Annutities............anybody have this setup with their retirement portfolio?

[Dr.Destructo]

It's a loss for whoever buys the annuity in the long run, they would not offer them if they were not profitable.

It does provide certainty, you have guaranteed money every month for the rest of your life, if you somehow outlive your earnings, you come out ahead, do you think who writes your policy will allow terms like this?

Highly unlikely. You pay for the convenience of not having stress on how your portfolio is performing, while getting smaller returns. I'm not forfeiting my future earnings for this convenience, but that's just me.

For some people, this arrangement is worth the loss of future earnings, knowing they have a guaranteed amount of money until they die.

Well, for a poor person, this sounds like a savior.

But, in my life, I've lived by the old addage...........If it sounds too good to be true, it is.

 

[Toddsterpatriot]

Well, for a poor person, this sounds like a savior.

Why?

Post the amount you'd invest and the monthly amount you'd receive.

 

[Dr.Destructo]

Why?

Post the amount you'd invest and the monthly amount you'd receive.

I don't know any of that.

I'm trying to do research on what it is exactly and how it works before I start doing any math.

 

[WorldWatcher]

Well, for a poor person, this sounds like a savior.

But, in my life, I've lived by the old addage...........If it sounds too good to be true, it is.

I like to think of people and retirement plans as falling into 3 major "Silos" as it pertains to tax deferred retirement accounts (401K, 403B, etc.)

In Silo #1 you have the "Cash Out" crowd. They want their money now, or in as short a span of time as possible. They want to get money out of retirement accounts and cash out. Maybe they have a terminal illness, maybe they want to cash out and move to a different country, maybe they want to take it to Vegas. Who knows.

In Silo #2 you have the anuity crowd. People with funds that don't want to risk retirement income and are looking for the "safe" option.

In Silo #3 you have the "let it ride" crowd. Those with retirement accounts that feel secure in keeping the money in investment accounts. Maybe they have significant accounts or maybe they have other forms of income in retirement and feel comfortable with the higher risk associated with investments.
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So for the Anuity Crowd, image if you will that you take the amount of cash you want to invest in an anuity and you stuff it in a sports bag. Hopefully it's a large bag. IMHO, if you are going to look at an anuity, you really want to pick the right anuity company. Someone that has been around for a long time, has sufficent reserves, has a history of honoring the contract. IIRC big players include Charles Schwab, Morgan Stanley, TIAA/CREF, Voya, etc.

So the basics are that you push the bag of cash over to the company and they money becomes theirs, you have no claim to it anymore outside the anuity contract. How much you would get depends on various factors including how much is invested, your age, and your sex (which gives them an indication of how long you are expected to live). That and the options you select all determine the monthly amount. In general what are the options:

• Guarentee Period (GP) - This is a period of time that the company will guarentee payments. If you pass prior to the expiration of the Guarentee Period, the company will continue to pay the anuity (up to the end of the GP) to a beneficiary. The for longer GP's the monthly amount may be reduced. 10 years is probably the norm, but you can opt for longer.
• Cost of Living Increases - You receive a smaller montly amount early, but over time increases occur usually based on some defined metric (such as the Consumer Price Index). If you expect to live only a few years, this wouldn't be a good option. However if you are in good health and expect to be around 10, 15, 20, 30 years this can be a good option.
• Survivor Benefit - With this option you designate a "survivor" when you pass your anuity passes to them for the rest of their lives. That means their age and sex also become part of the equation as well as the percentage of the anuity they will receive.

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In general anutities can be very useful for those that will be risk averse in retirement. They want to know what their income will be for budget and planning purposes. But as an individual return on investment the income will tend to be lower. Silo #3 has higher risks, but also the probabiliy of higher returns. Not saying one is better than the other and I'm assuming there are people that mix both.

The decision really goes toward what is your personal situation and risk tolerance level.

DISCLAIMER: I'm not a financial advisor, but I'm retiring this year. My wife and I will have 6 non-tax deferred revenue streams (non of which is large but combined we will be able to maintain our standard of living). That means we can opt for Silo #3 in the near term. Maybe moving eventually to Silo #1 if it looks like we will be able to pass it down to the kids.

WW

 

[WorldWatcher]

I don't know any of that.

I'm trying to do research on what it is exactly and how it works before I start doing any math.

I very simplest terms.

An anuty is purchasing a pension.

WW