybe SS checks could be the seventh leg. Working my way up to a Spider Portfolio concept!

[moda0306]

I find immediate fixed annuities to be interesting creatures.

They are essentially one-part longevity risk insurance and one part illiquid bond ladder.  The main reason to not want to annuitize all money is because 1) longevity risk is only one risk at retirement, and 2) a 100% bond portfolio can be dangerous for obvious reasons.

If I were to annuitize, I'd consider its present value part of my long-bond position.

Thanks for that, moda. Really appreciated! In my puny brain I was thinking, well if they really are safe tools, then why not go all in? But obviously I was only considering one kind of risk. And knowing how to think of them in terms of a PP is really valuable too.

Don't want to be overexposed to bonds in case of high inflation, correct?

I've kinda started considering an immediate fixed annuity as a possible sixth leg of the PP (going with Tyler's idea of a paid-off home being the fifth leg). Maybe SS checks could be the seventh leg. Working my way up to a Spider Portfolio concept!

Barrett,

Inflation is the biggest risk of a 100% fixed income portfolio.

Hope that was all clear. Kinda short of me but I'm busy haha.

I've been thinking about how to fit social security into the PP. I'll have an unintelligible mess of a monster post on that soon!

[barrett]

I've been thinking about how to fit social security into the PP. I'll have an unintelligible mess of a monster post on that soon!

Ah, yes, please! The more unintelligible, the better. Seriously, I'd love to read what you have to write. I've read the recent SS book Get What's Yours but it sounds like I need to check out mathjak's man Michael Kitces as well.

[mathjak107]

the more conservative you invest the more immediate annuity's can add to the success rate of your own investing .

spia's work best when not bought as an isolated product  bit as part of an integrated strategy .

in fact one of the best combo's you can get is an spia , a life insurance policy and your own investing .  that integrated strategy out performed term and investring on your own through retirement 67% o the time . only 1/3 did term and invest the difference out perform  it .

the reason is unlike a joint annuity with a spouse a single annuity and a life policy is tax free and gives you more money .

up to 65 term and invest always had a higher balance but that is where it shifted.  100% of the time the integrated strategy  gave you a higher safer income and 2/3's of the time a bigger balance for heirs too.

i have done lots of reading on the subject so it is a favorite topic of mine .

[Mountaineer]

Interesting topic.  Perhaps this has been covered elsewhere, but what do you gurus suggest for retirees that have a combo of fixed (not inflation adjusted) pension plus SS plus money that is available for investing and are not working for pay?  Should one just consider the Perm Portfolio to cover living needs that are more than SS and pension can cover?  That was mostly what the Boglehead recommendation was for however your investing funds were put to use - whether a 50-50 total bond - total stock portfolio or something else like the Vanguard Target Retirement Income Fund if you wish to keep it real simple.

... M

[barrett]

Here's a link to Michael Kitces' SS work which mathjak frequently references:

https://www.kitces.com/blog/how-delayin ... y-can-buy/

Haven't made my way all the way through it but it's good stuff.

[mathjak107]

actually no , this one is the one that i find interesting  pertaining to integrated strategy's ,that one is on delaying ss .



http://www.forbes.com/sites/wadepfau/20 ... annuities/

[WiseOne]

Hey Barrett,

I don't think it's a bad idea at all to put part of your retirement money toward a fixed annuity - I've done the same thing.  Only a part though, just enough so that plus Social Security will cover basic living expenses.  Giving up part of your savings is a good return for a bit of added security, IMHO - not just the guaranteed income for life, but also the protection from creditors and nursing homes and the like.

The PP makes a great asset management system for everything else.  Note that in this situation, the PP's gold will have to "cover" not only the PP but also the annuity in case of high inflation.  This is yet another reason why the large gold allocation of the PP doesn't really bother me.

[mathjak107]

my wife was a widow before she met me and her husband died quite young .

she had a mess of investments dropped in her lap and financial people took advantage of her left and right .

one thing the spouse that does all the investing fails to realize is that their spouse may not want that mess to deal with .

so eventually as we age it would be nice to lock in the non discretionary bills with a spia and use  some simple investments for the wants and inflation adjusting .

perhaps i may narrow things down for her eventually to wellesley income and an spia .

[mathjak107]

while there are exceptions of course , the way men and women think about investing can be totally different .


as if we didn't know it ,women are different creatures than men. they think different ,have different needs ,wants and requirements.

any good financial planner will tell you:

most men clients  are more interested in growing wealth , they care about allocations ,investments , getting the biggest bang for the buck ( no pun intended),beating indexes , etc .

women clients are different as far as what brought them to that planners office and it is nothing like the mans reason. a mans reason is usually facts and figures , a womens reason is she has a story to tell. ( don't they always?) ha ha ha


women have very different concerns and it is usually centered around the fact they have visions of being alone eventually and being the proverbial bag lady under the bridge after they out lived their money.

women want security , I know that because when I approach women in clubs they usually call out security ,security, ha ha ha

women live longer than men , a big point when planning but more important while 80% of all men die married ,80% of all women die alone.

I think that sentence requires reading a 2nd time as there is a huge difference in situation for a woman.

women usually don't like to take on much volatility,especially a widow who just lost a social security check or someone who is single and  alone..

[Pointedstick]

I think you have posted this exact thing (word for word) like three times already in other threads at different points in time.

[mathjak107]

I likely did post it before . it is a very important topic with me  because i see what my wife went through .

when you type with 1 finger like i do anything i post if i have already said it it i just copy and paste . much easier than starting over .

it is something that the spouse who does the investing has to keep in mind . their partner may have different needs and wants from that portfolio  and eventually the KISS  principal may be the best route and that just may include a check every month from an spia  as part of the plan ..

[Xan]

For everyone's benefit, we should establish a thread where only Mathjak can post.  In all the other threads, Mathjak is only allowed to post a number, which refers to the post number in his own thread.  It's data deduplication, and it's a win all the way around.

[barrett]

Hey Barrett,

I don't think it's a bad idea at all to put part of your retirement money toward a fixed annuity - I've done the same thing.  Only a part though, just enough so that plus Social Security will cover basic living expenses.  Giving up part of your savings is a good return for a bit of added security, IMHO - not just the guaranteed income for life, but also the protection from creditors and nursing homes and the like.

The PP makes a great asset management system for everything else.  Note that in this situation, the PP's gold will have to "cover" not only the PP but also the annuity in case of high inflation.  This is yet another reason why the large gold allocation of the PP doesn't really bother me.

Thanks for that, WiseOne. So I am going in the right direction but I am a little slow! The bolded part is clever. Gold coins that don't show up on a brokerage statement could also fall in that category.

I also like mathjak's annuity/Wellesley idea for a spouse who who doesn't like to deal with money.

Waiting patiently for Moda's SS brain dump.

[Pointedstick]

If I kick the bucket early, my wife has said that her plan is to register for an account here and ask all of you!

[WiseOne]

I can't speak for mathjak's wife, but I know quite a few women who are perfectly capable of handling "facts and figures" and  also know exactly how to deal with a drunken slob who tries to pick them up in a nightclub.

And mathjak, I'll be sure to send you a copy of my next Nature paper (currently under review).  I'm sure there are enough facts and figures in it to keep you entertained for a while.

[barrett]

I also like mathjak's annuity/Wellesley idea for a spouse who who doesn't like to deal with money.

I can't speak for mathjak's wife, but I know quite a few women who are perfectly capable of handling "facts and figures" and  also know exactly how to deal with a drunken slob who tries to pick them up in a nightclub.

I should be clear that my wife HATES to think or talk about of any kind of investments details, plans, etc. Her attitude is that if she works hard enough, things will all work out. So she's only working on half of the equation... but that is largely because she trusts me to figure out the other stuff.

I've seen enough posts by women elsewhere to know that the situation can be reversed where it's the man who is bumbling along in money oblivion.

In my case I need to be ready to leave something in place that is super easy to understand and manage.

[WiseOne]

In my case I need to be ready to leave something in place that is super easy to understand and manage.

Wellesley would work for that.  So would a pile of gold coins in a safe deposit box, cash in a bank savings account, and two funds (stock + bonds).  It wouldn't be a disaster if she left it alone and never rebalanced.

Alternatively have you considered a Betterment account for the stocks, bonds and some cash?

[mathjak107]

my eventual plan is to  ladder some spia's eventually . age has a big factor on the amount you get  as well as increasing rates would help too. the rest she has no qualms about either following the newsletter or something like wellesley  . she made it clear though she does not want to be 100% dependent on the whims of markets and rates  and i agree with her .. some form of pensionized income is nice to have .

[Mark Leavy]

  I suddenly have this image of WiseOne explaining the intricacies of the HBPP to a drunken slob in a bar.

I really like that image.  I'm planning on being in an NYC bar celebrating Isaac Newton's birthday on 12/25.  It could happen

[mathjak107]

wow isaac newtion .  wasn't he the guy that made up that law that says "one fig to a cookie " ?

[Libertarian666]

If I kick the bucket early, my wife has said that her plan is to register for an account here and ask all of you!

Good idea except that maybe she should register for an account here before that so that she'll know who to listen to.