Immediate Annuity Satisfaction or Regrets?

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jimkinny
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Immediate Annuity Satisfaction or Regrets?

Post by jimkinny »

If you bought an immediate annuity (SPIA) do you feel that it was worthwhile or do you feel it was a mistake?
nix4me
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Re: Immediate Annuity Satisfaction or Regrets?

Post by nix4me »

I feel all annuity investing is a mistake.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by sailaway »

No me, but my parents bought an annuity when they retired in early 2008. They are very happy with their decision and the simplicity of their finances. Now if they would just stop shuffling IRA CDs, I would be happy for them, too.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by Gill »

I am very pleased with the SPIA purchases I 'made from my first purchase in 2009 to the final and what will be my last purchase in 2019. Naturally I'll be even happier when I recover my premiums and am living on house money, but if I don't it will still have made sense for complete financial peace of mind. I still have an equity and fixed income portfolio with sizeable amounts in I-Bonds and TIPS so I feel I have the inflation aspects covered as well as a guaranteed income for life which considerably exceeds my final salary at the time I retired.
Gill
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jimkinny
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Re: Immediate Annuity Satisfaction or Regrets?

Post by jimkinny »

sailaway wrote: Wed Sep 09, 2020 9:27 am No me, but my parents bought an annuity when they retired in early 2008. They are very happy with their decision and the simplicity of their finances. Now if they would just stop shuffling IRA CDs, I would be happy for them, too.
:happy
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jimkinny
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Re: Immediate Annuity Satisfaction or Regrets?

Post by jimkinny »

Gill wrote: Wed Sep 09, 2020 9:39 am I am very pleased with the SPIA purchases I 'made from my first purchase in 2009 to the final and what will be my last purchase in 2019. Naturally I'll be even happier when I recover my premiums and am living on house money, but if I don't it will still have made sense for complete financial peace of mind. I still have an equity and fixed income portfolio with sizeable amounts in I-Bonds and TIPS so I feel I have the inflation aspects covered as well as a guaranteed income for life which considerably exceeds my final salary at the time I retired.
Gill
If you don't mind sharing, at about what age did you make your first purchase? I would spread the purchase(s) over some years also. Did you start out intending to spread the purchases over ten years?
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Re: Immediate Annuity Satisfaction or Regrets?

Post by summerof42 »

@sailaway and Gill - I agree with your parents and trying hard to understand why Bogelheader's are so against them.

As an example, in 2009 I rolled a small 401k account into a Flexible Premium Deferred Annuity which is fixed at 3% (can never go lower) guaranteed with Modern Woodmen of America, a non-profit organization which has been around for generations.

The only fee was $200 when I opened it up. There have never been any maintenance costs or fees, ever, even I decide to annuitize. There were of course early surrender and/or withdrawal charges for the first 8 years, but I've surpassed those years as of 2017.

I have not annuitized as of yet and am so grateful, contrary to recommendations to withdraw the funds and roll into a fund at Vanguard. Right now, folks would kill for a fixed 3% investment.

Of course, when I retire within a year or two, I will decide whether to hang on to it and annuitize to Single Life with no Period Certain which would bring in around $520 a month; more than likely I will as I don't have the pleasure of a nice pension. With this crazy market, I personally love the idea of getting paid each month, just like SS, where as my 401k's, and IRA funds at Vanguard run the risk of losing great value. But then again, I'm no expert. It comes down to a personal choice and I am not comfortable with risk. Especially given the fact I am way behind in retirement funds due to divorce and job losses.
Last edited by summerof42 on Wed Sep 09, 2020 10:58 am, edited 1 time in total.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by stan1 »

jimkinny wrote: Wed Sep 09, 2020 9:10 am If you bought an immediate annuity (SPIA) do you feel that it was worthwhile or do you feel it was a mistake?
Please edit to provide some information about yourself such as age, net worth, health status, spouse, etc. SPIAs are a good choice for many people, but if you have a pension or millions of dollars in assets they may not be needed.

My mother bought one around 2010 at age 77. For her it was a very good choice and at this point I wish she'd bought more since I expect her to live at least another 5-10 years.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by dbr »

I didn't have the choice of taking a lump sum rather than a fixed pension. But having been forced to buy what amounts to an SPIA at retirement, I would say I am very happy to have my income structured that way now. This doesn't completely answer your question because the missing information is what the lump sum would have been. From all I know about investing in retirement now, I am pretty sure I would have eventually annuitized some assets at some point along the path. The fraction of one's income from Social Security is a big factor in how this looks.

A genuine worry is that the pension is not inflation indexed and my planning has to assume that withdrawals from investments will increase faster than inflation. That has worked out so far. I think I am very thankful inflation risk has not turned up for long enough now that we are getting out of the woods on that one.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by David Jay »

jimkinny wrote: Wed Sep 09, 2020 9:54 am I would spread the purchase(s) over some years also. Did you start out intending to spread the purchases over ten years?
An alternative is to purchase an SPIA with a fixed percentage increase (2%, 3%, etc.).

It doesn’t appear that any insurer offers true COLA policies (probably too much “tail” risk), but fixed percentage can provide a similar effect. I have recommended this to my wife (in my “after I am gone” letter), replace the lost SS benefit using an SPIA with 2% annual escalator.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by littlebird »

I annuitized one of my two Vanguard Variable Annuities - pretty much the same action as buying an immediate annuity - when I was about 74 and had $4000/month assisted living bills for my husband, and no pension of my own. I had originally funded the Variable Annuities many years ago to serve as my pension.

Now that my husband has died and I no longer have those large bills, my S.S. and annuity provide more than I really need each month. But having the annuity gives me the certainty of having enough income each month without having to lie awake at night calculating how much, from which investment, and how often to withdraw the needed funds, as well as assuring that the money will be there should I have to be hospitalized, or evacuated, or should I start to get confused.

So mark me “satisfied”.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by jimkinny »

David Jay wrote: Wed Sep 09, 2020 10:48 am
jimkinny wrote: Wed Sep 09, 2020 9:54 am I would spread the purchase(s) over some years also. Did you start out intending to spread the purchases over ten years?
An alternative is to purchase an SPIA with a fixed percentage increase (2%, 3%, etc.).

It doesn’t appear that any insurer offers true COLA policies (probably too much “tail” risk), but fixed percentage can provide a similar effect. I have recommended this to my wife (in my “after I am gone” letter), replace the lost SS benefit using an SPIA with 2% annual escalator.
Try to find the Oblivious Investors website and post re the 1-5% annual increases. The reasons for spreading purchases out over a number of years is to decrease inflation and interest rate risks as well as the credit risk of buying from one insurance company.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by jimkinny »

dbr wrote: Wed Sep 09, 2020 10:13 am I didn't have the choice of taking a lump sum rather than a fixed pension. But having been forced to buy what amounts to an SPIA at retirement, I would say I am very happy to have my income structured that way now. This doesn't completely answer your question because the missing information is what the lump sum would have been. From all I know about investing in retirement now, I am pretty sure I would have eventually annuitized some assets at some point along the path. The fraction of one's income from Social Security is a big factor in how this looks.

A genuine worry is that the pension is not inflation indexed and my planning has to assume that withdrawals from investments will increase faster than inflation. That has worked out so far. I think I am very thankful inflation risk has not turned up for long enough now that we are getting out of the woods on that one.
Inflation is a concern for me also. I could have recency bias but I 90% think that Greenspan taught the Fed how to control inflation. The other 10% of me thinks I don't know enough, which is very probable.
Last edited by jimkinny on Wed Sep 09, 2020 11:49 am, edited 1 time in total.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by jimkinny »

littlebird wrote: Wed Sep 09, 2020 10:51 am I annuitized one of my two Vanguard Variable Annuities - pretty much the same action as buying an immediate annuity - when I was about 74 and had $4000/month assisted living bills for my husband, and no pension of my own. I had originally funded the Variable Annuities many years ago to serve as my pension.

Now that my husband has died and I no longer have those large bills, my S.S. and annuity provide more than I really need each month. But having the annuity gives me the certainty of having enough income each month without having to lie awake at night calculating how much, from which investment, and how often to withdraw the needed funds, as well as assuring that the money will be there should I have to be hospitalized, or evacuated, or should I start to get confused.

So mark me “satisfied”.
All very good reasons for being satisfied, thank you. I have a tendency towards being more number oriented but I am beginning to think the emotional reasons are equally or more important.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by Gill »

nix4me wrote: Wed Sep 09, 2020 9:22 am I feel all annuity investing is a mistake.
Sorry you feel that way. Many of us feel otherwise and also feel purchasing an annuity is a combination of investing and insuring against a long life.
Gill
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Re: Immediate Annuity Satisfaction or Regrets?

Post by dknightd »

jimkinny wrote: Wed Sep 09, 2020 9:10 am If you bought an immediate annuity (SPIA) do you feel that it was worthwhile or do you feel it was a mistake?
So far so good. If I still feel the same way in 10 years I'll buy another.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by summerof42 »

Gill wrote: Wed Sep 09, 2020 11:52 am
nix4me wrote: Wed Sep 09, 2020 9:22 am I feel all annuity investing is a mistake.
[ quote fixed by admin LadyGeek]

@Nix4me - can you explain why? **please read my post** I haven't annuitized yet, I'm earning 3% fixed. Long story short, if I annuitized in a year or two, I will receive a fixed amount each month, similar to SS without having to worry about loss, or where the market is going and making decisions on withdrawals from my other investments. Sounds good me!
Last edited by summerof42 on Wed Sep 09, 2020 2:57 pm, edited 1 time in total.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by vineviz »

jimkinny wrote: Wed Sep 09, 2020 11:38 am
David Jay wrote: Wed Sep 09, 2020 10:48 am
jimkinny wrote: Wed Sep 09, 2020 9:54 am I would spread the purchase(s) over some years also. Did you start out intending to spread the purchases over ten years?
An alternative is to purchase an SPIA with a fixed percentage increase (2%, 3%, etc.).

It doesn’t appear that any insurer offers true COLA policies (probably too much “tail” risk), but fixed percentage can provide a similar effect. I have recommended this to my wife (in my “after I am gone” letter), replace the lost SS benefit using an SPIA with 2% annual escalator.
Try to find the Oblivious Investors website and post re the 1-5% annual increases. The reasons for spreading purchases out over a number of years is to decrease inflation and interest rate risks as well as the credit risk of buying from one insurance company.
The ideal way to “set aside” money for future annuity purchases, IMHO, is a long-term TIPS (either an individual 30-year TIPS or a fund like LTPZ).

Doing this allows you to spread out your annuity purchases without adding to your interest rate risk or inflation risk.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by jimkinny »

vineviz wrote: Wed Sep 09, 2020 12:30 pm
jimkinny wrote: Wed Sep 09, 2020 11:38 am
David Jay wrote: Wed Sep 09, 2020 10:48 am
jimkinny wrote: Wed Sep 09, 2020 9:54 am I would spread the purchase(s) over some years also. Did you start out intending to spread the purchases over ten years?
An alternative is to purchase an SPIA with a fixed percentage increase (2%, 3%, etc.).

It doesn’t appear that any insurer offers true COLA policies (probably too much “tail” risk), but fixed percentage can provide a similar effect. I have recommended this to my wife (in my “after I am gone” letter), replace the lost SS benefit using an SPIA with 2% annual escalator.
Try to find the Oblivious Investors website and post re the 1-5% annual increases. The reasons for spreading purchases out over a number of years is to decrease inflation and interest rate risks as well as the credit risk of buying from one insurance company.
The ideal way to “set aside” money for future annuity purchases, IMHO, is a long-term TIPS (either an individual 30-year TIPS or a fund like LTPZ).

Doing this allows you to spread out your annuity purchases without adding to your interest rate risk or inflation risk.
Good point. I would not have considered doing that, thanks.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by ruralavalon »

jimkinny wrote: Wed Sep 09, 2020 9:10 am If you bought an immediate annuity (SPIA) do you feel that it was worthwhile or do you feel it was a mistake?
Gill wrote: Wed Sep 09, 2020 11:52 am
nix4me wrote: Wed Sep 09, 2020 9:22 am I feel all annuity investing is a mistake.
Sorry you feel that way. Many of us feel otherwise and also feel purchasing an annuity is a combination of investing and insuring against a long life.
Gill
A SPIA is much different than just any annuity.

It's not a mistake to buy a Single Premium Immediate Annuity (SPIA) if in good health, at the right age, with a good interest rate environment.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by Sheepdog »

Gill wrote: Wed Sep 09, 2020 11:52 am
nix4me wrote: Wed Sep 09, 2020 9:22 am I feel all annuity investing is a mistake.
Sorry you feel that way. Many of us feel otherwise and also feel purchasing an annuity is a combination of investing and insuring against a long life.
Gill
A variable annuity is not a good investment for many of us...me included, but for some who have no investing expertise it can be good for them (including an in-law couple who are weak investing. They, at least, have a check every month and they are in their 80s.) But, we are talking about immediate annuities, SPIAs), which are not variable. I bought my first SPIA 9 yrs ago, I have my investment money back already and now are receiving monthly income on that. I also purchased since then two fixed term SPIAs for the purpose of having steady payments for the length of the term to help my spouse to have automatic receipts for awhile. These fixed term SPIAs are not very good money making, but are not money losers. (I ignore inflation in this case.). I am glad I bought them, for her. She will need help and these will for awhile.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by nix4me »

summerof42 wrote: Wed Sep 09, 2020 12:06 pm
Gill wrote: Wed Sep 09, 2020 11:52 am
nix4me wrote: Wed Sep 09, 2020 9:22 am I feel all annuity investing is a mistake.
@Nix4me - can you explain why? **please read my post** I haven't annuitized yet, I'm earning 3% fixed. Long story short, if I annuitized in a year or two, I will received a fixed amount each month, similar to SS without having to worry about loss, where the market is going and making decisions on withdraws from my other investments. Sounds good me!
Just google: “Why annuities are bad”.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by HomerJ »

summerof42 wrote: Wed Sep 09, 2020 10:01 am @sailaway and Gill - I agree with your parents and trying hard to understand why Bogelheader's are so against them.

As an example, in 2009 I rolled a small 401k account into a Flexible Premium Deferred Annuity which is fixed at 3% (can never go lower) guaranteed with Modern Woodmen of America, a non-profit organization which has been around for generations.

The only fee was $200 when I opened it up. There have never been any maintenance costs or fees, ever, even I decide to annuitize. There were of course early surrender and/or withdrawal charges for the first 8 years, but I've surpassed those years as of 2017.

I have not annuitized as of yet and am so grateful, contrary to recommendations to withdraw the funds and roll into a fund at Vanguard. Right now, folks would kill for a fixed 3% investment.

Of course, when I retire within a year or two, I will decide whether to hang on to it and annuitize to Single Life with no Period Certain which would bring in around $520 a month; more than likely I will as I don't have the pleasure of a nice pension. With this crazy market, I personally love the idea of getting paid each month, just like SS, where as my 401k's, and IRA funds at Vanguard run the risk of losing great value. But then again, I'm no expert. It comes down to a personal choice and I am not comfortable with risk. Especially given the fact I am way behind in retirement funds due to divorce and job losses.
We're not against SPIAs... But we are usually against the type of product you bought.

Now maybe yours is an actual 3% fixed return. Can you cash out all the money? I mean, if you invested $100,000, 11 years later, can you cash out the full $138,423?

If so, you got a good product that actually paid you 3% a year.

See... what usually happens is, they promise a certain fixed return, but that's not the "cash value". The cash value is a lower number. You can annuitize the higher number, but they will pay you less per year than you can get on the open market.

For instance, you invest $100,000 and after 11 years, you are getting a statement that reads $138,423, but you can't cash that out, and when you annuitize it, it pays $500 a month or $6000 a year.

But perhaps, at your age, and your gender, to buy a SPIA that pays $6000 a year might only cost you $110,000.

So really, your original $100,000 only grew to the equivalent of $110,000 over 11 years, or 0.9% a year. Even though they gave you a "guaranteed" 3% "fixed" rate.

This is how a lot of the bad annuities work. They promise some high fixed rate (usually higher than 3% so yours may be legit), and then pay lower than market rates on the annuity side at the end. Surrender cash value is always lower than the number they show you on the statement each month.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by ResearchMed »

nix4me wrote: Wed Sep 09, 2020 12:53 pm
summerof42 wrote: Wed Sep 09, 2020 12:06 pm
Gill wrote: Wed Sep 09, 2020 11:52 am
nix4me wrote: Wed Sep 09, 2020 9:22 am I feel all annuity investing is a mistake.
@Nix4me - can you explain why? **please read my post** I haven't annuitized yet, I'm earning 3% fixed. Long story short, if I annuitized in a year or two, I will received a fixed amount each month, similar to SS without having to worry about loss, where the market is going and making decisions on withdraws from my other investments. Sounds good me!
Just google: “Why annuities are bad”.
This should be OUTSIDE THE QUOTE, and is written by ResearchMed (I don't know how to fix the quoting formatting):
[I do. Quote fixed by admin LadyGeek (you missed one)]

Are you (or the criticisms) distinguishing between SPIAs and other types of annuities? They are different critters.

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Re: Immediate Annuity Satisfaction or Regrets?

Post by 7eight9 »

I'm actually looking forward to when we can buy an annuity and "set it and forget it". Setting it and forgetting it represents freedom. My wife and I never signed up to be financial planners. A pension would have been preferable. But lacking that a SPIA affords the opportunity to "buy a pension". And for that we are grateful. Now it is just a matter of how long to wait before starting to annuitize.

For those interested this is a good tool to get annuity quotes without dealing with a salesperson --- https://www.immediateannuities.com/a/gu ... gLfSvD_BwE
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Re: Immediate Annuity Satisfaction or Regrets?

Post by dbr »

ResearchMed wrote: Wed Sep 09, 2020 1:19 pm

Just google: “Why annuities are bad”.
Are you (or the criticisms) distinguishing between SPIAs and other types of annuities? They are different critters.

RM
[/quote]

It's a commonplace in this discussion that most annuities are bad for most people most of the time but that SPIAs don't have the flaws that plague the others and in fact have some features that are definitely good.

It is a different discussion when or whether annuitizing some of stock and bond assets is a good idea. The answer is certainly not that it is never a good idea.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by Taylor Larimore »

jimkinny wrote: Wed Sep 09, 2020 9:10 am If you bought an immediate annuity (SPIA) do you feel that it was worthwhile or do you feel it was a mistake?
jimkinny:

I once had a license to sell annuities so I know something about them. I've learned that most annuities are not "worthwhile" and are designed with undecipherable fine print favoring the annuity company.

However, a Single Premium Immediate Annuity (SPIA) is different. SPIA's are all similar which makes their premiums very competitive. You pay the premium and you are guaranteed a specific lifetime income just like a pension. It's as simple as that.

In 2006 my wife and I bought a joint AVIVA SPIA (wife age 79/husband age 83) for $116,720. Payments of $994/mo. were guaranteed for 10 years certain and life thereafter.

We were both pleased with the ease of application so we purchased another SPIA from Genworth in 2007 (with no guarantee period) from the same annuity seller: www.immediateannuities.com. The second premium was $147,837. This annuity guarantees $1,315/mo. until the last of us dies (my wife of 62 years, died in 2013).

Primary benefits:

1. Peace of mind. We no longer worried about the stock market performance or running out of money (we have excellent federal health insurance).

2. With our lifetime income secure (including Social Security and my federal pension), we started giving our children a monthly allowance which continues to this day. They are very grateful.

3. I continue to receive monthly income from both annuities which totals far more than the two premiums we paid.

I consider our two SPIAs the best financial investment we ever made.

Best wishes.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by nisiprius »

So far, I am completely satisfied with the CPI-linked SPIAs I bought for me and my wife circa 2007, and, at about the same time, my conversion of a portion of my TIAA-CREF accounts to "lifetime contracts" with the "graded payment option" (which produces increasing annual payments).
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Re: Immediate Annuity Satisfaction or Regrets?

Post by Gill »

Why has much of the conversation above drifted into deferred annuities? The OP is asking about SPIA's and those alone. Even that rather narrow question brings out all the dislike of deferred annuities with which I agree. Let's stay on the subject.
Gill
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Re: Immediate Annuity Satisfaction or Regrets?

Post by ubermax »

We don't have one but I think it's a great idea and believe it's a good fit for many people approaching retirement - and I believe the Secure Act has made it easier for 401(k) participants to convert account balances to an annuity - one big plus for them is that you are relieved of managing all or part of your investment portfolio .

Some avoid them because insurance companies that sell them price them conservatively and so hypothetically they can be more expensive than drawing from assets that are "in the market" - some friends have an SPIA that takes care of a portion of their retirement budget and that works for them - as always it's a personal choice based on personal circumstances and asset holdings .
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Re: Immediate Annuity Satisfaction or Regrets?

Post by GerryL »

I opted to take two tiny pensions as annuities instead of lump sums. I took the first when I retired (age 66) because it would not grow. I waited until age 69.5 to take the second because it continued to increase. Together they add up to less that $700/mo, but they are a welcome supplement to the SS benefit I started at 70.

I considered a SPIA, but I saw no need for one because I would have adequate stable income from SS, the pensions, and quarterly (taxable) dividends by the time RMDs started.

I have not tried to figure out whether I benefited or lost from annuitizing those little pensions. What would be the point?
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Re: Immediate Annuity Satisfaction or Regrets?

Post by summerof42 »

Now maybe yours is an actual 3% fixed return. Can you cash out all the money? I mean, if you invested $100,000, 11 years later, can you cash out the full $138,423?
@HomerJ - thanks for your input, greatly appreciate it. Yes, I can cash out all my money invested, plus interest made since 2009. If I had pulled it out prior to the 8 years there would have been the usual early withdrawal charge. Of course, now is definitely not the time to do anything since it's fixed at 3% and I just consider it part of my bond portfolio and I look at it like a CD.

Next year if I retire, I have some decision making to do. Roll the funds into my IRA at Vanguard or annuitize and receive a monthly amount, and if market is still crazy and unstable, just hang on to it. If and when I decide to annuitize, as indicated earlier, there are no monthly or annual fees. I also have several options, e.g. with or without beneficiaries, cash refund, 10 yr, etc.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by ByThePond »

Quite satisfied.

On retiring two years ago, I annuitized 45% of my portfolio through TIAA into a two life, 100% annuity with a 10 year guarantee. It paid 5.61% annually then, and has since risen to 5.67%. It isn't inflation adjusted, as I feel that is a costly option, but the remaining 55% of my original portfolio should easily cover inflation.

I'm in very good health and come from long-lived stock (see what I did there? :) ). My conservative scenarios in the Retirement Portfolio Model predict an ever-rising balance, but who can be sure.
I made it a part of a three legged income stream, sort of a liability matching plan.

When the Covid crunch arose back in March, a family member quipped "Bet you're really liking that SPIA now."

He was right.
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Watty
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Re: Immediate Annuity Satisfaction or Regrets?

Post by Watty »

jimkinny wrote: Wed Sep 09, 2020 9:10 am If you bought an immediate annuity (SPIA) do you feel that it was worthwhile or do you feel it was a mistake?
These three things can make a SPIA work out really well for someone.

1) Interest rates go down so you were able to lock in the SPIA based on the old higher interest rates.

2) Inflation gets lower, or at least is no higher than expected.

3) You are still alive years later to post about if you liked the SPIA or not. There is literally a lot of survivorship bias in the opinions about SPIA since the people that died a year after buying one will not post that it was a mistake. :shock:

Anyway anyone who has bought a SPIA and is still alive to post about it should be pretty happy with their choice. This is because interest rates and inflation have generally been dropping for decades now.

For future results how well a SPIA will work out depends on what happens with interest rates and inflation and those could go either way with deflation, inflation, or even a Japan style stagnation. So much of that is unknowable that you also need to be sure that you have diversification an only have a SPIA as part of your retirement plan.

Delaying starting Social Security to get a larger Social Security check later on is also very much like buying an inflation adjusted SPIA so it would be hard to justify starting Social Security early but buying a SPIA.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by Watty »

nix4me wrote: Wed Sep 09, 2020 9:22 am I feel all annuity investing is a mistake.
A SPIA is the exception to that rule since it is in essence like buying a pension.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by nix4me »

Watty wrote: Wed Sep 09, 2020 6:32 pm
nix4me wrote: Wed Sep 09, 2020 9:22 am I feel all annuity investing is a mistake.
A SPIA is the exception to that rule since it is in essence like buying a pension.
Sorry, i do not agree. Only person a SPIA or any Annuity is good for is the insurance company that holds it and the salesman that sold it to you. Terrible investment.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by Gill »

nix4me wrote: Wed Sep 09, 2020 7:49 pm
Watty wrote: Wed Sep 09, 2020 6:32 pm
nix4me wrote: Wed Sep 09, 2020 9:22 am I feel all annuity investing is a mistake.
A SPIA is the exception to that rule since it is in essence like buying a pension.
Sorry, i do not agree. Only person a SPIA or any Annuity is good for is the insurance company that holds it and the salesman that sold it to you. Terrible investment.
Could you elaborate on this please. You’ve made this statement twice but with no evidence. Are we all fools for having purchased these contracts? Do you know what an SPIA is? I see from your earlier posts you’re adamant about a 100% equity portfolio. I like equities too but also a little more diversification in retirement.
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Last edited by Gill on Wed Sep 09, 2020 8:23 pm, edited 1 time in total.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by GerryL »

nix4me wrote: Wed Sep 09, 2020 7:49 pm
Watty wrote: Wed Sep 09, 2020 6:32 pm
nix4me wrote: Wed Sep 09, 2020 9:22 am I feel all annuity investing is a mistake.
A SPIA is the exception to that rule since it is in essence like buying a pension.
Sorry, i do not agree. Only person a SPIA or any Annuity is good for is the insurance company that holds it and the salesman that sold it to you. Terrible investment.
An annuity, specifically a SPIA, is not an investment. It is insurance. The problems come when complex annuities are presented as investments. From my understanding, salesmen don't sell SPIAs because they don't see much profit in them.
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JoMoney
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Re: Immediate Annuity Satisfaction or Regrets?

Post by JoMoney »

nix4me wrote: Wed Sep 09, 2020 7:49 pm
Watty wrote: Wed Sep 09, 2020 6:32 pm
nix4me wrote: Wed Sep 09, 2020 9:22 am I feel all annuity investing is a mistake.
A SPIA is the exception to that rule since it is in essence like buying a pension.
Sorry, i do not agree. Only person a SPIA or any Annuity is good for is the insurance company that holds it and the salesman that sold it to you. Terrible investment.
You won't find many salesman pushing SPIAs.
Can you show an example of any other fixed income product that will guarantee someones investment would offer similar payouts for even their 'expected' lifespan (let alone guaranteed regardless of how long they live as a SPIA would) ?

A 60yo Male (AZ) can buy a SPIA for $100,000 that will payout $424 a month for life ($5,088)
https://www.immediateannuities.com/
A 60yo has a life expectancy of 25.2 years
https://www.fidelity.com/content/apps/m ... -Table.pdf
Amortized over 25.2 years , you would need the portfolio to earn 2% a year to be able to match that payout (and the portfolio would be depleted at the end of 25.2 years, a SPIA would continue to pay)

Vanguard's Total Bond Fund's Yield To Maturity is only 1.0%, I can't find any bank CD's offering more more than 1.5%, Treasury Bonds are offering less than 1.0%.... A SPIA looks much better to me, if I would otherwise be withdrawing from a fixed income portfolio.
Last edited by JoMoney on Wed Sep 09, 2020 8:48 pm, edited 1 time in total.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by Gill »

JoMoney wrote: Wed Sep 09, 2020 8:36 pm
nix4me wrote: Wed Sep 09, 2020 7:49 pm
Watty wrote: Wed Sep 09, 2020 6:32 pm
nix4me wrote: Wed Sep 09, 2020 9:22 am I feel all annuity investing is a mistake.
A SPIA is the exception to that rule since it is in essence like buying a pension.
Sorry, i do not agree. Only person a SPIA or any Annuity is good for is the insurance company that holds it and the salesman that sold it to you. Terrible investment.
You won't find many salesman pushing SPIAs.
Can you show an example of any other fixed income product that will guarantee someones investment would offer similar payouts for even their 'expected' lifespan (let alone guaranteed regardless of how long they live as a SPIA would) ?
He has no support for his position. Just an assertion that it’s a “terrible investment”. I’ll keep collecting the checks from mine...
Gill
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Re: Immediate Annuity Satisfaction or Regrets?

Post by reln »

nix4me wrote: Wed Sep 09, 2020 9:22 am I feel all annuity investing is a mistake.
So you think delaying SS is a mistake?
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Re: Immediate Annuity Satisfaction or Regrets?

Post by fundseeker »

Taylor Larimore wrote: Wed Sep 09, 2020 2:25 pm
jimkinny wrote: Wed Sep 09, 2020 9:10 am If you bought an immediate annuity (SPIA) do you feel that it was worthwhile or do you feel it was a mistake?
jimkinny:

I once had a license to sell annuities so I know something about them. I've learned that most annuities are not "worthwhile" and are designed with undecipherable fine print favoring the annuity company.

However, a Single Premium Immediate Annuity (SPIA) is different. SPIA's are all similar which makes their premiums very competitive. You pay the premium and you are guaranteed a specific lifetime income just like a pension. It's as simple as that.

In 2006 my wife and I bought a joint AVIVA SPIA (wife age 79/husband age 83) for $116,720. Payments of $994/mo. were guaranteed for 10 years certain and life thereafter.

We were both pleased with the ease of application so we purchased another SPIA from Genworth in 2007 (with no guarantee period) from the same annuity seller: www.immediateannuities.com. The second premium was $147,837. This annuity guarantees $1,315/mo. until the last of us dies (my wife of 62 years, died in 2013).

Primary benefits:

1. Peace of mind. We no longer worried about the stock market performance or running out of money (we have excellent federal health insurance).

2. With our lifetime income secure (including Social Security and my federal pension), we started giving our children a monthly allowance which continues to this day. They are very grateful.

3. I continue to receive monthly income from both annuities which totals far more than the two premiums we paid.

I consider our two SPIAs the best financial investment we ever made.

Best wishes.
Taylor
Jack Bogle's Words of Wisdom: "I prefer an immediate annuity, which starts paying you right away."
Mr. Larimore, I did the math for your age, and that is amazing! Just want to say that I really appreciate your huge contribution to this forum! You'll soon have 30,000 posts! And, if you bought an SPIA, they must have merit. Thanks again!
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Re: Immediate Annuity Satisfaction or Regrets?

Post by reln »

HomerJ wrote: Wed Sep 09, 2020 1:18 pm
summerof42 wrote: Wed Sep 09, 2020 10:01 am @sailaway and Gill - I agree with your parents and trying hard to understand why Bogelheader's are so against them.

As an example, in 2009 I rolled a small 401k account into a Flexible Premium Deferred Annuity which is fixed at 3% (can never go lower) guaranteed with Modern Woodmen of America, a non-profit organization which has been around for generations.

The only fee was $200 when I opened it up. There have never been any maintenance costs or fees, ever, even I decide to annuitize. There were of course early surrender and/or withdrawal charges for the first 8 years, but I've surpassed those years as of 2017.

I have not annuitized as of yet and am so grateful, contrary to recommendations to withdraw the funds and roll into a fund at Vanguard. Right now, folks would kill for a fixed 3% investment.

Of course, when I retire within a year or two, I will decide whether to hang on to it and annuitize to Single Life with no Period Certain which would bring in around $520 a month; more than likely I will as I don't have the pleasure of a nice pension. With this crazy market, I personally love the idea of getting paid each month, just like SS, where as my 401k's, and IRA funds at Vanguard run the risk of losing great value. But then again, I'm no expert. It comes down to a personal choice and I am not comfortable with risk. Especially given the fact I am way behind in retirement funds due to divorce and job losses.
We're not against SPIAs... But we are usually against the type of product you bought.

Now maybe yours is an actual 3% fixed return. Can you cash out all the money? I mean, if you invested $100,000, 11 years later, can you cash out the full $138,423?

If so, you got a good product that actually paid you 3% a year.

See... what usually happens is, they promise a certain fixed return, but that's not the "cash value". The cash value is a lower number. You can annuitize the higher number, but they will pay you less per year than you can get on the open market.

For instance, you invest $100,000 and after 11 years, you are getting a statement that reads $138,423, but you can't cash that out, and when you annuitize it, it pays $500 a month or $6000 a year.

But perhaps, at your age, and your gender, to buy a SPIA that pays $6000 a year might only cost you $110,000.

So really, your original $100,000 only grew to the equivalent of $110,000 over 11 years, or 0.9% a year. Even though they gave you a "guaranteed" 3% "fixed" rate.

This is how a lot of the bad annuities work. They promise some high fixed rate (usually higher than 3% so yours may be legit), and then pay lower than market rates on the annuity side at the end. Surrender cash value is always lower than the number they show you on the statement each month.
In 2009, 3% makes sense.

In 2003 I recall there were 8% policies with 4% guarantees.

Now they are more like 1.5%.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by nix4me »

A 10/90 portfolio beats the annuity with very little/no risk. Lost money in only 1 year (2%) since 1987. Zero since 2000. 6.5% CAGR. And you and your estate get the excess and whats left if/when you die. And you pay almost no fees to start it or maintain it. No riders. No Surrender charges. No shenanigans.

So why is the SPIA better?

There is no need for me to explain - there are 1000's of websites that agree with me - do the simple google search. Now if a SPIA helps you sleep at night, i get that. But it is not a good financial investment.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by rutrow2015 »

I keep seeing that these payments are guaranteed. Are they backed by the full faith and credit of the USG?

If not, then they cannot be considered to be risk free. The issuing entity has to be there to make the pay out.

I prefer to make my own annuity by purchasing SPYD on the open market which currently yields over 6 percent.
I don't even have to know the math to intuit that there is a great likelihood that $100,000 invested in SPYD today will put more monthly income in my pocket with a greater "cash out value" almost irrespective of the term compared to any immediate annuity given the ZIRP environment we are in today.

If there ever comes a time when SPYD goes to zero and ceases dividend payouts, likely we will all have bigger problems and these insurance companies will be a stain on the highway.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by nix4me »

rutrow2015 wrote: Wed Sep 09, 2020 9:37 pm I keep seeing that these payments are guaranteed. Are they backed by the full faith and credit of the USG?

If not, then they cannot be considered to be risk free. The issuing entity has to be there to make the pay out.

I prefer to make my own annuity by purchasing SPYD on the open market which currently yields over 6 percent.
I don't even have to know the math to intuit that there is a great likelihood that $100,000 invested in SPYD today will put more monthly income in my pocket with a greater "cash out value" almost irrespective of the term compared to any immediate annuity given the ZIRP environment we are in today.

If there ever comes a time when SPYD goes to zero and ceases dividend payouts, likely we will all have bigger problems and these insurance companies will be a stain on the highway.
Exactly
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Re: Immediate Annuity Satisfaction or Regrets?

Post by 7eight9 »

rutrow2015 wrote: Wed Sep 09, 2020 9:37 pm I keep seeing that these payments are guaranteed. Are they backed by the full faith and credit of the USG?

If not, then they cannot be considered to be risk free. The issuing entity has to be there to make the pay out.

I prefer to make my own annuity by purchasing SPYD on the open market which currently yields over 6 percent.
I don't even have to know the math to intuit that there is a great likelihood that $100,000 invested in SPYD today will put more monthly income in my pocket with a greater "cash out value" almost irrespective of the term compared to any immediate annuity given the ZIRP environment we are in today.

If there ever comes a time when SPYD goes to zero and ceases dividend payouts, likely we will all have bigger problems and these insurance companies will be a stain on the highway.
The bolded text is incorrect.

Learning that your life or health insurance company is in trouble can be frightening, but policyholders should take comfort in knowing that state guaranty associations are there to provide protection and continuing coverage. The guaranty system safety net helps keep the promises of the insurance industry, even when companies fail.
https://www.nolhga.com/policyholderinfo/main.cfm
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Re: Immediate Annuity Satisfaction or Regrets?

Post by JoMoney »

nix4me wrote: Wed Sep 09, 2020 9:29 pm A 10/90 portfolio beats the annuity with very little/no risk. Lost money in only 1 year (2%) since 1987. Zero since 2000. 6.5% CAGR. And you and your estate get the excess and whats left if/when you die. And you pay almost no fees to start it or maintain it. No riders. No Surrender charges. No shenanigans.

So why is the SPIA better?

There is no need for me to explain - there are 1000's of websites that agree with me - do the simple google search. Now if a SPIA helps you sleep at night, i get that. But it is not a good financial investment.
Where are you getting your historical SPIA quotes to claim some stock/bond portfolio beat it?
I certainly hope stocks continue to outperform fixed income investments going forward, but that's besides the point they offer no guarantees on their return.
A 10%stock / 90% SPIA given the same starting interest rate period would have offered higher income (guaranteed) over the owners expected life span.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by Watty »

nix4me wrote: Wed Sep 09, 2020 9:29 pm A 10/90 portfolio beats the annuity with very little/no risk. Lost money in only 1 year (2%) since 1987.
Just FYI, in 1987 mortgage rates peaked at over 11%.

It is just a guess but if someone turned 65 in 1987 and bought a SPIA then their payout would likely have been something like 13% each year or more. That would have been exceptionally lucky timing which would be far from typical but 1987 would have been a very good time to buy a SPIA if you were retired then.

If you are going to make such strong assertions it would be good to show how you came up with your conclusions or give references to studies that support your conclusion.

I do agree that for someone that is still in their accumulation years a simple portfolio of index funds would be better. I also think that with interest rates so low now it is a risky time to buy a SPIA but in the right situation they can make sense.
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Re: Immediate Annuity Satisfaction or Regrets?

Post by vineviz »

nix4me wrote: Wed Sep 09, 2020 7:49 pm
Watty wrote: Wed Sep 09, 2020 6:32 pm
nix4me wrote: Wed Sep 09, 2020 9:22 am I feel all annuity investing is a mistake.
A SPIA is the exception to that rule since it is in essence like buying a pension.
Sorry, i do not agree. Only person a SPIA or any Annuity is good for is the insurance company that holds it and the salesman that sold it to you. Terrible investment.
How does a communist prepare for retirement, in your view?

If we take the radical view that any transaction in which the seller makes a profit is inherently a “terrible” deal for the buyer, what are we left with?
"Far more money has been lost by investors preparing for corrections than has been lost in corrections themselves." ~~ Peter Lynch
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