How much do YOU think YOU need to retire? ...and at what age will you (and spouse) retire? (Part 1)

Parents Forum Parent Cafe
2821

<p>I didn’t realize you could own an SPIA inside an IRA. Huh. Where do I look at these? </p>

<p>@dstark – yes, the “Golden Guarantee” was a lovely investment. I’d taken enough econ by that point to be quite happy to sign up for a 10%, federally insured account that would continue to grow until age 60 – but at the time, it was possible to find one and two year deals at 14-15%, so lots of folks thought I was nuts. I looked at it as equivalent to a really long federal bond. I suspect that mine might well be one of the longest-lived GG accounts out there – not many 23-year-olds were putting money into IRA’s back in the day. Two years later Wells thought better of the whole idea and closed new deposits. DH and I have had a few 401K/investment advisors who’ve told us that such accounts can’t possibly exist. :)</p>

2822

<p>We had a few investments that gave us a guaranteed 9%, but not for nearly as long as you. It was still something we were happy with and slept well at night owning. </p>

2823

<p>Arabrab, I remember when short rates were considerably higher than long rates. </p>

<p>You made the right decision. </p>

2824

<p>Our SPIA is within our IRA - proposed to us by our financial planner, to go with our financial risk assessment/comfort zone on investments and returns.</p>

2825

<p>If an investor owned a stock for 5 years that paid a dividend of 4 percent a year based on the cost of the original investment, after 5 years the investor would have made 20 percent in dividends on his original investment. </p>

<p>If the stock dropped 25 percent at the end of the 5 years from the investor’s original investment, and the investor sold, the investor would have lost 5 percent on his investment. 25 percent loss in capital minus 20 percent dividend gain. Nobody would say the investor made 4 percent a year because he was paid dividends. The investor lost.</p>

<p>If a person pays $100,000 for an annuity and receives $6,000 a year in income, is a person’s return really 6 percent a year? </p>

<p>The Internal rate of return depends on how long you live and the survivor value of the annuity among other things. You dont know your true yield when you buy an annuity because you dont know when you are going to die.</p>

<p>For example, you invest 100,000 in a spia and receive 6,000 a year for 15 years. Then you die. No survivor benefits. </p>

<p>You received $90,000 in payments. You invested $100,000. Your internal rate of return is negative. </p>

<p>Inflation also has a large impact on your returns. A 3 percent inflation rate will cut the value of your $6,000 every year and 24 years later… … Your $6,000 will buy the equivalent of $3,000 in goods and services.</p>

<p>So yes… You dont run out of income when you are alive but the income is worth less every year.</p>

<p>Generally, Annuites are for people that dont care about leaving their money to heirs, are going to live awhile, and they need the income. </p>

<p>Otherwise, annuities are a crummy product.</p>

<p>The irrs in the examples in the link are very interesting.</p>

<p><a href=“https://personal.vanguard.com/pdf/s284.pdf”>https://personal.vanguard.com/pdf/s284.pdf&lt;/a&gt;&lt;/p&gt;

2826

<p>The other thing with purchasing a SPIA or similar product is that by definition, you lose flexibility you have with a large lump sum by buying the stream of income, but you do get a stream of income, which helps some sleep better at night. </p>

2827

<p>I like this link. Shows irrs.</p>

<p><a href=“Why New QLAC Rules Don’t Mean Much For Retirement Income… Yet?”>http://www.kitces.com/blog/why-the-new-qualifying-longevity-annuity-contract-qlac-rmd-regulations-for-dont-mean-much-for-retirement-income-yet/&lt;/a&gt;&lt;/p&gt;

2828

<p>

I’ve also been a huge fan of I-bonds since they were introduced, but was caught off-guard in 2009 when the inflation rate factor was calculated at around negative 3%; resulting in zero yield for 6 months. So even though they are assigned a “fixed” rate every six months you’re not guaranteed to receive that in a bad economy.</p>

<p>Just jumping in here so perhaps this has been discussed, but I know a few retirees who have done well supplementing their income with charitable annuities purchased with appreciated stock. They got the deductions for charitable contributions in their high earning years and now have a steady stream of income with the peace of mind knowing they supported a worthy cause. </p>

2829

<p>^Interesting. How does that work? Is it almost like an SPIA?</p>

2830

<p>It’s LIKE a SPIA but the charity pockets the difference in what you paid and what you receive and you get a charitable deduction and don’t have to pay capitol gains on the appreciated asset, I believe. </p>

2831

<p>^^No, the return will not be as good as a commercial annuity since the primary purpose is charitable. Based on life expectancy, the charity calculates payout to maintain about 50% of the initial donation. However as with any annuity, some people get lucky and outlive their actuarial forecast. Not sure how the formula works for most SPIA’s. More info:
<a href=“Charitable gift annuity - Bogleheads”>http://www.bogleheads.org/wiki/Gift_Annuity&lt;/a&gt;&lt;/p&gt;

2832

<p>Great link, momsquad. Thank you!</p>

2833

<p>This thread actually motivated me to look at my stock/bond mix (outside of college funds) and as expected, I’m way too heavy with equities - over 80%. Assuming we don’t need the money in the next few years, does the “best practices” approach to rebalancing suggest that this should be done in tax sheltered accounts, both types, or in the non-tax sheltered? Our tax rates are probably about 10% higher now than in 10 years, and I’m leaning towards tax-sheltered, but don’t know if that makes sense. I don’t hold any bonds now outside of target date funds now. I haven’t decided whether I should focus primarily on short-term or short/intermediate, and whether I should look only at treasuries or corporate too.</p>

2834

<p>I would do in the tax-sheltered because I don’t like paying tax. It’s called a tax avoidance personality. Who knows whether it will be higher when I retire but I’m hoping it will not be.</p>

2835

<p>@Dad<em>of</em>3‌ , the importance of location (I.e., taxable or tax-advantaged) is probably not as much of an issue now as when bonds returned higher yields. In general, though, tax-advantaged accounts defer or eliminate tax consequences of “old money” rebalancing (rebalancing with new money never has a tax consequence at the time). </p>

<p>Anyway, a lot depends on your particular situation, so I recommend reading a bit at the Bogleheads wiki, or for that matter, starting a thread at the Personal Investing forum there addressing your personal situation. There are threads over there about college, just as there are threads here about personal finance, but in each location IMO you do get a wider and more knowledgable audience when you discuss each site’s “strong suit.”</p>

2836

<p>@Dad<em>of</em>3‌ , on the “what kind if bonds” issue, I’m a big fan of Total Bond Market which

</p>

2837

<p>@dad<em>of</em>3 I had a hard time getting the right risk diversity of funds - we also were too heavily in equities. Then we found our investment advisor, who was able to get us into some funds (only open through agent) and hand-picked annuities that get us acceptable returns and reduces the volatility/risk. Our investment guy educates us on our choices and also utilizes the advantages with the tax situation. The way we found him? We took a two part class he offered at our local college - he understands and can communicate well. He has the right credentials. We anticipate our returns will more than pay the investment fee.</p>

<p>There is a network of “Ed Slott Master Elite IRA Advisor Group” - our advisor is part of this network, so he is continually keeping up with changes that can affect us. Also member of National Ethics Assoc.</p>

<p>Check about advisor license with FINRA Broker Check Hotline 800 289 9999 <a href=“http://www.finra.org”>www.finra.org</a> </p>

<p>Our financial advisor has a lot of clients, and is continually analyzing risk/return and looking at portfolios and returns. We have a lot of confidence in him, and also meet with him and discuss what we learn on our own to see how we might fine tune our portfolio.</p>

2838

<p>How does everyone’s retirement income/expense plan shake out? I am lucky enough to have a pension and qualify for social security. I might (should) get lucky enough to stay in NJ and purchase a less expensive home with lower taxes. That would reduce my largest monthly expense. If my health stays good I want to work part time or start a low risk business- just enough to keep busy and generate about $500 or so a month. It would need to be flexible so it would either be substitute teaching or merchandising as an employee. I have done both in the past always found these jobs to give me the flexibility I wanted. If I started a business it would be doing tax or bookkeeping work so no real upfront cost.</p>

2839

<p>We have SS but no pension. We have a 401K that accumulated nicely. Our big question is to convert it to roth or not.</p>

2840

<p>We continue to convert what $$ we have in IRA to Roth. If I can secure a job, will be regular Roth contributors, and using cash flow to fix up home and deepen our emergency fund. We also have no pension due to sale of H’s company. I plan to live a long time and the tax advantage would pay off with shifting money into Roth.</p>