willthrill81 wrote: ↑Thu Dec 02, 2021 11:53 am
HomerJ wrote: ↑Thu Dec 02, 2021 11:45 am
willthrill81 wrote: ↑Thu Dec 02, 2021 11:38 am
HomerJ wrote: ↑Thu Dec 02, 2021 11:27 am
willthrill81 wrote: ↑Thu Dec 02, 2021 11:12 am
It's availability is high enough that ImmediateAnnuities.com offers it as a standard option.
For this to be true, his other accounts will need to grow significantly
more than inflation in order to offset the shrinking buying power of the nominal pension payout. By comparison, with a larger portfolio and no pension, the portfolio will not need to grow as much in order to maintain the same buying power.
Are you sure?
Yes. The nominal payout's buying power is decreasing at the rate of inflation. The portfolio must grow at the rate of inflation in order for withdrawals there to maintain their buying power and the portfolio not shrink faster than the withdrawal rate. So if the portfolio is also being used to cover the ever increasing gap between the nominal payout initial and current buying power, the portfolio must grow faster than inflation in order to maintain the same overall buying power and the portfolio not shrink faster than the withdrawal rate.
I think you're wrong, because of the 80/20 and the extra payout on the 20. The 80 is 4x larger than the 20, so it doesn't have to grow that much faster to make up for the 20 inflation losses.
PLUS, because of the higher payout on the 20, you pull LESS than 4% from the 80, which means you already get a bonus to the 80 growth, since it is declining less than normal
Read my example post again. I should make a new topic. Doing the math, I starting thinking maybe I do WANT an SPIA at 65 (math is even better at 70 with an even larger payout of 6%+). The big downside of course is that the money in the SPIA is GONE, and the heirs get none of it, but it does seem to help withdrawals for the retiree, even without inflation adjustments.
Perhaps a simplified example will show what I mean.
You have a nominal payout of $40k. Assuming 3% inflation, the buying power of that $40k will be halved in 24 years. The difference between the initial buying power of the $40k and its subsequent buying power will shrink (at the cumulative rate of inflation) so that the amount that needs to be withdrawn from the portfolio strictly to cover that gap goes from $0 to $20k in nominal dollars after 24 years.
Now let's look at the portfolio. For the portfolio to last 25 years at a 4% fixed withdrawal rate, the portfolio needs 0% real growth (i.e., the portfolio must grow at the rate of inflation), and we're assuming no volatility for the sake of simplification.
If you withdraw more than 4%, such as to fund the gap in your pension payout's every shrinking buying power, you need more than 0% real growth in the portfolio in order for the portfolio to not be depleted before the 25 years are gone. An initially smaller withdrawal rate does not compensate for this; it only slows the 'bleed' because the amount withdrawn from the portfolio will need to grow larger and larger over time, and the amount withdrawn will grow faster than the rate of inflation.
But you don't have to pull more than 4% to fund the gap in your pension payout.
Because the pension pays out more than 4%, you can withdraw LESS than 4% from the rest of the money, and the difference there funds the declining pension gap for the first 15-20 years without requiring any extra growth
Again, look at my numbers.
$5 million, pull 4% which $200k.
OR
$1 million SPIA, pays 5.25% or $52,500, which means you pull $147,500 from the remaining $4 million or 3.7%. The extra 0.3% of $4 million is $12,500 which will cover the shrinking pension benefit for many years.
Or ignore the whole 4 million/1 million thing.
Just look at the pension alone.
If I have $1 million, I can pull 4% or $40,000 a year.
If I get a SPIA paying 5.25%, I get $52,500 a year. But I only need $40,000 a year, so I save the extra $12,500 in my bank account, and the following year, I spend $41,200 (because of 3% inflation), and I save $11,300, and the following year I save $10,000 or so, and so on.
For the first 10 years, I have enough extra income from the SPIA higher payout to pay for inflation. And the next 10 years, I have enough saved up from the first ten years to cover inflation losses from savings.
That's just looking at the pension by itself... If had a $4 million portfolio on the side growing for 20 years, I'm pretty sure you could handle the $20,000 loss in purchasing power by year 20.
"The best tools available to us are shovels, not scalpels. Don't get carried away." - vanBogle59