impact of annuity on 4%?

[wjquigs]

My brother will be retiring in a few years from a career in the federal government. He gets an annuity, indexed to inflation.
Is there a good way to factor in the stability of the annuity in the "4% rule"? Presumably he can spend more of his other retirement funds because the annuity is much more stable than the stock market. If it's been discussed here, it's resistant to search.
TIA!

[maizefolk]

So long as he has confidence that the inflation adjustment will reflect his personal rate of inflation in retirement, he can simply subtract the value of the annuity from the amount of annual spending he needs to cover, which will reduce how much investment he needs to cover the rest.

Example: $80,000 household spending would normally require a stash of $2M. If he has a $50,00 inflation indexed annuity/pension, he'd only need $30,000 of other spending and a stash of only $750,000.

Using the normal way we simulate retiree spending in retirement, having an inflation adjusted annuity doesn't mean he can spend a higher percent of his starting retirement savings and have the same confidence about not running out of money.

That said, having a baseline level of money coming in each month gives him greater flexibility to cut or eliminate his withdrawals from his other retirement funds during recessions and stock market crashes. If he's willing and able to do that, it is possible to withdraw more than 4% safely if you only withdraw and spend that money in good years but not in bad years.

[Silrossi46]

My pension is not indexed for inflation so I just figure it in cfirsim and uncheck the inflation adjusted box and figure it out that way.  In a way my investments will help cover the non inflation adjusted gap as time goes on.  That’s how I figure it.

[GilesMM]

He can spend from his savings according to the 4% SWR theory, the annuity has no impact on that. The annuity is gravy on top.


If he has one million saved and is age 65, he can start withdrawing $40k the first year,etc.  The annuity is separate, just like SS.

[Ron Scott]

Like Giles said. They’re separate income streams that don’t interact, EXCEPT IN YOUR MIND.

Annuities should be considered more secure than a plan to draw down 4% inflated for 30 years—i.e. the 4% rule.

If the annuity + SS is large enough to cover a significant part of necessary expenses you can likely have 4% rule failure and survive without going back to work at 77 or something. That’s nice!

[mistymoney]

My brother will be retiring in a few years from a career in the federal government. He gets an annuity, indexed to inflation.
Is there a good way to factor in the stability of the annuity in the "4% rule"? Presumably he can spend more of his other retirement funds because the annuity is much more stable than the stock market. If it's been discussed here, it's resistant to search.
TIA!

It seems to my your question is that given the stability of the annuity, can he withdraw more from other accounts, like 5%, or 6%?

The answer is no if he doesn't want to deplete them. If he can live comfortably on the annuity or annuity+soc sec and wants to live it up the fisrt decade or two, then is ok to live quietly on his fixed income then the answer is yes. Even at 4% accounts can be depleted if the wiles of the market go against him with SORR.

is he able to live only on the annuity and/or soc security?

[afox]

So long as he has confidence that the inflation adjustment will reflect his personal rate of inflation in retirement, he can simply subtract the value of the annuity from the amount of annual spending he needs to cover, which will reduce how much investment he needs to cover the rest.

Example: $80,000 household spending would normally require a stash of $2M. If he has a $50,00 inflation indexed annuity/pension, he'd only need $30,000 of other spending and a stash of only $750,000.

Using the normal way we simulate retiree spending in retirement, having an inflation adjusted annuity doesn't mean he can spend a higher percent of his starting retirement savings and have the same confidence about not running out of money.

That said, having a baseline level of money coming in each month gives him greater flexibility to cut or eliminate his withdrawals from his other retirement funds during recessions and stock market crashes. If he's willing and able to do that, it is possible to withdraw more than 4% safely if you only withdraw and spend that money in good years but not in bad years.

By the way, before anyone gets worked up about all these fed employees getting lifetime annuities with COLAs, this hypothetical 50k year annity would require making $150k and working 30 years, retiring at age 62 and paying about 4% of your salary for the full 30 years towards this annuity. Many have done the math and wish they just didnt contribute but its not optional.