How to Enjoy Retirement Without Going Broke

[RetireJapan]

RetireJapan -> No payout is "guarenteed" , the investing company is taking risk, that will be passed on to you. Yes, high degrees of fixed income investment can cut the risk, but the fees would eat away any return. This is not a free lunch.

Absent the insurance company going bust (unlikely -they have reinsurance and in some countries annuities/insurance policies are also backed by industry bodies or the government) there is no risk to be passed on to the customer in the case of a fixed annuity or policy. If the company sells you a policy that states a given payout or minimum payout you have a fairly high expectation of receiving that payout.

This is different for variable annuities, which do involve the insurance company investing on your behalf (and taking fees).


My plan for managing my investments when I am old and incapable is to train my granddaughter to do it -wish me luck!

So far she is mastering board games (most recent one Dominion), which incorporate the necessary skills of choosing a strategy and estimating probabilities etc

[adamu]

board games, which incorporate the necessary skills of choosing a strategy and estimating probabilities etc

...and deception and betrayal

[RetireJapan]

board games, which incorporate the necessary skills of choosing a strategy and estimating probabilities etc

...and deception and betrayal

Oh dear. I may have made a terrible mistake.

[Moneymatters]

Thanks to @SleighRide for starting this topic.

It almost goes without saying that I was pretty ignorant on this up to now.

https://www.annuityfyi.com/guides/annuities-85plus1/
Although it's focussed on starting Annuities at 85, I found that an easy to understand introduction to the various types of annuities available at any age. With the possible assumption you'd need to be an American living in America.
Seemingly, buying or deferring an annuity to start late in life yeilds quite high returns.

For now, one thing I took from the article was the suggestion to use part of your retirement fund for expenses, in order to defer when you start receiving your state pension.
The increased pension you'll receive is therefore a form of state backed annuity.
1. They pay until you die.
2. The returns are really generous if you think you'll live well past 80.
3. If you are part of a couple you could balance which pension(s) to defer based on things such as; a UK pension not transferring to a foreign spouse and my beer vs her tofu diet.
4. Scant recent history of G8 nations collapsing.

I'd also thought of having my progeny handle my affairs in later life. But I woke early from a nap the other day to find them standing over me with a look of dissapointment...and a cushion..

[RetireJapan]

For now, one thing I took from the article was the suggestion to use part of your retirement fund for expenses, in order to defer when you start receiving your state pension.
The increased pension you'll receive is therefore a form of state backed annuity.

Been advocating this for a while. Japan now lets you defer until 75, for an 84% increase in pension.

https://www.retirejapan.com/blog/when-t ... a-pension/

[Tokyo]

RetireJapan wrote: ↑Tue Aug 31, 2021 12:00 pm
board games, which incorporate the necessary skills of choosing a strategy and estimating probabilities etc
...and deception and betrayal

What was her name again? Bernice Madoff?

[mighty58]

Interesting discussion here, but I can't really understand the vociferous opposition to annuities by some posters above. The argument against, if I'm understanding it correctly, is two-fold:

1. it's an inoptimal way to invest;
2. it's a minefield filled with bad products and/or outright scams

As for #1 - of course it's inoptimal! That's the product: it lowers your risk, and lower risk ALWAYS means lower returns. The lowering of risk IS the benefit. And lets not kid ourselves, there are a million things that could go wrong. I've been thinking myself about using an annuity. Ideally, if I could get one to cover my fixed costs in retirement, this would establish a floor of income that I KNOW will be there to cover my living expenses. I feel this can be a very reassuring and wise choice for a lot of people, and not just for the lazy or the investment unsavvy. I figure I could then scratch my alpha-chasing itch with the disposable income portion of the budget, knowing I'm all good if(when) I end up losing money. Unfortunately though, most people are looking to do better than this, and fully believe they can, and thus end up chasing better returns. And they might be successful, but they might not be. The annuity helps reduce the risk from that last statement.

As for #2 – it’s true, but it can be solved with education. There are bad products in mutual funds or insurance, but avoiding the entire sphere is not the answer… the answer is understanding the product and picking the right one.

[Established]

Interesting discussion here, but I can't really understand the vociferous opposition to annuities by some posters above. The argument against, if I'm understanding it correctly, is two-fold:

1. it's an inoptimal way to invest;
2. it's a minefield filled with bad products and/or outright scams

As for #1 - of course it's inoptimal! That's the product: it lowers your risk, and lower risk ALWAYS means lower returns. The lowering of risk IS the benefit. And lets not kid ourselves, there are a million things that could go wrong. I've been thinking myself about using an annuity. Ideally, if I could get one to cover my fixed costs in retirement, this would establish a floor of income that I KNOW will be there to cover my living expenses. I feel this can be a very reassuring and wise choice for a lot of people, and not just for the lazy or the investment unsavvy. I figure I could then scratch my alpha-chasing itch with the disposable income portion of the budget, knowing I'm all good if(when) I end up losing money. Unfortunately though, most people are looking to do better than this, and fully believe they can, and thus end up chasing better returns. And they might be successful, but they might not be. The annuity helps reduce the risk from that last statement.

As for #2 – it’s true, but it can be solved with education. There are bad products in mutual funds or insurance, but avoiding the entire sphere is not the answer… the answer is understanding the product and picking the right one.

I have a bad habit of learning through debate, probably mostly due to my background.

I can fully appreciate that my viewpoint is likely to change with age, and that I have only heard horror stories about annuity products because the annuity success stories are simply too mondaine to even mention! :

I do maintain that a single target target date fund, or Boglehead two fund portfolio would be just as stable and can be just as risk adverse.

Furthermore many accounts allow you to setup monthly distributions from mutual funds. Creating your own pension that can be combined with Nenkin and iDeco pensions.

I think simplicity and security are important, but can be achieved in a more optimal way.

[zeroshiki]

So here's a question then. Whats a good annuity product that lowers your risk (guarantees returns) while not being extortionate? I like the idea of a secure pension-like income but I wouldn't know which one is good or bad.

[SleighRide]

It is always good to have a candid exchange of ideas and opinions regarding any potential strategy. That said, I agree with the authors of several of the comments in this thread that an annuity would not be a good choice for me. I can, however, appreciate the peace of mind that it can provide to some investors.

I recently double-checked with my financial advisor, and he concurred that the cost of annuities tends to disqualify them as a reasonable solution. Beyond that important point I am still a believer that in the long-run the markets will still continue to rise with time and the probability of collapse is minimal. Also, I want to be able to benefit from the total return (price + dividends). In any case, my advisor mentioned that one of the leading researchers in the U.S. regarding annuities is someone named Wade Pfau (https://retirementresearcher.com/). For those who have an interest, he may have some useful ideas.

Finally, Bill Sharpe's research is not just limited to annuities. He is concerned with a whole range of issues associated with decumulation. After having spent my entire working career focused on accumulation, his perspective on decumulation provides lots of food for thought.