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Re: How to Enjoy Retirement Without Going Broke
Posted: Mon Aug 30, 2021 8:21 am
by Tokyo
That's really interesting. Do you get any tax breaks/incentives on it?
Other than the standard 社会保険 deduction every February, no tax or other incentives that I am aware of. But it’s also a modest diversification strategy for us since it adds a US$ income stream to the existing Japanese and Australian ones. There’s little need to be concerned with currency movements if you have a few different ones. And multimoney accounts to park them in until exchange rates become more favorable.
Re: How to Enjoy Retirement Without Going Broke
Posted: Mon Aug 30, 2021 8:30 am
by RetireJapan
Is there any provision for inflation? Index-linked or anything?
Re: How to Enjoy Retirement Without Going Broke
Posted: Mon Aug 30, 2021 8:46 am
by Established
RetireJapan wrote: ↑Mon Aug 30, 2021 7:32 am
Tokyo wrote: ↑Mon Aug 30, 2021 7:16 am
Our annuity is with one of the US annuity giants, Prudential, run by PGF 生命 in Japan. The plan is called 米国ドル健年金支払型特養老保険.
The system is simple:
- pay US$700 per month plus about $12 insurance for 10 years (since we started at age 56)
- receive US$500 monthly for 20 years from your 65th birthday.
Your pension can also be paid in yen, and payments can be flexibly paid as a (reduced) lump sum, or spread out as desired for up to 20 years. I am confident I could have made more than what they are offering by investing the lump sum in ETFs but I much prefer the peace of mind from having regular income with zero thought or oversight.
My wife also bought in so we have a steady $12,000 of extra annual income to enjoy until we turn 85. We regard it as our retirement travel budget since we assume our more expensive foreign travel costs will be lessening by then. That is, assuming Covid ends sometime in the next 20 years…
That's really interesting. Do you get any tax breaks/incentives on it?
So you pay them $84,000 over ten years, then they pay you $500 a month for 20 years.
As a form of diversification, it seems quite attractive if you already have a decent investment portfolio.
Also makes sense for Prudential, because (barring sequence of returns disasters, which presumably they offset by having lot of clients) it should be fairly easy for them to both make the payments and keep most of the principal.
Might be a fun spreadsheet to model out
With these products, there is always a layer of fees.
https://www.prudential.com/personal/annuities/rates
Between signup fees and yearly fees, I do not see the attraction. Quoted returns are usually PRE fees.
......
A note to Americans: (I wish I could do this).
Bond laddering with I bonds can achieve the same sort of thing, with ZERO fees associated.
https://www.investopedia.com/investing ... t-returns/
https://www.treasurydirect.gov/indiv/re ... ibonds.htm
Re: How to Enjoy Retirement Without Going Broke
Posted: Mon Aug 30, 2021 11:15 am
by Tokyo
Is there any provision for inflation? Index-linked or anything?
Nope. Nothing like that.
Between signup fees and yearly fees, I do not see the attraction. Quoted returns are usually PRE fees.
Nope. What signup fee? The only fee was insurance to cover my demise in the 10 years paying in which ensured my estate would receive the full amount. Now every 2 months, my account goes up by ¥110,000~111,000. So what fees are you saying I am paying? Yes that’s a lousy exchange rate but are there any banks exchanging any more generously? I like regular, uncomplicated income but I never claimed everyone does.
Re: How to Enjoy Retirement Without Going Broke
Posted: Mon Aug 30, 2021 11:52 am
by Established
Tokyo wrote: ↑Mon Aug 30, 2021 11:15 am
Is there any provision for inflation? Index-linked or anything?
Nope. Nothing like that.
Between signup fees and yearly fees, I do not see the attraction. Quoted returns are usually PRE fees.
Nope. What signup fee? The only fee was insurance to cover my demise in the 10 years paying in which ensured my estate would receive the full amount. Now every 2 months, my account goes up by ¥110,000~111,000. So what fees are you saying I am paying? Yes that’s a lousy exchange rate but are there any banks exchanging any more generously? I like regular, uncomplicated income but I never claimed everyone does.
1. Basically, you are paying a commission to the person who signs you up. This fee is often packaged up and hidden in the cost.
2. You are often paying yearly fees, on a sliding scale.
3. Your funds are not insured or guaranteed usually.
4.
The company is investing your deposit in a mutual fund themselves!
Basically, you are paying someone to invest in a mutual fund, pay your insurance, and give you less of the profit.
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I believe Term life insurance + A dividend-paying index fund would be a better option.
1. You assume the same level of risk if not less.
2. You receive more of the proceeds.
3. You can cancel the insurance policy when it suits you.
4. You can add extra coverage as you please.
Re: How to Enjoy Retirement Without Going Broke
Posted: Mon Aug 30, 2021 12:21 pm
by RetireJapan
Established wrote: ↑Mon Aug 30, 2021 11:52 am
...............................
I believe Term life insurance + A dividend-paying index fund would be a better option.
All things being equal, I agree. But if
Tokyo already is investing in index funds, this is a way to diversify. Giving up some potential profits for peace of mind/an income floor.
It's not always about maximising returns.
Re: How to Enjoy Retirement Without Going Broke
Posted: Mon Aug 30, 2021 12:38 pm
by Established
RetireJapan wrote: ↑Mon Aug 30, 2021 12:21 pm
Established wrote: ↑Mon Aug 30, 2021 11:52 am
...............................
I believe Term life insurance + A dividend-paying index fund would be a better option.
All things being equal, I agree. But if
Tokyo already is investing in index funds, this is a way to diversify. Giving up some potential profits for peace of mind/an income floor.
It's not always about maximising returns.
The companies themselves are most likely investing in an index-linked mutual fund with your money! This is a false diversity with
no added security.
REITS or BONDS if you want diversity, this is madness! (Exaggerating for humor's sake).
This is a product for those who cannot invest themselves.
Forgive me for repeating this point, but I do think it is important. The annuity world is rife with scams and false promises. I will not post a barrage of warnings, critical articles, but there are hundreds out there.
Re: How to Enjoy Retirement Without Going Broke
Posted: Mon Aug 30, 2021 12:56 pm
by Beaglehound
If they are guaranteeing to pay out regardless of market performance, surely that has added security over taking on the risk of direct investment? Or have I misunderstood?
Re: How to Enjoy Retirement Without Going Broke
Posted: Mon Aug 30, 2021 1:05 pm
by Established
Beaglehound wrote: ↑Mon Aug 30, 2021 12:56 pm
If they are guaranteeing to pay out regardless of market performance, surely that has added security over taking on the risk of direct investment? Or have I misunderstood?
There is not necessarily an added security or guaranteed performance. This is not a CD, Term-deposit, or time deposit which are usually insured.
Here is a good primer on the shortcoming of annuities.
http://apps.suzeorman.com/igsbase/igste ... tiseID=107
CAVEAT EMPTOR.
Re: How to Enjoy Retirement Without Going Broke
Posted: Mon Aug 30, 2021 1:21 pm
by RetireJapan
You can't really comment on Tokyo's product without access to the terms and conditions. It sounds more like Japanese 'pension insurance' than a US annuity, which would not be available in Japan either.