Annuity?

[indianavette]

What is the current thought regarding annuitizing a variable annuity? I can get 5% income for life but would I be able to do better than that over the period of investments?

[gustavo]

What is the current thought regarding annuitizing a variable annuity? I can get 5% income for life but would I be able to do better than that over the period of investments?

Income, or income plus return of principal? I can get 5% income with the same risk as hoping an insurance company will not default and keep all of my principal. So, to answer your question, I don't think it's a good idea.

[dewilson58]

Maybe. Annuities are very conservative (if you can rely on the insurance company), but should only be a small portion of your investment portfolio. Just my two cents.

[indianavette]

Income, or income plus return of principal? I can get 5% income with the same risk as hoping an insurance company will not default and keep all of my principal. So, to answer your question, I don't think it's a good idea.

How do you do that? It sounds too good to be true but I am definitely interested.

[TrudyM]

How do you do that? It sounds too good to be true but I am definitely interested.

My mom was sold one of these in the 80's and if my brother had not stepped in and told her to sell it she would have lost a ton. I think it was called university life or something like that. Every broker was selling it like mad and it went belly up. If the return is too good to be true it always makes me scared. Use to be they said move toward a larger % in bonds to reduce risk in retirement but interest rates are all over the map if you look at 10 or 15 years of history. I don't see anything out there that is 100% safe it makes me very uneasy.

[gustavo]

How do you do that? It sounds too good to be true but I am definitely interested.

Buy Altria stock

[l2ridehd]

Buy Altria stock

A very good company with a good dividend, but again your placing all your eggs in a single basket. Any single company can fail.

For low risk, decent return, buy low cost index funds that cover the entire market. A total stock market fund, a total international fund, and a total bond fund. Use Vanguard, Fidelity or Schwab. The all have low cost funds. A very simple 3 fund portfolio in low cost index funds, balanced to meet your risk tolerance (probably around 40% TS, 15% TI, 45% TB) will provide a low risk approach that will allow you to withdraw 3% each year forever and 4% for 30 years. Re-balance to those percents once a year on your birthday.

If that is to difficult then just put half in each of Vanguard Wellington and Wellesley funds. They have a 50 year track record of steady returns with minimal volatility and low cost. That combination would give you 50% stocks and 50% bonds with just those two funds.

[JP]

People that sell annuities make money off of you and consequently that will eat into your overall return.

IF you are willing to accept this, your next decision would be to go with the most stabile company that you buy your annuity from.

You don't want your annuity company going out of business and get zero return of any of your money you have invested.

[gustavo]

A very good company with a good dividend, but again your placing all your eggs in a single basket. Any single company can fail.

For low risk, decent return, buy low cost index funds that cover the entire market. A total stock market fund, a total international fund, and a total bond fund. Use Vanguard, Fidelity or Schwab. The all have low cost funds. A very simple 3 fund portfolio in low cost index funds, balanced to meet your risk tolerance (probably around 40% TS, 15% TI, 45% TB) will provide a low risk approach that will allow you to withdraw 3% each year forever and 4% for 30 years. Re-balance to those percents once a year on your birthday.

If that is to difficult then just put half in each of Vanguard Wellington and Wellesley funds. They have a 50 year track record of steady returns with minimal volatility and low cost. That combination would give you 50% stocks and 50% bonds with just those two funds.


My premise was how can you get 5% with the same risk as a single insurance co. My answer was Altria (MO 5.5%), a single company. I don't think there is any greater chance of Altria going belly up as (fill in the blank with any insurance co). However if you want to diversify and remove the single company risk, you can also pick GlaxoSmithKline (GSK 5.9%), AT&T (T 5.4%), British Petroleum (BP 5.2%), Southern Co (SO 5%) etc, in any combination or ratio that you like. Remember, my premise was that I can get the same 5% as the proposed annuity payout except, my way, preserves my principle, the annuity does not.

[gustavo]

A very good company with a good dividend, but again your placing all your eggs in a single basket. Any single company can fail.

For low risk, decent return, buy low cost index funds that cover the entire market. A total stock market fund, a total international fund, and a total bond fund. Use Vanguard, Fidelity or Schwab. The all have low cost funds. A very simple 3 fund portfolio in low cost index funds, balanced to meet your risk tolerance (probably around 40% TS, 15% TI, 45% TB) will provide a low risk approach that will allow you to withdraw 3% each year forever and 4% for 30 years. Re-balance to those percents once a year on your birthday.

If that is to difficult then just put half in each of Vanguard Wellington and Wellesley funds. They have a 50 year track record of steady returns with minimal volatility and low cost. That combination would give you 50% stocks and 50% bonds with just those two funds.

The OP was talking about 5% income. Total Stock, VTI only yields 1.97%. Total Bond, BND is 2.97% and Total International stock, VXUS is 3.17%. Note a high overlap in VTI and VXUS which lowers diversification and increases volatility. Perhaps a fund like Vanguard emerging market ETF (VWO 3.36%) meets the need for international exposure without overlap. However, the yield on this portfolio is much less than the required 5%. The individual stock(s) are better than the insurance company annuities.

[bluejaypop]

A very good company with a good dividend, but again your placing all your eggs in a single basket. Any single company can fail.

For low risk, decent return, buy low cost index funds that cover the entire market. A total stock market fund, a total international fund, and a total bond fund. Use Vanguard, Fidelity or Schwab. The all have low cost funds. A very simple 3 fund portfolio in low cost index funds, balanced to meet your risk tolerance (probably around 40% TS, 15% TI, 45% TB) will provide a low risk approach that will allow you to withdraw 3% each year forever and 4% for 30 years. Re-balance to those percents once a year on your birthday.

If that is to difficult then just put half in each of Vanguard Wellington and Wellesley funds. They have a 50 year track record of steady returns with minimal volatility and low cost. That combination would give you 50% stocks and 50% bonds with just those two funds.

Very easy and EXTREMELY good advice. Annuities are sold by insurance companies. Need anyone say more?

[er9027]

My premise was how can you get 5% with the same risk as a single insurance co. My answer was Altria (MO 5.5%), a single company. I don't think there is any greater chance of Altria going belly up as (fill in the blank with any insurance co). However if you want to diversify and remove the single company risk, you can also pick GlaxoSmithKline (GSK 5.9%), AT&T (T 5.4%), British Petroleum (BP 5.2%), Southern Co (SO 5%) etc, in any combination or ratio that you like. Remember, my premise was that I can get the same 5% as the proposed annuity payout except, my way, preserves my principle, the annuity does not.

DEVERSIFY,,,,NEVER,,,I MEAN NEVER put all you money in one stock!!! MO is good. T is good, JNJ is good..BUT NEVER put it all in one...Warren Buffett would tell you that also....he does alright... Good Luck

[l2ridehd]

The OP was talking about 5% income. Total Stock, VTI only yields 1.97%. Total Bond, BND is 2.97% and Total International stock, VXUS is 3.17%. Note a high overlap in VTI and VXUS which lowers diversification and increases volatility. Perhaps a fund like Vanguard emerging market ETF (VWO 3.36%) meets the need for international exposure without overlap. However, the yield on this portfolio is much less than the required 5%. The individual stock(s) are better than the insurance company annuities.

Those 3 funds have very little overlap. And that is only when you have the exact same % of each. And yield and total return are apples and oranges. YTD total return (yield plus growth) for that fund mix is 12.379%. The return for the past 34 years is 7.36%. Way above his 5% requirement.

I personally prefer to spread my risk over 10,000 plus different stocks and bonds then over one or a small hand full of stocks only. This approach has a significantly lower risk factor then an annuity, a single stock, or a small group of very good stocks.

[Cedwards38]

A very good company with a good dividend, but again your placing all your eggs in a single basket. Any single company can fail.

For low risk, decent return, buy low cost index funds that cover the entire market. A total stock market fund, a total international fund, and a total bond fund. Use Vanguard, Fidelity or Schwab. The all have low cost funds. A very simple 3 fund portfolio in low cost index funds, balanced to meet your risk tolerance (probably around 40% TS, 15% TI, 45% TB) will provide a low risk approach that will allow you to withdraw 3% each year forever and 4% for 30 years. Re-balance to those percents once a year on your birthday.

If that is to difficult then just put half in each of Vanguard Wellington and Wellesley funds. They have a 50 year track record of steady returns with minimal volatility and low cost. That combination would give you 50% stocks and 50% bonds with just those two funds.

Good advice!

[Bobcuse]

Be careful about chasing high dividends.

1) They are not a replacement for the safety of bonds.

Yes, bond yields are very low but since 1928, the S&P 500 has lost money about 28% of the time. The last 2 recessions, stocks have lost about 40% to 50% of their value.

Since 1952, the max 1 year loss for a high dividend strategy was -35%, max 2 year loss was -39% and max 3 year loss was -33%!

In 2008 recession:
- 40% VTI, 10% VXUS, 5% VWO, 45% BND = -18.35% return
- 50% Wellington and 50% Wellesley = -22%
- equal weight MO, GSK, T, BP, SO = -22.28%


2) High dividends are a relatively inefficient way to target value investing.

Be careful.

Good luck.

Thank you for these facts! This is exactly why I have been reluctant to keep my portfolio invested in the markets. High dividend % may be a result of lower stock prices so getting 5% return while the stock values drop is meaningless. If this market continues to be volatile when most believe it has peaked for the foreseeable future (12-18 mos) then I am reluctant to invest at this time. Annuities are tempting (I am 72) but I just can't get comfortable with that idea. I'm looking for a 5 year CD at a nice 3-4% return. That gets me zero risk and income to meet my needs. What is the best product available today with the low risk provided my CD's?

[l2ridehd]

Be careful about chasing high dividends.

1) They are not a replacement for the safety of bonds.

Yes, bond yields are very low but since 1928, the S&P 500 has lost money about 28% of the time. The last 2 recessions, stocks have lost about 40% to 50% of their value.

Since 1952, the max 1 year loss for a high dividend strategy was -35%, max 2 year loss was -39% and max 3 year loss was -33%!

In 2008 recession:
- 40% VTI, 10% VXUS, 5% VWO, 45% BND = -18.35% return
- 50% Wellington and 50% Wellesley = -22%
- equal weight MO, GSK, T, BP, SO = -22.28%

2) High dividends are a relatively inefficient way to target value investing.

Be careful.

Good luck.

These facts prove my point. In the 2008 recession the DOW and S&P both fell over 50% while this mix fell only 18%. And he failed to mention that since 2008 that mix has recovered 200%.

If you need the money today buy CD's. Best rates are from places like Ally on line banks. Do a ladder of 1 through 5 year CD's. They even have a "raise your rate" CD if rates go up. If you have 10 years or more of income requirements then a broad mix of low cost index funds is the best answer.

[Bobcuse]

These facts prove my point. In the 2008 recession the DOW and S&P both fell over 50% while this mix fell only 18%. And he failed to mention that since 2008 that mix has recovered 200%.

If you need the money today buy CD's. Best rates are from places like Ally on line banks. Do a ladder of 1 through 5 year CD's. They even have a "raise your rate" CD if rates go up. If you have 10 years or more of income requirements then a broad mix of low cost index funds is the best answer.

Excellent information. Thank you very much for your advice!

[justjim]

Annuities have their place---especially for someone you want to guarantee income for in the future. For example, a challenged relative or child, not EVERBODY follows the Market or is capable of investing their own funds. There are others who just want the "comfort" of regular income without the "hassle".

If an insurance company like Met or Prudendial goes belly up---we are all in trouble.

[dewilson58]

These facts prove my point. In the 2008 recession the DOW and S&P both fell over 50% while this mix fell only 18%. And he failed to mention that since 2008 that mix has recovered 200%.

If you need the money today buy CD's. Best rates are from places like Ally on line banks. Do a ladder of 1 through 5 year CD's. They even have a "raise your rate" CD if rates go up. If you have 10 years or more of income requirements then a broad mix of low cost index funds is the best answer.

Nicely stated.
Yes, the stock market took a hit, but it has rebounded plus, plus, plus.

"You" should always have $$$ short-term for your ST needs, which will carry you thru any down turn.

After every down turn, there has been an up turn........eliminating the down turn.

:MOJE_whot::MOJE_whot::MOJE_whot:

[dewilson58]

Since most of us are not going to live another 80 years (looking back at market performance since 1920's)............here is what I've seen over the last 20 years (thru 2012, does not include the amazing 2013 Equity results) :

Equity Index is up 8.10%
Bond Index is up 6.00%
T Bills are up 3.20%
Commodities are up 5.75%
CPI is up 2.45%

Investing is a personal preference.....risk, reward, being able to pay bills and being able to sleep at night.

[gustavo]

Thank you for these facts! This is exactly why I have been reluctant to keep my portfolio invested in the markets. High dividend % may be a result of lower stock prices so getting 5% return while the stock values drop is meaningless. If this market continues to be volatile when most believe it has peaked for the foreseeable future (12-18 mos) then I am reluctant to invest at this time. Annuities are tempting (I am 72) but I just can't get comfortable with that idea. I'm looking for a 5 year CD at a nice 3-4% return. That gets me zero risk and income to meet my needs. What is the best product available today with the low risk provided my CD's?

You are all missing the point of the OP and my initial response. When you buy an annuity it's like buying a stock that instantly goes to zero, but continues to pay a 5% income until you die. When you by MO and/or and other combination of the stocks I listed you get the 5% plus anything above zero value is a plus as compared to an annuity. Plus when you die the interest goes to your heirs and any residual value above zero. I rest my case that MO is better than an annuity.