On Oct 25, 10:38 pm, BreadWithS...[at]fractious.net wrote:
- quote -

Depending on the family, it may be reasonable to include children as a
resource at a very old age. My 70yo parents can live on their own, but
if my mom/dad lives to say 85 and my dad/mom has died by then, I
expect the survivor to live with me. I don't think an old person
should live alone. Besides the obvious problem of loneliness and not
being able to take care of oneself, such a person becomes an easy
target for scams. If my elderly parents live with me, a lot of their
expenses -- food, shelter, transportation -- will be borne by me.

The possibility of the children helping their elderly parents depends
on the characters of the children but also on how helpful the parents
have been to their adult children. I remember reading a WSJ article
about retired grandparents too busy pursuing their own interests to
ever babysit their grandchildren. That attitude may cost them 10 or 20
years later.

On Oct 25, 9:38 pm, BreadWithS...[at]fractious.net wrote:
- quote -

It would be an immediate annuity with an equity component, which is
different from the usual immediate annuity.

Dave

Dave Dodson <dave_and_darla[at]Juno.com> writes:

- quote -

Serious bummer if you live longer than you plan for, though.

Which is exactly why there are annuities...

I haven't yet figured out exactly who those funds are for.

Unless folks have substantial enough wealth that they can take
distributions fairly conservatively, the downsides of outliving
their wealth are *huge*. In the generations where more folks
had pensions, the pensions protected them from that risk. Folks
who are taking charge of their own retirement payouts need to
manage planning for the chance that they live long lives.

Back to the original article, those deferred "longevity" annuities
in conjunction with one of those fidelity Income replacement funds
might just do the trick. Of course, if you add those two pieces
together, all you've done is reconstruct an immediate annuity for
the most part.


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On Oct 24, 9:55 am, Beliavsky <beliav...[at]aol.com> wrote:
- quote -

Fidelity Investments has introduced a new series of mutual funds to do
exactly that. More specifically, the Fidelity Income Replacement Funds
come maturities in the even-numbered-years from 2016 to 2036, and are
designed to distribute approximately inflation-adjusted monthly
payments until the maturity year. See fidelity.com for more details.

Vanguard has such a product in the works, and is expected to announce
it before year's end.

Dave

Elizabeth Richardson wrote:

- quote -

Elizabeth, we may have to agree to disagree. Saving is easy (presuming
that one is above a minimum threshold of income), though obviously many,
many people neglect it. But making your nest egg last through volatile
times without drastically reducing your lifestyle, that seems more
difficult (in the sense that success requires more knowledge, or better
advice, than saving does). I don't think picking a single income fund
would suffice for this purpose (though I don't think you meant the last
sentence above literally).

-Will

Okay, I finally broke down and skimmed the paper. I also have access
to the Metlife product brochures and advisor data sheets on the
"longevity annuities", which I read. To be honest, I have never heard
of these vehicles until now.

They are essentially a deferred fixed annuity that becomes an
immediate annuity at some future date. Metlife actually lists them as
"flexible premium deferred paid-up annuities with a longevity income
guarantee rider" (whew!). The Longevity annuity has structured payout
options for both single and joint annuities. A "period certain" option
can also be included but it's not without cost. Earliest income
withdrawal age is the later of age 50 or 2 years after contract
issuance.

On the surface, the numbers don't look so splendid. According to
MetLife, a 45 year old can make a lump sum payment of $50k today, and
at age 65 begin taking a guaranteed annual income of $11,446. Given an
average life expactancy of age 85, that's about a 5.55% average annual
growth. Not bad (it's in the "risk free" range) but I'm personally
looking for higher returns (especially in my 40's and 50's). Even if
you were one of the very lucky few that made it to age 100, you eeked
out barely more than a 6% average annual return.

Using the same assupmtions above, MetLife claims they payout $93,733
annually if the investors waits to age 85 to begin their income
stream. Again, for the lucky ones that reach 100, this represents
roughly a 7.55% return. MetLife offers an interest premium because
mortality tables suggest 50% or more of the population won't live long
enough to ever get a dime. They can afford to pay the survivors a
little extra, because they are paying them with the deceased income.

All-in-all, if one is overly concerned about longevity risk (suppose
their entire family has lived into their 90s) then this might not be
so bad an option. For the masses, however, it's no golden goose.

"Will Trice" <wwtrice[at]paragondynamics.com> wrote in message
news:4720B1EA.80106[at]paragondynamics.com...

- quote -

Will, the paper that originated this thread was pointed to the "difficult
problem of turning a pool of assets into a stream of retirement income." It
seems to me the hard part is accumulating those assets in the first place.
Many people have a hard time figuring out how to live below their means.
Once one gets over that hump, finding an income fund to pay out an income
stream seems a fairly simple task.

Elizabeth Richardson

Elizabeth Richardson wrote:
- quote -

So it sounds like your investment landscape (including your husband's
pension) is fairly complicated, particularly if you consider the
possibilty of market downturns. This is not a criticism of your
investments, I'm just pointing out that what you have done would not
necessarily be considered "easy" by most retirees. You have taken the
time to educate yourself and prepare your portfolio, but you should give
yourself some credit, I wouldn't call that easy.

-Will

On Oct 24, 11:12 pm, BreadWithS...[at]fractious.net wrote:

- quote -

That was not my understanding of longevity annuties. With a variable
deferred annuity (DA), one invests in accounts similar to mutual funds
that grow tax-deferred, after insurance costs are subtracted. You can,
after age 59 1/2, withdraw funds from the DA without a tax penalty, or
you can convert the DA to an immediate annuity -- "annuitize" it. I've
read that few people annuitize their DA's. I think the longevity
annuity is structured so that upon purchasing it, you *surrender* the
current principal in return for periodic payments starting at a later
date.

wyu[at]talisys.com writes:
- quote -

Actually, you were just off by a decimal place. 6%/yr on 100k
up-front is $6k/yr == $500/mo (not $5k/mo).

But the point remains - it's just a deferred annuity rather than
an immediate one.

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"Elizabeth Richardson" <erichktn[at]worldnet.att.net> wrote in message
news:ivRTi.269998$ax1.29373[at]bgtnsc05-news.ops.worldnet.att.net...

and then the
- quote -

Sorry, if the implication is that I anticipate this kind of return in the
future. I absolutely do not, and, in fact, project future returns at
somewhere around 7%. I posted this to show the difference in returns of the
two pots of money.

Elizabeth Richardson

"Will Trice" <wwtrice[at]paragondynamics.com> wrote in message
news:471FD3F5.4060200[at]paragondynamics.com...
- quote -

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

Elizabeth Richardson wrote:
- quote -

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

On Oct 24, 11:58 am, rick++ <rick...[at]hotmail.com> wrote:
- quote -

I just made up some random numbers to compare the underlying ideas
between SPIA and longevity annuities.

- quote -

Most income products I've seen are closer to 6% a year rather the 60%
return
you describe.

<BreadWithSpam[at]fractious.net> wrote in message
news:yob3aw032et.fsf[at]panix2.panix.com...
- quote -

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

On Oct 24, 9:26 am, BreadWithS...[at]fractious.net wrote:
- quote -

There's a pretty comprehensive discussion about this at Diehards. The
issue is mostly psychological. People just aren't willing to convert
enough assets into an SPIA. They cling to the thought of leaving money
to heirs even though the numbers say they'll blow through it all
anyways. What a longevity annuity basically comes out to is buying an
SPIA that doesn't start immediately but sometime in the future.

So instead of waiting until you retire to convert 100K of assets into
a 5K/mo income stream, you give the insurance company 10K now and when
you retire, you get 5K/mo. You could do the same by taking the 10K,
investing it and then converting the 10K+growth into an SPIA later.
But of course, many people suck at saving & investing so I can see
some market for it.

"Elizabeth Richardson" <erichktn[at]worldnet.att.net> writes:

[from Scott's paper at http://ssrn.com/abstract=992423]:
- quote -

The paper doesn't actually explain in particular what's
difficult about it, but the number of times we discuss
it here is a pretty strong indication.

It *is* a difficult problem - if parameters include things
like maximizing current living benefits while insuring
that one doesn't outlive one's money.

The "no-brainer" solution, of course, is an immediate
annuity. It has some downsides (plenty of them, actually)
but for folks who need a guarantee, it's just about the
only one out there.

The paper goes on to indicate that, apparently, in '65
some other paper "proved" (don't ask me) that folks
should simply buy immediate annuities with 100% of
their nest egg. Not *that* seems absurd to me - and
apparently it's not as obvious as all that - apparently
only a fraction of folks annuitize at all, and of them
very few annuitize more than a fraction of their money.

There are lots of other solutions - for example,
annuitize enough to pay you the absolute minimum you need
to get by and invest the rest a bit more aggresively
than you would be able to without that guarantee.

That all said, I don't see how this "longevity annuity"
is much different from any other deferred annuity during
said annuity's accumulation phase.

FWIW, there's a pretty good article on Paul Merriman's
site, FundAdvice.com, about various payout strategies
for a portfolio. It's called "Retirement: When your
portfolio starts paying you" and it's also a chapter
in this guy's book. He talks about a variety of
payout strategies from the "fixed + inflation" to
the "flexible - a percentage of the remaining portfolio"
with a few bits between - with some interesting tables
showing what happens with those strategies applied to
some historical return patterns. Very interesting.
(of course, he uses his "ultimate" portfolio of DFA
funds to come up with that stuff, and history is not
the same as future, etc. etc. But very interesting
nonetheless).

I'm surprised at how little folks talk about that
"flexible" payout plan as compared to how often folks
simply talk about fixing a percentage at the beginning
and then bumping that quantity. It seems pretty clear
to me that one ought to spend less when one (or one's
portfolio) is earning less, but the fixed plan never
adjusts for that.

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.

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"Beliavsky" <beliavsky[at]aol.com> wrote in message
news:1193237719.904474.262170[at]v23g2000prn.googlegroups.com...
- quote -


Why would someone have a "difficult problem" of turning this pool of assets
into a stream of retirement income?

Elizabeth Richardson

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.c...ract_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.