|
Posted by on April 28, 2009, 5:06 am
My broker pitched an fixed immediate income annuity to me in our last
sit-down. (BTW, there are no fees on the sale. The management fees
are factored into the quoted payout.)
I have many questions, which I will discuss with her when she returnes
from vacation.
In the meantime, I would appreciate a reality-check on my thinking, if
that is possible without discussing too many personal details.
She structured an FIIA with a lifetime payout of about $591/year per
$10,000 invested and a guaranteed period of 17 years, based on an
investment of 10% of my liquid assets (i.e. excluding my home).
At first, the 5.9% "return" sounded good as a guaranteed "return on
investment" over the next 17 years. That is more than the expected
average return for my asset model over the next 20 years.
Then I realized that was only returning the principal during the
guaranteed period. If I died within 17 years, the investment would
have gained 0%.
After the first 17 years, the time-valued return increases over time.
It would be an average return of 4.6% over 34 years, my life
expectancy. That is less than the expected average return for my
asset model over the next 20 years.
Based on that, I would conclude that the FIIA is not a good investment
for me at this time.
But of course, the potential benefit of the FIIA is the guaranteed
lifetime income after 17 years. There is no guarantee that my asset
model will meet expectations; and even it did, there is some non-zero
probability of wide swings in income and losses in any given year.
I am retired, and my only income is from savings and investments now,
and eventually also Soc Sec. Simulations suggest that with my current
spending, adjusted for inflation, my resources should last well past
my life expectancy without the FIIA, based on very conservative
assumptions.
But there are no guarantees in life, and in simulations in
particular. The FIIA would reduce my annual spending, thereby leaving
more funds to work for me.
On the flipside, I am taking 10% away from those funds up-front. And
with the FIIA, the simulations suggest only a small gain in my estate
at the end of my life expectancy.
Moreover, the decision to invest 10% of my assets in a FIIA is
irreversible. I tend to avoid long-term commitments because they are
inflexible.
So, in conclusion, am I right to think that a FIIA is not the right
investment for me at this time? Or am overlooking something or
looking at this option incorrectly?
PS: I tend to be a conservative investor. I was more moderate
before; but after 2008, I downgraded my risk tolerance ;-).
|
|
Posted by Rubaiyat of Omar Bradley on April 28, 2009, 3:31 pm
According to http://www.immediateannuities.com , at age 55, a 20 year
payout annuity yeilding that monthly income amount should cost about
$88,872. Your quoted $10,000 amount sounds too good to be true.
|
|
Posted by Elizabeth Richardson on April 28, 2009, 4:57 pm
> According to http://www.immediateannuities.com , at age 55, a 20 year
> payout annuity yeilding that monthly income amount should cost about
> $88,872. Your quoted $10,000 amount sounds too good to be true.
The $591 was an annual payout per $10k, not monthly. Using the link above,
it actually sounds a bit expensive, for a 55 year old male, but the OP may
be closer to 60, so that it is right in line.
Elizabeth Richardson
|
|
Posted by ps56k on April 28, 2009, 6:00 pm
>
>> According to http://www.immediateannuities.com , at age 55, a 20 year
>> payout annuity yeilding that monthly income amount should cost about
>> $88,872. Your quoted $10,000 amount sounds too good to be true.
>
>
> The $591 was an annual payout per $10k, not monthly. Using the link above,
> it actually sounds a bit expensive, for a 55 year old male, but the OP may
> be closer to 60, so that it is right in line.
>
> Elizabeth Richardson
>
tnx for the topic - and link -
http://www.immediateannuities.com/newspaper.htm
I friend recently acquired a variable annuity,
and I've been reading up on annuities,
along with tax-free mutual funds for our taxable account.
I've been doing some CD laddering just to keep my hands
off the cash and away from my brokerage & mutual fund accounts.
|
|
Posted by rick++ on April 29, 2009, 6:18 pm
Maybe its a "1/3 solution", especially for the risk-adverse.
1/3 in guaranteed fixed income - the minimum you could survive on
1/3 in investment income, assuming historical returns - gives you
comfortable life
1/3 cushion, in case there are market crashes, tax changes etc.
|
| Similar Threads | Posted | | Dollar weighted Sharpe ratio - make sense? | December 28, 2006, 1:56 pm |
| Sanity Check: Do my assumptions about retirement planning make sense | June 22, 2007, 5:05 am |
| UGMA / UTMA to 529 Plan Strategy - Legal? Make Sense? | October 25, 2007, 1:09 pm |
| Mutual of America Fixed Annuity | April 13, 2007, 4:14 pm |
| credit risk of a fixed annuity | September 15, 2008, 2:21 pm |
| Covered Call Strategy... makes sense? | August 25, 2008, 5:05 am |
| Re: Making sense of paying of CC debt with a 401k (like) distribution | February 29, 2008, 12:34 pm |
| Re: Making sense of paying of CC debt with a 401k (like) distribution | February 29, 2008, 4:07 pm |
| Re: Making sense of paying of CC debt with a 401k (like) distribution | March 1, 2008, 1:01 pm |
| Re: Making sense of paying of CC debt with a 401k (like) distribution | March 1, 2008, 1:01 pm |
|
|
Yahoo! 
Google 
Windows Live 
del.icio.us 
digg 
Netscape 
XML Sitemap