Monthly income in Retirement - A Perfect Solution?

[EmaxisSlim Cultist]

There are some posts on the forum that mention members signing up for expensive, fee-heavy annuities or monthly-distributing funds. These are expensive solutions to a common problem.

However, I recently discovered Rakuten offers fixed, monthly sales of investment trusts in a specified percentage/amount.

These can be used in a General, Specific, or Nisa account.

https://www.rakuten-sec.co.jp/web/rfund ... kyaku.html

Set and forget investing, and set and forget income in retirement?

Edit: This essentially allows you to create your own "dividend" fund in retirement without the expense or risk of specific dividend products or single stocks.

[RetireJapan]

That's very nice. I especially like the 'sell a fixed % of your asset' option

[SARS]

Set and forget investing, and set and forget income in retirement?

Annuities are used to guarantee you a minimum income whilst you are alive either on a term basis or whole life basis. It's a way of removing sequence risk (drawdown timing risk) on your investments.

The insurance market in Japan is competitive. Can you show me examples of the products you think are expensive? Not doubting you, just interested to see.

[EmaxisSlim Cultist]

Set and forget investing, and set and forget income in retirement?

Annuities are used to guarantee you a minimum income whilst you are alive either on a term basis or whole life basis. It's a way of removing sequence risk (drawdown timing risk) on your investments.

The insurance market in Japan is competitive. Can you show me examples of the products you think are expensive? Not doubting you, just interested to see.

Term life+index investing offers better returns in almost all situations.

With annuities, you are paying someone to invest your money, and allow them to take a large fee, and any return the investment sees beyond what was guaranteed in the contract.

The general benefits of annuities a. tax deferment and b. death benefits can be achieved with term life insurance and index funds.

The drawdown timing risk would simply be determined by the size of the nestegg, a safe with the rate of 3-4%, and an asset allocation appropriate for age. A target-date fund would be the simplest solution.

If you wanted a specific example of an expensive annuity, this was posted in another thread: https://www.pgf-life.co.jp/weby/1702.html

[RetireJapan]

With annuities, you are paying someone to invest your money, and allow them to take a large fee, and any return the investment sees beyond what was guaranteed in the contract.

This is a variable annuity.

There are different types of annuities, and variable annuities are one of the least attractive.

[EmaxisSlim Cultist]

With annuities, you are paying someone to invest your money, and allow them to take a large fee, and any return the investment sees beyond what was guaranteed in the contract.

This is a variable annuity.

There are different types of annuities, and variable annuities are one of the least attractive.

With fixed annuities, it is similar but the investments are mostly Treasuries and high-quality corporate bonds. Less yield. Unless I am misunderstanding something.

[fools_gold]

With fixed annuities, it is similar but the investments are mostly Treasuries and high-quality corporate bonds. Less yield. Unless I am misunderstanding something.

I think you are. With a fixed annuity you give the insurance company your cash and they promise to pay out a certain amount of money over a certain amount of time. It's a contract between you and the insurance company. They're not investing on your behalf.

[EmaxisSlim Cultist]

With fixed annuities, it is similar but the investments are mostly Treasuries and high-quality corporate bonds. Less yield. Unless I am misunderstanding something.

I think you are. With a fixed annuity you give the insurance company your cash and they promise to pay out a certain amount of money over a certain amount of time. It's a contract between you and the insurance company. They're not investing on your behalf.

There is definitely an investment on their end, that's how these firms earn income.

What Goes into a Fixed Annuity Rate?

......

When an insurance company receives your money, it adds it to its general account pool of incoming premiums. The company then invests that money — usually in government securities or high-quality corporate bonds that earn a slightly higher interest rate than the insurance company pays you.

https://www.annuity.org/annuities/types/fixed/

[adamu]

With fixed annuities, it is similar but the investments are mostly Treasuries and high-quality corporate bonds. Less yield. Unless I am misunderstanding something.

I think you are. With a fixed annuity you give the insurance company your cash and they promise to pay out a certain amount of money over a certain amount of time. It's a contract between you and the insurance company. They're not investing on your behalf.

There is definitely an investment on their end, that's how these firms earn income.

Right, they are taking on the risk instead of you. You get your contractural annuity rate regardless of what happens to whatever they decide to do with the money (unless that's part of the contract). You're effectively buying a known income - a desirable low-risk asset when you've got a lot to lose.

The Rakuten auto-sell thing looks nice, basically reverse tsumitate, but it's a convenience rather than an alternative to annuities - they are two different asset types. How people choose to structure their asset allocation in retirement is a personal decision, I don't think there's a right or wrong answer to what is best.

Here's SBI's equivalent of the Rakuten service: https://www.sbisec.co.jp/ETGate/WPLETmg ... 20316.html

[mighty58]

Buyers of annuities are buying a "risk-off" product. You reduce risk by paying someone else to give you an agreed sum over an agreed upon period of time. The buyer no longer has to worry about buying the right investment.

Sellers of annuities are "risk-on". They bet (ie. they take on the risk) that they can use your money to invest, and do better, so they can keep the difference. The seller can invest in whatever they want to attempt to recoup the money.

The buyer must compensate the seller for taking on the risk via fees, which could be expensive but doesn't have to be. Much like you wouldn't want to buy a 3% MER index fund when a 0.1% similar product is available, educating yourself and shopping around for the best deal is important.

If the seller does well investing, or if the buyer dies early in the term, the seller will come out ahead. It's important to recognize the risk the seller is taking on here however, because sometimes it will not work out for the seller. But, aggregated over thousands of clients and over decades, the odds indicate that more often than not, the seller will come out on top.... that's why companies are in the annuities business.

But on an individual, granular level, there really is no predicting beforehand who will do better. As such, many people are willing to pay for a guaranteed good outcome, rather than taking a shot at a great outcome.

Finally, one point to clarify, but term life insurance pays out when you die. Annuities are "investment risk insurance" that pay out while you're alive. Completely different products.