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I love that! And that's exactly how I want my retirement to be as well!
It's clear that there are two camps when it comes to annuities. Like you, I am single with no heirs, and financial security is so much more important to me than trying to make as much money as I possibly can. I thought about annuities long before coming to C-D, but I listened to all the detractors and never pulled the trigger. Then the pandemic hit and I lost 20% of my hard-earned investments in what seemed like the blink of an eye, and I thought about the security and peace of mind Elnrgby posted about when discussing her annuity strategy, and I knew what was right *for me*. I bought an annuity with a 4%annual increase that, together with my projected social security payment (delayed to age 70) will cover all of my monthly expenses, including non-essentials such as gifts, a cleaning person, and travel/entertainment. I can't begin to explain the feeling of having the weight of uncertainty falling off my shoulders.
I'm still working and maxing out contributions to my 401k, Roth IRA and HSA, but having that annuity has allowed me to invest for growth without fear. It may not be for everyone, but it is hands-down the best thing for me (I think that would seriously hurt my quality of life :-).
I thank Elnrgby for sharing and explaining her strategy and her reasons for it. She opened my eyes to an alternative that has allowed me to look forward to my future retirement without fearing another major market downturn. One can debate all they want about money left on the table, but the fact remains that no amount of potential future gains in the stock market is worth the stress it brought to me.
Glad you had some use of my experience :-). And sorry for the stress that market brought you before that - as I mentioned, I watched the first recent market crash with extreme happiness (because it allowed Roth conversion of my modest SEP-IRA at the time when the account cratered, so I paid much less tax on the conversion then had I converted it at its peak value), and I watched the second market crash casually, since nothing changed about my monthly income from annuities, and I have only a minor amount of $ in the market (ie, in a blue chip growth fund, which is in Roth, and carries a higher risk of a growth fund), which minor amount COULD grow, particulay if something big happens with AI technology in the upcoming years), but on the other hand, I don't actually need those market funds ever - otherwise I would not invested them in the first place, as is obvious from the way I think about life :-). Incidentally, I don't intend to do anything about my growth fund (except maybe withdraw from it when I am over 100 or so) - it is professionally managed, I am sure the manager knows how to manage stocks better than I do, and I am not going to do anything with it, no rebalancing or watching the balance or whatever (I think that would seriously hurt my quality of life :-).
15k a years over the years in Ibonds may provide as much security as an annuity. A consideration.
You can buy only $10k iBonds per year (btw, I have those but not a big amount). Not sure how $10k in iBonds would pay for one year of expenses 15 years later. Maybe if I moved to Thailand.
So with my deferred fixed income annuity with a 4% annual increase, I will have received my entire principle amount between the 10th and 11th years. By the 20th year, I will have been paid just over 2.25 times my principle, and by the 25th year, my total received payments will add up to more than 3.25 times my principle. For the peace of mind it brings me not to have to worry about a serious market crash in my golden years, I'm happy with that.
No one but me was in my skin when I lost 20% of my investments this close to retirement. No one but me felt the stress it caused me. So no one but me knows what's right for me.
You can buy only $10k iBonds per year (btw, I have those but not a big amount). Not sure how $10k in iBonds would pay for one year of expenses 15 years later. Maybe if I moved to Thailand.
10k from Treasury Direct and another 5k in a paper bond through a tax refund (overpay estimated tax in January and get the refund a few months later in a 5k bond).
Bonds bought in Jan 2000 are worth over 41k today for every 10k bought.
And that is through years of very low inflation.
Location: Was Midvalley Oregon; Now Eastside Seattle area
13,072 posts, read 7,508,849 times
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Quote:
Originally Posted by mathjak107
i did want to mention that the grand pappy of the safe withdrawal rate , bill bengan actually found 4% to be adequate to clear the worst of times . but since he did this in 1994 it didn’t include 1965 and 1966 since they didn’t show yet in the 30 year cycle . he started calculating from 1926 because he wanted the retiree to get caught in the great depression.
the trinity study was a done a few years later and included the absolutely worst time frames 1966 and 1965 so it actually took a bit less , 3.6% to safely get through . although the types of bond holdings were a bit different used in bengans work vs the trinity so that too accounted for a bit of the difference
the trinity was then stress tested at all different allocations with a 90% success rate considered safe . they too started in 1926.
minimum equity levels to sustain 90% were 35- 40% equities needed .
using fixed income alone was very risky at 4% , as 65% of all the actual time frames went broke before 30 years as it had a mere 35% success rate
firecalc took the trinity a step further and uses the shiller data set which goes back to 1871 , so it captures the 1907 crash and burn
Our GLWB annuities have a forever draw rate of 5.0-6.5% of maximum annuity account value (AAV). The weighted average is a little over 6% and mostly age independent at time of initialization (our GWLB fixed-index, has a condition of 5years holding + age 70 for the 6.5% draw rate). A couple of GWLB variable annuities have a maximum draw rate of 8.0% of (AAV) (drawing only RMD age 73-76) and a 3.0% protected value if the account cash value drops to $0, where upon, the annuity co. will be paying from their coffers.
Last edited by leastprime; 01-09-2024 at 11:18 AM..
10k from Treasury Direct and another 5k in a paper bond through a tax refund (overpay estimated tax in January and get the refund a few months later in a 5k bond).
Bonds bought in Jan 2000 are worth over 41k today for every 10k bought.
And that is through years of very low inflation.
Jan 2000 was not 15 years ago, but 24 years ago. If you did what you described, 24 years later it would provide you with $41k for 10 years. If you paid 10x 10k outright at that time for a delayed annuity premium, 24 years later you would get $41k per year for the rest of your life. I had a relative who lived 27 years past her 80th birthday, and I think she would have preferred the latter.
And the interest on iBonds varies, without guarantee that it will be in the next 24 years what it was in the past 24 years. Next 24 years, it could be like Japan for all I know. Though Japan has had some recent huge annual inflation spikes of, what?, about 2.8% :-).
Location: Was Midvalley Oregon; Now Eastside Seattle area
13,072 posts, read 7,508,849 times
Reputation: 9798
Quote:
Originally Posted by mathjak107
i did want to mention that the grand pappy of the safe withdrawal rate , bill bengan actually found 4% to be adequate to clear the worst of times . but since he did this in 1994 it didn’t include 1965 and 1966 since they didn’t show yet in the 30 year cycle . he started calculating from 1926 because he wanted the retiree to get caught in the great depression.
the trinity study was a done a few years later and included the absolutely worst time frames 1966 and 1965 so it actually took a bit less , 3.6% to safely get through . although the types of bond holdings were a bit different used in bengans work vs the trinity so that too accounted for a bit of the difference
the trinity was then stress tested at all different allocations with a 90% success rate considered safe . they too started in 1926.
minimum equity levels to sustain 90% were 35- 40% equities needed .
using fixed income alone was very risky at 4% , as 65% of all the actual time frames went broke before 30 years as it had a mere 35% success rate
firecalc took the trinity a step further and uses the shiller data set which goes back to 1871 , so it captures the 1907 crash and burn
I will guess that most of retirees of adequate means, have the bulk of the their assets in IRA's and RE.
Looking at just IRA and other qualified accounts, the RMD at age 74 is 3.93% (2022 tables, my RMD age).
Last edited by leastprime; 01-09-2024 at 12:04 PM..
I will guess that most of retirees of adequate means, have the bulk of the their assets in IRA's and RE.
Looking at just IRA and other qualified accounts, the RMD at age 74 is 4.1% (my RMD age).
Those studies are usually based on 30 years and age 65. RMDs at 74 probably allow for a higher safe withdrawal percentage. I don’t think of them as exact sciences as the past is not a certain indicator of the further but it has some merit.
yes , people forget that original 4% is first year only . after that it increases by each years inflation so calculated off the original 4% the draw is actually higher.
but remember rmds are not 4.1% based on 4% of the first years balance either ,they are based on the current years balance so big difference and exactly why rmds are never used as a safe withdrawal rate.
the amount of the rmd is all over the map while the whole safe withdrawal rate thing is based on having a PENSIONIZED income one can count on in good and bad times that gets adjusted by the rate of inflation for constant purchasing power.
there are other methods of creating a safe withdrawal, i use bob clyatts 95/5 which uses each years balance
Last edited by mathjak107; 01-09-2024 at 12:26 PM..
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