|
Posted by Beliavsky on October 24, 2007, 10:55 am
A new paper says that a retiree can increase her sustainable spending
rate if she purchases a "longevity annuity" -- a contract that make
periodic payments starting at some point in the *future* -- with a
small portion of her portfolio. The longevity annuity is compared with
the more common "immediate annuity". At least two insurance companies,
MetLife and Hartford, sell longevity annuities. I don't work for
either.
http://papers.ssrn.com/sol3/papers.cfm?abstract_id=992423
Jason S. Scott
Financial Engines, Inc.
June 2007
Abstract
As of 2005, individuals had an estimated $7.4 trillion invested in
IRAs and employersponsored
retirement accounts. Given these investments, many retirees will face
the
difficult problem of turning a pool of assets into a stream of
retirement income.
Purchasing an immediate annuity is a common recommendation for
retirees looking to
maximize retirement spending. However, the vast majority of retirees
are unwilling to
annuitize all of their assets. This paper demonstrates that a new type
of annuity, a
longevity annuity, is optimal for retirees unwilling to fully
annuitize. For a typical
retiree, allocating 10%-15% of wealth to a longevity annuity creates
spending benefits
comparable to an immediate annuity allocation of 60% or more.
|
|
Posted by Elizabeth Richardson on October 24, 2007, 11:56 am
>
>Given these investments, many retirees will face
> the
> difficult problem of turning a pool of assets into a stream of
> retirement income.
Why would someone have a "difficult problem" of turning this pool of assets
into a stream of retirement income?
Elizabeth Richardson
|
|
Posted by Elizabeth Richardson on October 24, 2007, 2:34 pm
>
> Anyway, it doesn't seem like they need much evidence
> to toss the term "difficult problem" at this. It
> doesn't seem that simple to me.
>
Well, it doesn't seem that difficult to me, and I'm retired. I planned
ahead, you see. I knew what my expenses would be, how much I need to cover
them, and calculated how much money I'd need to generate that level of
income. I guess if you don't do that planning, it might, indeed, be a
"difficult" problem.
I thought maybe the problem is the IRA and deferred compensation companies
not having the mechanisms in place to deal with these cash outflows. And,
frankly, this may be the one area where I still have some uncertainty. The
company where my husband has his 457 money has lots of articles about
saving, but not one on about when it comes time to start taking
distributions.
One of the provisions of the 2001 EGTTRA put flexibility into 457
distributions, where before there had been absolute rigidity. I need to
investigate how this company has adapted to these regs, or decide how much
to rollover to an IRA.
Elizabeth Richardson
|
|
Posted by Will Trice on October 24, 2007, 7:24 pm
Elizabeth Richardson wrote:
>
>>Anyway, it doesn't seem like they need much evidence
>>to toss the term "difficult problem" at this. It
>>doesn't seem that simple to me.
>>
>
>
> Well, it doesn't seem that difficult to me, and I'm retired.
If you don't mind, let us know how your retirement funds are invested
and how you generate income. I take it that you do not use an annuity?
-Will
|
|
Posted by Elizabeth Richardson on October 24, 2007, 8:33 pm
>
> > Well, it doesn't seem that difficult to me, and I'm retired.
>
> If you don't mind, let us know how your retirement funds are invested
> and how you generate income. I take it that you do not use an annuity?
>
The money I'm using for current income - 3-4 years worth - I have in a
Traditional IRA in Vanguard's LifeStrategy Income Fund. The longer term
money is invested variously. A good chunk is in Vanguard's LifeStrategy
Growth Fund, but the 457 money, which we will tap next, has about 20% in a
long-term bond fund, about 35% in TR Prices Equity Income Fund, and then the
rest is in mid-cap, small-cap and international funds. These aren't
necessarily the best funds, but I compared our return on this money to the
Vanguard LS Growth 6/30/2006 - 6/30/2007: Vanguard returned 20% over this
period, while the 457 was 19.5%.
I need to keep money in the 457 because we will probably want some of this
money before my husband is 59.5. I need to do some figuring about this. I
think I will rollover a portion into a Traditional IRA at Vanguard. But
Will, it isn't just _how_ the money is invested, but that there _is_ money
invested. From earlier posts, you may know that my husband receives a
pension. This makes it easier for us, so in that respect, maybe we should
think of this as an annuity for a portion of our income (though I never
have). Still, it isn't enough for us to live on, so our living below our
means for many years means we can live without working now. Social Security
will also kick in eventually.
Elizabeth Richardson
|
| Similar Threads | Posted | | Annuities | August 10, 2007, 8:14 am |
| Variable Annuities | October 12, 2006, 5:01 am |
| annuities question(s) | October 24, 2006, 8:33 am |
| in-plan annuities | September 1, 2007, 5:28 pm |
| Variable annuities not so bad? | October 22, 2008, 8:14 pm |
| Re: Annuities...are they a crap shoot? | March 28, 2008, 3:27 pm |
| Re: Annuities...are they a crap shoot? | March 28, 2008, 4:40 pm |
| Re: Annuities...are they a crap shoot? | March 28, 2008, 6:10 pm |
| Re: Annuities...are they a crap shoot? | March 30, 2008, 1:29 am |
| Re: Annuities...are they a crap shoot? | March 29, 2008, 4:15 pm |
|
|
Yahoo! 
Google 
Windows Live 
del.icio.us 
digg 
Netscape 
XML Sitemap