Author Topic: Are Annuities a good fit in retirement  (Read 13836 times)

Maxman

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Are Annuities a good fit in retirement
« on: March 23, 2015, 05:17:46 PM »
Here is a brief background story on why we are considering some annuities in our retirement portfolio.

We are both 60 years old and have been retired for 4 years now. Yeah! We decided to visit an annuity/Insurance group here to check out the perks as they wined and dinned us. So far we have gone to 3 dinner meetings and just last Sunday we were invited to go to the company suite overlooking the 18th hole at the Bay Hill Classic PGA Golf event. The firm is headed up by a gregarious speaker who is very motivational. The firm also contains 4 full time CPA's, a certified financial planner, an event coordinator, golf event specialist, and many other lower schedulers, and assistants. I've been asked if I want to play golf with the group at a private country club, and at a resort club in the next couple of weeks.

I've always believed in passive investing in index funds with very low expense ratios, and have used a financial advisor who follows this mantra. What is the opinion of the master mustachians on some annuity exposure in one's portfolio? Or should we just stay clear?

I don't remember if I've posted previously about our financial situation, but I will review it below.

IRA's $940k
Roth IRA's 40k

We live off rule 72t 5 year withdrawal plan. This ends in 5/2016. After taxes we spend about $48k or $4000 per month. House paid off. SS in 05/2016 will bring in $45k per year for the 2 of us.

Dodge

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Re: Are Annuities a good fit in retirement
« Reply #1 on: March 23, 2015, 05:28:19 PM »
The only type of annuity you can buy which makes any type of sense whatsoever, is a Single Premium Immediate Annuity (SPIA).  They are very simple, and as such can be compared across many different companies.  This encourages competition between the insurance companies, which brings your costs down.  Simply put, a SPIA says, "You give me X amount of dollars now, I will give you Y amount of dollars per month for the rest of your life."  That's it.

Unfortunately, since they are wining and dining you so much, I highly doubt this is the type of annuity you are being sold from these insurance salesman.  I'm almost certain they're pitching you on a variable annuity.  Don't do it.  It's almost guaranteed to be one of the worst investments of your life.  Here's a good link to learn more:

http://www.obliviousinvestor.com/single-premium-immediate-annuity/

Edit:  Your expenses are $48k, Social Security will bring in $45k, you have almost a million in liquid investments, and your house is paid off?  You have absolutely no need to buy any type of annuity at all.  You already have one (Social Security!) that's almost fully taking care of your expenses.  You can put your liquid investments in cash and still be able to withdraw $3k a year for the rest of your life.  The fact that the firm knows this, and is still hard-selling you, is evidence that they are salesmen and not financial planners.

Why are you looking for an annuity at all?
« Last Edit: March 23, 2015, 05:36:36 PM by Dodge »

Maxman

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Re: Are Annuities a good fit in retirement
« Reply #2 on: March 23, 2015, 05:37:46 PM »
I believe that they are fixed index annuities. You buy two the first allows you to withdrawal 10% per year after the first year. After ten years you are left with a reduced income stream that continues for life. The 2nd annuity kicks in after the tenth year and provides income based on its performance along with a guaranteed minimum return. Quite a complicated scheme IYAM. Both policies offer a sign up bonus of between 6 and 15%, but have rider costs that muddy the water.


LordSquidworth

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Re: Are Annuities a good fit in retirement
« Reply #3 on: March 23, 2015, 05:43:44 PM »
Turn around and walk away.

rpr

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Re: Are Annuities a good fit in retirement
« Reply #4 on: March 23, 2015, 05:44:08 PM »
Run, Max, Run!

Dodge

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Re: Are Annuities a good fit in retirement
« Reply #5 on: March 23, 2015, 05:46:09 PM »
I believe that they are fixed index annuities. You buy two the first allows you to withdrawal 10% per year after the first year. After ten years you are left with a reduced income stream that continues for life. The 2nd annuity kicks in after the tenth year and provides income based on its performance along with a guaranteed minimum return. Quite a complicated scheme IYAM. Both policies offer a sign up bonus of between 6 and 15%, but have rider costs that muddy the water.

Where do you think they're getting the money to wine and dine you so hard?  From all the fools who already paid for this crap.  Don't walk, run.


rpr

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Re: Are Annuities a good fit in retirement
« Reply #6 on: March 23, 2015, 05:47:28 PM »
In addition, if I were you, I would read a little more on SS claiming strategies. I would definitely not claim it at age 62.

Eric

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Re: Are Annuities a good fit in retirement
« Reply #7 on: March 23, 2015, 05:51:44 PM »
SS in 05/2016 will bring in $45k per year for the 2 of us.

You already have an annuity to cover most or all of your expenses right here.  Buying another one would be a nice way to "pay it forward" for all of your food and drink, but wouldn't do much for you as an investment.

Maxman

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Re: Are Annuities a good fit in retirement
« Reply #8 on: March 23, 2015, 05:54:31 PM »
I like to bounce my concerns off the experts here in this forum. Basically you've re-enforced what I was thinking. But I need the hand holding in order to keep strong.

I figured through FireCalc that we can withdrawal 83K per year counting SS invested in Vanguard Life Strategy moderate growth with a 94% success rate. That's way more than we need.

Quote
In addition, if I were you, I would read a little more on SS claiming strategies. I would definitely not claim it at age 62.


RPR well there is a strong possibility that my wife will qualify for SS disability because of her Rheumatoid Arthritis. We are in the 2nd year of this process using a disability lawyer. If she does she will get full SS and have it backdated to when we filled. I will also look in on the advantages of waiting till 67 or later before taking mine.
« Last Edit: March 23, 2015, 05:59:24 PM by Maxman »

arebelspy

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Re: Are Annuities a good fit in retirement
« Reply #9 on: March 23, 2015, 05:59:15 PM »
Agree with Dodge about SPIA being pretty much the only annuity worth a damn, and you not needing one. If anything you could annuitize a small stream of income with maybe 20% of your portfolio, but even that's a waste, IMO.

And run from the two you're being sold. It's a trap!
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Financial.Velociraptor

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Re: Are Annuities a good fit in retirement
« Reply #10 on: March 23, 2015, 06:11:12 PM »
I'm skeptical of any annuity product that can afford that kind of marketing.  I put my dad in an annuity to supplement his SS (it used to be his 401k money).  His most important investment criteria was (I don't want it to ever go down!)  That is, he insisted on taking on zero market risk.  The insurance annuity he is in is Genworth Financial and is sold through Capital One bank.  His principal is guaranteed by the issuer (insurance companies almost never go out of business).  He gets 3.65% interest on his money.  He can reset the interest rate (up) if the market allows once in the 7 year period.  After the 7 years, he can keep his interest rate, or invest in a new annuity if a higher rate is available.  This is a pretty standard arrangement with various insurance companies (such as Genworth.)  If you are going to do an annuity (and it is rarely the right choice) for example you are equally nervous about market losses as my dad, visit a couple of big banks and have them put in bids on your money.

My take, (and pressed Dad hard on this to no avail): put your "terrified to lose it money" in closed end municipal bond funds and never touch the principal.  I currently get 5.9% yield on NIO.  That is almost entirely tax exempt money (a few percent might be subject to AMT). 

milesdividendmd

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Re: Are Annuities a good fit in retirement
« Reply #11 on: March 23, 2015, 06:26:37 PM »
SPIA's are great because you get the so called "death benefit." (You get higher than the risk fre rate of return if you live a long time because you benefit from the principle of those who die early!) Think of them as longevity insurance. No more no less.

The rest (and particularly the aggressively marketed variable/whole life policies) break every rule that I hold dear for my investing.

1.  They are expensive.
2.  They are complex.
3.  The person selling them has a large vested interest in me buying them (ie they have interests that are not alligned with the buyer.)

These are toxic investments.

SaintM

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Re: Are Annuities a good fit in retirement
« Reply #12 on: March 23, 2015, 06:28:25 PM »

My take, (and pressed Dad hard on this to no avail): put your "terrified to lose it money" in closed end municipal bond funds and never touch the principal.  I currently get 5.9% yield on NIO.  That is almost entirely tax exempt money (a few percent might be subject to AMT).

Be careful as those funds like to buy Puerto Rican bonds.  The interest may be tax free at every level, but PR's default risk is very high.

BlueHouse

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Doulos

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Re: Are Annuities a good fit in retirement
« Reply #14 on: March 23, 2015, 07:13:09 PM »
With that $3k a year expense differential and $980k.  Both of you need to live past 136 years old for inflation to catch up.
- If I understand your terms correctly; If annuity #2 "pay until you die" is anything greater than $3k you make this infinity.

Given your situation; You could cash out and build yourselves a fort in your living room made of Benjamins.


So, I must answer that your decision here is not about the money.  You have to ask yourself...
  • How much am I willing to spend on getting wined and dined?
  • Do I really like great seats at expensive golf venues?
  • Will these benefits continue?

skyrefuge

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Re: Are Annuities a good fit in retirement
« Reply #15 on: March 23, 2015, 08:30:43 PM »
So far we have gone to 3 dinner meetings and just last Sunday we were invited to go to the company suite overlooking the 18th hole at the Bay Hill Classic PGA Golf event....The firm also contains...an event coordinator, golf event specialist, and many other lower schedulers, and assistants. I've been asked if I want to play golf with the group at a private country club, and at a resort club in the next couple of weeks.

Holy shit! I'm glad you asked our opinion and everything, but you're 60 years old with $1M in retirement assets, and you couldn't de-bamboozle this one on your own? I guess that shows the depths to which this lavishing-with-riches shit can massage our lizard-brains and leave us bereft of reason. I suppose they do it because it works!

Or is it that their salesmanship is so brazen and obvious that you say "there's no way someone could be this obvious about setting up a trap, so it can't be a trap"? I guess I could see me outsmarting myself that way.

Anyway, now that arebelspy has switched over to a green, Rebel-approved lightsaber, you can once again trust him: it's a trap.

DavidAnnArbor

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Re: Are Annuities a good fit in retirement
« Reply #16 on: March 23, 2015, 09:34:25 PM »
I highly recommend doing more research on your Social Security benefits, the ultimate annuity. There's a new book out, by Laurence Kotlikoff, professor of economics at Boston University, entitled, “Get What’s Yours: The Secrets To Maxing Out Your Social Security.” The reason I say this is you state you will get $45K per year for the two of you for social security, for your wife it's full social security disability, and for you it's your social security that you're taking early at age 62, and because you're taking it early I'm surprised you'll get as much as $45K/year. Moreover, you might be able to get more. You can listen to the author on On Point: http://onpoint.wbur.org/2015/03/18/social-security-benefits-secrets-owe

Maxman

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Re: Are Annuities a good fit in retirement
« Reply #17 on: March 24, 2015, 07:33:37 PM »
here is my SS estimate. My spouse will get approximately the same rate, but will get full SS if she gets disability.

Quote
Holy shit! I'm glad you asked our opinion and everything, but you're 60 years old with $1M in retirement assets, and you couldn't de-bamboozle this one on your own? I guess that shows the depths to which this lavishing-with-riches shit can massage our lizard-brains and leave us bereft of reason. I suppose they do it because it works!

Or is it that their salesmanship is so brazen and obvious that you say "there's no way someone could be this obvious about setting up a trap, so it can't be a trap"? I guess I could see me outsmarting myself that way.

I got a good laugh from this post. Funny but true about our lizard-brains. The perks make you feel like you owe them something even though you know its not in your best interest.

Maxman

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Re: Are Annuities a good fit in retirement
« Reply #18 on: March 24, 2015, 07:37:19 PM »
With that $3k a year expense differential and $980k.  Both of you need to live past 136 years old for inflation to catch up.
- If I understand your terms correctly; If annuity #2 "pay until you die" is anything greater than $3k you make this infinity.

Given your situation; You could cash out and build yourselves a fort in your living room made of Benjamins.


So, I must answer that your decision here is not about the money.  You have to ask yourself...
  • How much am I willing to spend on getting wined and dined?
  • Do I really like great seats at expensive golf venues?
  • Will these benefits continue?

Well the 4k per month is a tight budget for us. We would like to travel and fix up stuff in the house. Maybe 6k per month would be ideal at 62. We could easily live on less, but we're not getting any younger.

milesdividendmd

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Re: Are Annuities a good fit in retirement
« Reply #19 on: March 25, 2015, 01:21:23 PM »
Look into a SPIA. With a spia you will be able to increase your safe withdrawal rate.

In exchange....

1.  You lose liquidity. (You cannot access your lump sum at future dates. )

2.  If you die young you will leave less to your heirs.

3. You face a small company specific risk of bankruptcy, though annuities are usually federally insured.

KBecks2

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Re: Are Annuities a good fit in retirement
« Reply #20 on: March 29, 2015, 12:23:19 PM »
Ack!  You owe them nothing and stay the heck away from them!  Don't take their phone calls and don't get romanced by their good looking salespeople!  They want your money not your friendship.  Manipulators.

On Social security, I heard I think Dave Ramsey say it might be better to take the money early (as soon as you can) the smaller amount and invest it well. 

Anyway, congrats on your retirement, sounds like you are doing great and I wish you many happy and wonderful and healthy years ahead.

GizmoTX

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Re: Are Annuities a good fit in retirement
« Reply #21 on: March 29, 2015, 12:53:23 PM »
Look into the Spousal Benefit for married couples, especially since you are the same age. DH & I waited until Full Retirement Age (66 for us) to opt in for Social Security & then immediately suspended benefits, which will increase at 8% per year until age 70. Then I was eligible to claim a monthly spousal benefit, which is 50% of the higher wage earner's benefit. At age 70, the spousal benefit gets recalculated based on what the other spouse's benefit has grown to, & I can choose it or the benefit based on my lifetime earnings, whichever is higher. My Medicare premiums are deducted out of my benefit & we pay DH's premiums directly.

Life expectancy plays a big part in the SS decision, & it's been increasing due to health awareness, medical advances, & workplace improvements. Taking the money early to invest it usually means taking on a lot of risk.

Maxman

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Re: Are Annuities a good fit in retirement
« Reply #22 on: March 29, 2015, 02:02:20 PM »
Thanks KBecks2 this is how I feel about these annuity sales people now that I've been enlightened by this forum. We are probably going to put our IRA's into a Betterment account. They are offering a free year with no fees to give us a good test drive.

Indexer

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Re: Are Annuities a good fit in retirement
« Reply #23 on: March 29, 2015, 02:52:31 PM »
I would say run like crazy.  If you need help with investing there are 'clearly' plenty of people here who are willing to help for free.

If you or your spouse have ANY doubts I would find a fee-only financial planner in the area.  Look for one who has his CFP designation, and try to find one who charges a flat fee for making the plan or charges by the hour.  It might cost you a couple grand if they charge you for the plan/hourly rate(they might also do it for free to impress you), but they can give you an idea what you can w/d in retirement, how long it will last, etc.  They are also a fiduciary so they have to act in your best interest.  If an annuity is a good option for some of your money they can tell you that in an unbiased manner and recommend an annuity that is good for you.

Dodge

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Re: Are Annuities a good fit in retirement
« Reply #24 on: March 29, 2015, 03:11:41 PM »
Thanks KBecks2 this is how I feel about these annuity sales people now that I've been enlightened by this forum. We are probably going to put our IRA's into a Betterment account. They are offering a free year with no fees to give us a good test drive.

It's not "no fees", it's "no extra fee that Betterment usually puts on top".  You'd be much better with a Vanguard LifeStrategy fund, especially in an IRA:

https://investor.vanguard.com/mutual-funds/lifestrategy/#/

Or a Vanguard Target Retirement Fund:

https://investor.vanguard.com/mutual-funds/target-retirement/#/

Either way you're with Vanguard, because Betterment will just take your money and invest it in Vanguard for you anyway (after adding their own fee).  Skip the middle man.

Pick a Vanguard LifeStrategy/Retirement fund that matches the risk you want to take, and let them do all the work for you:

KBecks2

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Re: Are Annuities a good fit in retirement
« Reply #25 on: March 29, 2015, 08:35:59 PM »
I'm going to second Vanguard but I would suggest NOT using a life strategy account or target retirement account.  These will re balance and re invest for you, but I personally feel it's better if you are in control of your allocation.  It is your money and you can spend a little time each year paying attention to it and making your own choices for where to put it.

Vanguard fees are so low!  And they have people who will help give you ideas for a strategy.   It is important for you to own your investing, and not hand it over to someone else.  Take some time and read up on it.

If I wanted simple I would look at something like the Coffehouse Investor.  (http://www.coffeehouseinvestor.com).  But something very simple. 

I am also a big fan of Motley Fool and you may want to try their Pro service (I am a happy customer, or their Rule Your Retirement service). 

But take your time.  Don't get too sucked in by free, just be wise and conservative with your money, take care of it and it will take care of you. 

All the best!

tj

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Re: Are Annuities a good fit in retirement
« Reply #26 on: March 30, 2015, 01:08:13 AM »
I'm going to second Vanguard but I would suggest NOT using a life strategy account or target retirement account.  These will re balance and re invest for you, but I personally feel it's better if you are in control of your allocation.  It is your money and you can spend a little time each year paying attention to it and making your own choices for where to put it.

Vanguard fees are so low!  And they have people who will help give you ideas for a strategy.   It is important for you to own your investing, and not hand it over to someone else.  Take some time and read up on it.

If I wanted simple I would look at something like the Coffehouse Investor.  (http://www.coffeehouseinvestor.com).  But something very simple. 

I am also a big fan of Motley Fool and you may want to try their Pro service (I am a happy customer, or their Rule Your Retirement service). 

But take your time.  Don't get too sucked in by free, just be wise and conservative with your money, take care of it and it will take care of you. 

All the best!

I disagree with this - keep it simple with a LifeStrategy or Target Date fund and don't worry about it.

Also, nothing wrong with Betterment, that be a fine choice, but to me Betterment makes no sense if you are not in the accumulation phase. The reason I like Bettermenet is that as you are making ongoing contributions, it automatically calculates which fund is "low" and you shuld invest in, it rebalances for you, if you are just lump summing, there is not as much to "automate" so I don't perceive as much value there - and I would stick to a TDF or balanced fund.
« Last Edit: March 30, 2015, 07:45:09 AM by tj »

tj

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Re: Are Annuities a good fit in retirement
« Reply #27 on: March 30, 2015, 07:49:53 AM »
Thanks KBecks2 this is how I feel about these annuity sales people now that I've been enlightened by this forum. We are probably going to put our IRA's into a Betterment account. They are offering a free year with no fees to give us a good test drive.

It's not "no fees", it's "no extra fee that Betterment usually puts on top".  You'd be much better with a Vanguard LifeStrategy fund, especially in an IRA:

https://investor.vanguard.com/mutual-funds/lifestrategy/#/

Or a Vanguard Target Retirement Fund:

https://investor.vanguard.com/mutual-funds/target-retirement/#/

Either way you're with Vanguard, because Betterment will just take your money and invest it in Vanguard for you anyway (after adding their own fee).  Skip the middle man.

Pick a Vanguard LifeStrategy/Retirement fund that matches the risk you want to take, and let them do all the work for you:

Not necessarily. You'll be better using LifeStrategy if the value premium doesn't show up. The value premium could certainly be more than 15bps over the investor's lifetime. No way to know. Nothing wrong with using Betterment.

Maxman

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Re: Are Annuities a good fit in retirement
« Reply #28 on: March 30, 2015, 08:15:28 AM »
Quote
Not necessarily. You'll be better using LifeStrategy if the value premium doesn't show up. The value premium could certainly be more than 15bps over the investor's lifetime. No way to know. Nothing wrong with using Betterment.

What is the "value premium"?

tj

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Re: Are Annuities a good fit in retirement
« Reply #29 on: March 30, 2015, 09:00:42 AM »
Quote
Not necessarily. You'll be better using LifeStrategy if the value premium doesn't show up. The value premium could certainly be more than 15bps over the investor's lifetime. No way to know. Nothing wrong with using Betterment.

What is the "value premium"?

https://rpseawright.wordpress.com/2013/04/25/explaining-the-value-premium/

http://www.cbsnews.com/news/what-exactly-is-the-value-premium/

Dodge

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Re: Are Annuities a good fit in retirement
« Reply #30 on: March 30, 2015, 09:46:34 AM »
Thanks KBecks2 this is how I feel about these annuity sales people now that I've been enlightened by this forum. We are probably going to put our IRA's into a Betterment account. They are offering a free year with no fees to give us a good test drive.

It's not "no fees", it's "no extra fee that Betterment usually puts on top".  You'd be much better with a Vanguard LifeStrategy fund, especially in an IRA:

https://investor.vanguard.com/mutual-funds/lifestrategy/#/

Or a Vanguard Target Retirement Fund:

https://investor.vanguard.com/mutual-funds/target-retirement/#/

Either way you're with Vanguard, because Betterment will just take your money and invest it in Vanguard for you anyway (after adding their own fee).  Skip the middle man.

Pick a Vanguard LifeStrategy/Retirement fund that matches the risk you want to take, and let them do all the work for you:

Not necessarily. You'll be better using LifeStrategy if the value premium doesn't show up. The value premium could certainly be more than 15bps over the investor's lifetime. No way to know. Nothing wrong with using Betterment.

Value investing is crap.  Utter crap, meant to sell people who don't know any better on a more expensive fund that "beats the market".  I wouldn't put my money there if there were no added expense ratio, I'm definitely not paying for that.  But let's not distract the thread any further.  Feel free to reply in the Betterment thread:

http://forum.mrmoneymustache.com/investor-alley/betterment-for-taxable-holdings/msg557520/#msg557520

tj

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Re: Are Annuities a good fit in retirement
« Reply #31 on: March 30, 2015, 10:06:33 AM »
Thanks KBecks2 this is how I feel about these annuity sales people now that I've been enlightened by this forum. We are probably going to put our IRA's into a Betterment account. They are offering a free year with no fees to give us a good test drive.

It's not "no fees", it's "no extra fee that Betterment usually puts on top".  You'd be much better with a Vanguard LifeStrategy fund, especially in an IRA:

https://investor.vanguard.com/mutual-funds/lifestrategy/#/

Or a Vanguard Target Retirement Fund:

https://investor.vanguard.com/mutual-funds/target-retirement/#/

Either way you're with Vanguard, because Betterment will just take your money and invest it in Vanguard for you anyway (after adding their own fee).  Skip the middle man.

Pick a Vanguard LifeStrategy/Retirement fund that matches the risk you want to take, and let them do all the work for you:

Not necessarily. You'll be better using LifeStrategy if the value premium doesn't show up. The value premium could certainly be more than 15bps over the investor's lifetime. No way to know. Nothing wrong with using Betterment.

Value investing is crap.  Utter crap, meant to sell people who don't know any better on a more expensive fund that "beats the market".  I wouldn't put my money there if there were no added expense ratio, I'm definitely not paying for that.  But let's not distract the thread any further.  Feel free to reply in the Betterment thread:

http://forum.mrmoneymustache.com/investor-alley/betterment-for-taxable-holdings/msg557520/#msg557520

I have no interest in debating the merits of Betterment. How do you explain the long term success of funds like Wellington or Sequoia if value investing is "crap"?

Dodge

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Re: Are Annuities a good fit in retirement
« Reply #32 on: March 30, 2015, 10:21:33 AM »
I have no interest in debating the merits of Betterment. How do you explain the long term success of funds like Wellington or Sequoia if value investing is "crap"?

The same way I explain it every time someone points to one or two funds that succeeded, and use that as evidence that the strategy beats the market, despite the vast majority of funds which followed the same strategy over the years and failed.  This is a very common logical fallacy, yet people still fall for it.

This isn't a topic for an annuity thread.  If you'd like to discuss it, please create a new thread.

tj

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Re: Are Annuities a good fit in retirement
« Reply #33 on: March 30, 2015, 10:44:34 AM »
I have no interest in debating the merits of Betterment. How do you explain the long term success of funds like Wellington or Sequoia if value investing is "crap"?

The same way I explain it every time someone points to one or two funds that succeeded, and use that as evidence that the strategy beats the market, despite the vast majority of funds which followed the same strategy over the years and failed.  This is a very common logical fallacy, yet people still fall for it.

This isn't a topic for an annuity thread.  If you'd like to discuss it, please create a new thread.

If you think that market cap investing is the ideal strategy, then you should not be invested in anything other than 100% VTWSX for your equities. If you are not, then you are deviating from the market. No to know if your strategy is better than some guy who tilts to value stock indexes. The investor's goal should be low-fee funds, they do not need to be indexes or a specific index.

cjottawa

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Re: Are Annuities a good fit in retirement
« Reply #34 on: March 30, 2015, 10:52:57 AM »
Article of possible interest by Boglehead financial writer Rick Ferri:

Immediate Annuities Aren’t for Everyone
September 4, 2012 By Rick Ferri

http://www.rickferri.com/blog/investments/immediate-annuities-aren%E2%80%99t-for-everyone/

From that article:

Quote from: Rick Ferri
People will little in retirement savings shouldn’t buy a SPIA and people with sufficient wealth relative to spending shouldn’t buy one either. So, when does and SPIA come in handy? The answer is if a person has adequate retirement savings, but not enough to cover their expenses for a lifetime.
« Last Edit: March 30, 2015, 11:10:53 AM by cjottawa »

larmando

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Re: Are Annuities a good fit in retirement
« Reply #35 on: March 30, 2015, 11:00:10 AM »
As mentioned: If anybody offers you wine, five food, and a golf holiday to sell you something clearly you're not on the good side of the deal. :)

KBecks2

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Re: Are Annuities a good fit in retirement
« Reply #36 on: March 30, 2015, 11:52:53 AM »

I disagree with this - keep it simple with a LifeStrategy or Target Date fund and don't worry about it.

Also, nothing wrong with Betterment, that be a fine choice, but to me Betterment makes no sense if you are not in the accumulation phase. The reason I like Bettermenet is that as you are making ongoing contributions, it automatically calculates which fund is "low" and you shuld invest in, it rebalances for you, if you are just lump summing, there is not as much to "automate" so I don't perceive as much value there - and I would stick to a TDF or balanced fund.

Well, different strokes for different folks, but I prefer to make my own informed decisions about allocation.  Yes, it is more work, but I make time to manage our large portfolio and to understand the concepts and strategy, I want to keep an eye on it! 

tj

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Re: Are Annuities a good fit in retirement
« Reply #37 on: March 30, 2015, 12:13:18 PM »

I disagree with this - keep it simple with a LifeStrategy or Target Date fund and don't worry about it.

Also, nothing wrong with Betterment, that be a fine choice, but to me Betterment makes no sense if you are not in the accumulation phase. The reason I like Bettermenet is that as you are making ongoing contributions, it automatically calculates which fund is "low" and you shuld invest in, it rebalances for you, if you are just lump summing, there is not as much to "automate" so I don't perceive as much value there - and I would stick to a TDF or balanced fund.

Well, different strokes for different folks, but I prefer to make my own informed decisions about allocation.  Yes, it is more work, but I make time to manage our large portfolio and to understand the concepts and strategy, I want to keep an eye on it!

Absolutely - but if someone wants to be hands off it does not make sense to recommend something that they can't set and forget.

milesdividendmd

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Re: Are Annuities a good fit in retirement
« Reply #38 on: March 30, 2015, 01:25:50 PM »

Thanks KBecks2 this is how I feel about these annuity sales people now that I've been enlightened by this forum. We are probably going to put our IRA's into a Betterment account. They are offering a free year with no fees to give us a good test drive.

It's not "no fees", it's "no extra fee that Betterment usually puts on top".  You'd be much better with a Vanguard LifeStrategy fund, especially in an IRA:

https://investor.vanguard.com/mutual-funds/lifestrategy/#/

Or a Vanguard Target Retirement Fund:

https://investor.vanguard.com/mutual-funds/target-retirement/#/

Either way you're with Vanguard, because Betterment will just take your money and invest it in Vanguard for you anyway (after adding their own fee).  Skip the middle man.

Pick a Vanguard LifeStrategy/Retirement fund that matches the risk you want to take, and let them do all the work for you:

Not necessarily. You'll be better using LifeStrategy if the value premium doesn't show up. The value premium could certainly be more than 15bps over the investor's lifetime. No way to know. Nothing wrong with using Betterment.

Value investing is crap.  Utter crap, meant to sell people who don't know any better on a more expensive fund that "beats the market".  I wouldn't put my money there if there were no added expense ratio, I'm definitely not paying for that.  But let's not distract the thread any further.  Feel free to reply in the Betterment thread:

http://forum.mrmoneymustache.com/investor-alley/betterment-for-taxable-holdings/msg557520/#msg557520

This is a shockingly ignorant, arrogant, and downright embarrassing statement.

When you say that value investing is "crap," what you are saying is that you understand markets better than Eugene Fama, Warren Buffet, and Ken French, and Ben Graham to name a few.

Please share with us your Nobel prize, your record beating investing performance, or any other bonafides, that have led to your laughable confidence in proclaiming the truth about the market.

In general it is my observation that the surer you are, the less you should be.


Maxman

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Re: Are Annuities a good fit in retirement
« Reply #39 on: March 30, 2015, 02:03:28 PM »
I seem to have started some controversy over what is appropriate for our investments looking forward. I contacted Betterment and they are not able to extract and send in IRS 10% payments from our IRA's. So it would involve a little more work on my part. I called Vanguard and through the concierge service they have set up our accounts to transfer in kind and they can automatically send the IRS 10% of our withdrawals. I am ready to go as soon as my April withdrawals hit our checking account. They sure made it easy peasy. We still have our Betterment account for all our taxable money. I currently put $200 per month in that and use it as our emergency fund.

I also checked out those SPIA's and the interest rates are pathetic. Basically on a $500k annuity over 20 years we would receive 681k. We are much better off with lowest expense ratio long term investments.

Dodge

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Re: Are Annuities a good fit in retirement
« Reply #40 on: March 30, 2015, 02:05:28 PM »
Here's a new thread for everyone who would like to discuss value investing.

http://forum.mrmoneymustache.com/investor-alley/value-investing-is-utter-crap/

Let's keep the annuity thread on topic.