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Immediate Annuity only if you can't survive on a 4% withdrawal rate?

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FIREin2018:
Immediate Annuities are basically an insurance policy where you get a lifelong income stream.

you're basically betting that the Immediate Annuity will pay more in your lifetime than a '40% stock/60% bond' portfolio while withdrawing at 6%+ per year.
If you're only withdrawing 4% per year, then you dont need an Immediate Annuity since it's unlikely you'll outlast your 40/60 portfolio.

ie: $300k nest egg
4% withdraw rate = $12k/year

but you need $20k/year (on top of social security) to meet expenses.
$20k/$300k = 6.67% withdrawal rate

So is the title of my thread correct?
If not, why not??

Xlar:
I believe that one of the main problems with an annuity in the long term is that it is not inflation adjusted! This means that while you have a higher 6-7% withdrawal rate early on inflation will decrease the purchasing power of the annuity below 4%. The 4% rule includes adjusting your withdrawals upwards every year to compensate for inflation.

The other problem with an annuity is that you don't get your capital back at the end! If you run the 4% rule in cFiresim you'll see that in the majority of 30 year periods you actually end up with more capital left (adjusted for inflation) than when you started!

yachi:
You got me curious so I just ran Fidelity's annuity calculator, selecting an age of 35, income starting this year, and a 2% annual increase option.  With an $850,000 investment they would pay out only $2,053 per month, so a 2.9% "withdrawal rate".
The 2% annual increase is current inflation, but who knows what it'll be for the next 50 years.  There's also no minimum payout or death benefit, so they keep your money no matter what.

I suggest a new thread title:
Immediate Annuity: only if you can't survive on a 4% withdrawal rate while spending less than 3%

Financial.Velociraptor:
You'll be hard pressed to find an annuity paying 6% in the US right now.  Many are offering less than 2%!

Eric:

--- Quote from: Xlar on March 14, 2018, 10:26:19 AM ---I believe that one of the main problems with an annuity in the long term is that it is not inflation adjusted! This means that while you have a higher 6-7% withdrawal rate early on inflation will decrease the purchasing power of the annuity below 4%. The 4% rule includes adjusting your withdrawals upwards every year to compensate for inflation.

--- End quote ---

You can solve this problem by purchasing an inflation adjusted annuity.


--- Quote from: Xlar on March 14, 2018, 10:26:19 AM ---The other problem with an annuity is that you don't get your capital back at the end! If you run the 4% rule in cFiresim you'll see that in the majority of 30 year periods you actually end up with more capital left (adjusted for inflation) than when you started!

--- End quote ---

This is even less of a problem, since dead people generally have very little use for money.

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