Author Topic: Can You Make Your Cash Pile Last For Life?  (Read 5220 times)

dude

  • Handlebar Stache
  • *****
  • Posts: 2350
Can You Make Your Cash Pile Last For Life?
« on: October 08, 2014, 07:00:27 AM »
Article on Bloomberg.com.  Interestingly enough, not one mention of the 4% SWR or other strategies.  Oh, but they do talk about annuities.  Ugh.

http://www.bloomberg.com/news/2014-10-08/a-401-k-conundrum-can-you-make-cash-pile-last-for-life-.html

Dodge

  • Pencil Stache
  • ****
  • Posts: 790
Re: Can You Make Your Cash Pile Last For Life?
« Reply #1 on: October 08, 2014, 10:59:35 PM »

Article on Bloomberg.com.  Interestingly enough, not one mention of the 4% SWR or other strategies.  Oh, but they do talk about annuities.  Ugh.

http://www.bloomberg.com/news/2014-10-08/a-401-k-conundrum-can-you-make-cash-pile-last-for-life-.html

They mentioned the 4% rule. The article was pretty good actually, don't think it belongs in this category.

LalsConstant

  • Bristles
  • ***
  • Posts: 439
Re: Can You Make Your Cash Pile Last For Life?
« Reply #2 on: October 09, 2014, 06:03:26 AM »
And I know a lot of annuities are horrible and the sales practices surrounding them are vile, but I don't think they're automatically "wrong" either.

An annuity is insurance,  not investment.  Some people need more insurance,  some people need less.   And there are legitimate,  plainly disclosed annuity products to be had.

frugalecon

  • Pencil Stache
  • ****
  • Posts: 513
Re: Can You Make Your Cash Pile Last For Life?
« Reply #3 on: October 09, 2014, 06:57:28 AM »
And I know a lot of annuities are horrible and the sales practices surrounding them are vile, but I don't think they're automatically "wrong" either.

An annuity is insurance,  not investment.  Some people need more insurance,  some people need less.   And there are legitimate,  plainly disclosed annuity products to be had.

The concept of an annuity is potentially very valuable to understand. One of the best annuities available to essentially everyone is offered by Social Security. Deferring the date at which you start collecting benefits is essentially like purchasing an annuity. I have no intention of collecting Social Security until I turn 70, unless I learn something about my health status that would suggest that is not a good plan.

Cheddar Stacker

  • Magnum Stache
  • ******
  • Posts: 3714
  • Age: 40
  • Location: USA
Re: Can You Make Your Cash Pile Last For Life?
« Reply #4 on: October 09, 2014, 09:10:31 AM »
Holy scare tactics Batman! Thank you for linking this dude. Dodge, they did mention the 4% rule but I thought the article was more of a commercial meant to scare you into buying annuities than it was an actual article, much less a good one.

Look, I'm not a conspiracy theorist or a sky is falling kind of guy, but this is all bullshit. I can't stand selling a product or service by scaring people into thinking it's a requirement for their own good. It's borderline fraudulent.

Just a few of my favorite scare tactic quotes from the piece:

Quote
Even if youíve socked plenty of money away in your 401(k) plan and invested it carefully, some of your toughest decisions lie ahead. And donít expect much help or clarity from the government or your employer.

Translation
You were likely too spendy to save, and even if you did you don't know how to invest. Blame the government. Hire an advisor.

Quote
The drawdown phase is a piece of the U.S. retirement puzzle thatís attracted little notice until recently.

Younger workers get clear, simple advice: Save as much as you can for as long as you can. Create a diverse portfolio of investments and hold on for the ride.

Thatís supposed to yield a pile of assets. When itís time to make that pile smaller, retirees are often overwhelmed by the choices and tax consequences.

Translation
Hire us.

[insert scary chart here about sequence of returns].
This is actually good information, and there are other bits of good information in the "article" as well, but they provide no context or instruction, they just scare you into thinking you will run out of money and move on to the next topic which is........annuities. Not a coincidence. Very purposeful structure to this piece.

Quote
The government has taken a few limited steps to ease the spending-down phase of retirement. Still, John said, the U.S. lacks a ďclear directionĒ for this phase.

The required minimum distribution rules for retirement accounts, which make retirees take taxable payouts starting after age 70 1/2, are designed to force spending and can cause problems for people who live longer than the average.

They force you to withdraw it, not spend it.

Quote
Earlier this year, the Treasury Department created a partial waiver to the required minimum distribution rules for people who purchase longevity annuities -- ones that donít start paying out until age 80 or 85.

Translation
The insurance lobby has paid enough money to congressman to allow this special rule, so now you don't have to pay taxes on RMD's or be forced to do what the government tells you. We won't mention that the income from annuities is also taxable.

Quote
The hottest debate among investment advisers and policy makers is over the role annuities should play, with the Government Accountability Office and the Treasury Department nudging some Americans toward the insurance.

No, we don't need the government making us take annuities, thanks.

Quote
Hereís the key question: Should retirees continue the do-it-yourself approach from their working years by switching to more conservative investments and making routine withdrawals?

Or should they turn over some of their money to an insurance company to create an income stream that will last as long as they do?

Translation
Hire us.


I genuinely feel sorry for the 80+% of people out there who are uneducated about investments, risks, fees, taxes, and rules. They will read this, shit their pants, and call a financial advisor or their insurance agent.

Annuities have their place, I guess. But they are by far the most profitable commission available to a financial advisor outside of maybe a whole life policy. They are designed to take risk out of the equation for the "investor". The insurance company takes a very hefty cut, and pays a very hefty commission leaving the buyer with ~80% of the FMV of their "investment" based on life expectancy. They are a safe play, but a losing play. You won't run out of the money stream, but you will certainly not come out ahead unless you live to be 110.

[/rant]

eyePod

  • Pencil Stache
  • ****
  • Posts: 966
    • Flipping A Dollar
Re: Can You Make Your Cash Pile Last For Life?
« Reply #5 on: October 10, 2014, 09:30:06 AM »
And I know a lot of annuities are horrible and the sales practices surrounding them are vile, but I don't think they're automatically "wrong" either.

An annuity is insurance,  not investment.  Some people need more insurance,  some people need less.   And there are legitimate,  plainly disclosed annuity products to be had.

The concept of an annuity is potentially very valuable to understand. One of the best annuities available to essentially everyone is offered by Social Security. Deferring the date at which you start collecting benefits is essentially like purchasing an annuity. I have no intention of collecting Social Security until I turn 70, unless I learn something about my health status that would suggest that is not a good plan.

I think I'm going to take it as early as I can just to spite everyone. Granted, that's ~30+ years away so who knows what the hell we'll have at that point.

auntie_betty

  • Bristles
  • ***
  • Posts: 289
Re: Can You Make Your Cash Pile Last For Life?
« Reply #6 on: October 16, 2014, 11:47:42 PM »
Quote
The Clearys are more fortunate than millions of Americans who are reaching retirement without enough savings. The couple has a clear financial plan

Sounds to me like their 'clear financial plan' involves selling one of their houses if they have to. No mention of what budget they've set themselves, what income they are drawing, what growth rate they've based their plans on etc.

Similar problems to the UK, likely to get worse as coming changes will make pension pots much more accessible rather than usually being converted into annuities. People will suddenly have access to large pots of money with little financial advice - govt have said there will be free financial advisors but if it's free it will be limited in time and scope.

VirginiaBob

  • Bristles
  • ***
  • Posts: 429
    • LRJ Discounters
Re: Can You Make Your Cash Pile Last For Life?
« Reply #7 on: October 17, 2014, 09:16:54 AM »
And I know a lot of annuities are horrible and the sales practices surrounding them are vile, but I don't think they're automatically "wrong" either.

An annuity is insurance,  not investment.  Some people need more insurance,  some people need less.   And there are legitimate,  plainly disclosed annuity products to be had.

The concept of an annuity is potentially very valuable to understand. One of the best annuities available to essentially everyone is offered by Social Security. Deferring the date at which you start collecting benefits is essentially like purchasing an annuity. I have no intention of collecting Social Security until I turn 70, unless I learn something about my health status that would suggest that is not a good plan.

I think I'm going to take it as early as I can just to spite everyone. Granted, that's ~30+ years away so who knows what the hell we'll have at that point.
 

Same here, simply to get some money out of the governments hands sooner.  Payments will be more when you are 70, but if you die at 70 years old, you get nothing.

Blindsquirrel

  • Pencil Stache
  • ****
  • Posts: 654
  • Age: 1
  • Location: Flyover country
Re: Can You Make Your Cash Pile Last For Life?
« Reply #8 on: October 17, 2014, 12:28:21 PM »
 Very well said Mr. Cheddar Stacker! I think your analysis is spot on correct.

Cheddar Stacker

  • Magnum Stache
  • ******
  • Posts: 3714
  • Age: 40
  • Location: USA
Re: Can You Make Your Cash Pile Last For Life?
« Reply #9 on: October 17, 2014, 12:32:52 PM »
Very well said Mr. Cheddar Stacker! I think your analysis is spot on correct.

Thanks Blindsquirrel.

Dodge

  • Pencil Stache
  • ****
  • Posts: 790
Re: Can You Make Your Cash Pile Last For Life?
« Reply #10 on: October 18, 2014, 12:43:49 AM »

Holy scare tactics Batman! Thank you for linking this dude. Dodge, they did mention the 4% rule but I thought the article was more of a commercial meant to scare you into buying annuities than it was an actual article, much less a good one.

Look, I'm not a conspiracy theorist or a sky is falling kind of guy, but this is all bullshit. I can't stand selling a product or service by scaring people into thinking it's a requirement for their own good. It's borderline fraudulent.

Just a few of my favorite scare tactic quotes from the piece:

Quote
Even if youíve socked plenty of money away in your 401(k) plan and invested it carefully, some of your toughest decisions lie ahead. And donít expect much help or clarity from the government or your employer.

Translation
You were likely too spendy to save, and even if you did you don't know how to invest. Blame the government. Hire an advisor.

Quote
The drawdown phase is a piece of the U.S. retirement puzzle thatís attracted little notice until recently.

Younger workers get clear, simple advice: Save as much as you can for as long as you can. Create a diverse portfolio of investments and hold on for the ride.

Thatís supposed to yield a pile of assets. When itís time to make that pile smaller, retirees are often overwhelmed by the choices and tax consequences.

Translation
Hire us.

[insert scary chart here about sequence of returns].
This is actually good information, and there are other bits of good information in the "article" as well, but they provide no context or instruction, they just scare you into thinking you will run out of money and move on to the next topic which is........annuities. Not a coincidence. Very purposeful structure to this piece.

Quote
The government has taken a few limited steps to ease the spending-down phase of retirement. Still, John said, the U.S. lacks a ďclear directionĒ for this phase.

The required minimum distribution rules for retirement accounts, which make retirees take taxable payouts starting after age 70 1/2, are designed to force spending and can cause problems for people who live longer than the average.

They force you to withdraw it, not spend it.

Quote
Earlier this year, the Treasury Department created a partial waiver to the required minimum distribution rules for people who purchase longevity annuities -- ones that donít start paying out until age 80 or 85.

Translation
The insurance lobby has paid enough money to congressman to allow this special rule, so now you don't have to pay taxes on RMD's or be forced to do what the government tells you. We won't mention that the income from annuities is also taxable.

Quote
The hottest debate among investment advisers and policy makers is over the role annuities should play, with the Government Accountability Office and the Treasury Department nudging some Americans toward the insurance.

No, we don't need the government making us take annuities, thanks.

Quote
Hereís the key question: Should retirees continue the do-it-yourself approach from their working years by switching to more conservative investments and making routine withdrawals?

Or should they turn over some of their money to an insurance company to create an income stream that will last as long as they do?

Translation
Hire us.


I genuinely feel sorry for the 80+% of people out there who are uneducated about investments, risks, fees, taxes, and rules. They will read this, shit their pants, and call a financial advisor or their insurance agent.

Annuities have their place, I guess. But they are by far the most profitable commission available to a financial advisor outside of maybe a whole life policy. They are designed to take risk out of the equation for the "investor". The insurance company takes a very hefty cut, and pays a very hefty commission leaving the buyer with ~80% of the FMV of their "investment" based on life expectancy. They are a safe play, but a losing play. You won't run out of the money stream, but you will certainly not come out ahead unless you live to be 110.

[/rant]

Ouch, that's what I get for skimming the article. You're spot on here, it was more an ad than an article!