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with the variable income option.

This seems rather interesting as a choice for returement income, in that ther is a guarantee for life (if that's the chosen option) and for some volatility of return, you can get better than the guaranteed payment of the fixed option.

Like a fixed payment immediate annuity, there are two components of the payment, where the one part is the rturn on your investment over your and the other is passing on the investment return.

I understand the "concept", but some of the specifics are a little fuzzy in my understanding.

Does anyone have one of these? Any opinions?

I am considering options down the road a few years, and I am pretty much convinced I need to add some additional kind of "guaranteed for life" income stream to our retirement options, since I have only a small pension coming to me from a previous employer any years ago.

Thanks for any input on this immediate annuity with variable income.

dan

Originally posted in thread: 38119 Related Topics retirementAnnuitiespensionvolatilityinvestment return

Hi Dan:

The papers cited below should provide you with a good deal of information regarding immediate annuities. The first two papers come from the TIAA-CREF Institute and present a primer on fixed, graded, and variable payout annuities.

The (Mostly) Pros and (Few) Cons of Lifetime Annuities.

Inflation and Annuities.

The next paper, from Ibbotson Research, deals with the optimization of income distribution strategies, combining annuitization with portfolio withdrawal in accordance with individual utility functions.

Ibbotson Paper.

Finally, the following very accessible paper, although addressed to Dr. Milevsky's (the foremost academic on the study of annuitization) native Canadian audience, is nonetheless a very informative read.

How to Completely Avoid Outliving Your Money.

I hope this helps.

Regards,
blb

Originally posted in thread: 38119 Related Topics PortfolioAnnuitiesdistributionsTIAA-CREFCanadian

Humberto Cruz has written many interesting columns regarding annuities.
I am linking one that gives an understanding of the assumptions that insurance companies use to determine the benefits. Check his archives for more about this subject.
[url=http://www.jsonline.com/bym/your/sep04/259746.asp]Humberto Cruz column[/url]

Originally posted in thread: 38119 Related Topics insuranceAnnuitiesarchives

Sorry, Let me try the link again.

Humberto Cruz on Annuities


Nelson

Originally posted in thread: 38119 Related Topics Annuities

Speaking as one who annuitized a substantial part of my portfolio (both FIA and VIA) four years ago, let me say that Barry has provided you with excellent bibliography.

To Barry's bibliography I would add another piece from the TIAA-CREF Institute, namely John Ameriks's "Reducing Retirement Income Risks: The Role of Annuitization."

By the way, Ameriks has moved from TIAA to Vanguard. You might try to contact him directly at Vanguard. Sincerely, Bob Uphaus

Originally posted in thread: 38119 Related Topics VanguardPortfolioTIAA-CREFRetirement IncomeTIAA

Hi Dan,

Make sure you fully understand the concept of Assumed Interest Rate, AIR, also known as Assumed Investment Return.

Insurance companies use AIR to calculate your first variable annuity payment.  They assume that the underlying investments will grow at that rate.  This lets them pay a larger first payment than they would if they did not assume any growth.  The higher the AIR, the larger the first payment.  The AIG annuity from Vanguard gives you a choice of 3.5% or 5% AIR.

Here comes the important part.  Payments after the first are based on the underlying investments' performance relative to the AIR.  If the investment performance is more than the AIR then subsequent payments will go up.  If the investment performance is less than the AIR then subsequent payments will go down.  If the investment performance is the same as the AIR then subsequent payments will stay the same.

AIR has the effect of front-loading your annuity payments.  The first payment is higher than it otherwise would have been but subsequent payments do not grow as fast as they otherwise would have.

Do you hope that your annuity payments will roughly keep pace with inflation? If so, then your underlying investments will need to have a real return (inflation-adjusted return) that roughly matches the AIR.  Expecting a 3.5% real return from a bond portfolio might be a little optimistic.  Expecting a 5% real return from a bond portfolio might be too optimistic.  You might need to add some stocks to your portfolio.  But adding stocks could make your payments even more variable.  The point is that AIR could effect your investment decisions.

This post is not meant to be a complete explanation of AIR.  I just wanted to alert you to one important factor when buying an immediate variable annuity.  Please do your own research on AIR and do not rely solely on this post.

Ron

Originally posted in thread: 38119 Related Topics insuranceAnnuitiesinterest rateVariable Annuityinvestment return

I think I sort of understood, but some examples help.

So, if I understand correctly, starting with an assumed AIR of 5% may result in an overpayment and result in the loweing of the subsequent payments, and starting with 3.5% might cause future payment to go up if the return is higher, then is it true that, over time, the total amount collected for a given portfolio will be the same with either the AIR of 5% or the AIR of 3.5% and only the stream of payments will differ slightly?

Also, is it true that as time goes on, the payments for a given portfolio will be the same whether one starts out with 3.5% or 5%, just that path of monthly payments will be different for some period (less than a year?)

Also, the "consensus" seems to be that TIAA/CREF is the place to go for immediate annuities!

Thanks.

dan

Originally posted in thread: 38119 Related Topics PortfolioreturnsAnnuitiesTIAACREF

Hi Dan,

For an example, I got two quotes for a 65-year-old male. The first monthly payment was $603 from a 3.5% AIR and $695 from a 5% AIR. I calculate that the monthly payment from the 3.5% AIR will catch up to and pass the payment from the 5% AIR after 118 months or just under 10 years.

At a constant investment rate of return of 4% the total of all payments from the 3.5% AIR would catch up and pass the total from the 5% AIR after about 20 years. By then the totals are not increasing very fast and the annuity probably will not last much longer so you might as will consider them equal.

Again, please do not rely on my word for any of this. Do your own calculations.

Ron

Originally posted in thread: 38119 Related Topics investmentAnnuitiesrate of return

this will help a great deal in evaluating these animals.

My wife, who has no pension of her own and will collect bases on my social security, and I were discussing our relative individual needs if the other died. It was her opinion that she would need more income if I died first than I would need if she died first. I had not thought of it that way, especially taking into account my costs of dating :) - which she did not think were all that critical.

So, one "solution" to her having more if I die first is to have her buy an immediate annuity with lifetime income for her only. Then, while both of us are alive, we will have the income and if I die first, her income will continue. BUT, if she dies first, the income will stop. By having no survivor benefits, she will get more per month than if there were a sirvivor benefit.

dan

Originally posted in thread: 38119 Related Topics incomeAnnuitiespensionsocial security

I retired over 5 years ago from a major corporation and took a variable retirement income instead of the fixed income choice.

I have received less income than I would have received under the fixed choice. In fact, several years ago my monthly checks dipped over 60%.

The market has come back and my checks are increasing. I am 60 and if I live to life expectancy and the market averages 5% or better in the future I will come out ahead with the variable annuity.

If I had to do it over again I still would take the variable payout. I can handle the risk as I have other assets and work full time in a different job.

meph

Originally posted in thread: 38119 Related Topics marketriskincomeVariable AnnuityRetirement Income

".....if I die first, her income will continue. BUT, if she dies first, the income will stop. By having no survivor benefits, she will get more per month than if there were a survivor benefit."

If you and your wife are close to the same age, a 50% survivor benefit would not lower the benefit greatly. Might be worth considering.

Nelson

Originally posted in thread: 38119 Related Topics income

Hi Dan:
We purchased a fixed deferred annuity about 10 years ago. We were advised to own it jointly. I am the annuitant. I now believe we made a mistake.

1. Our annuity is now worth considerably more than $100,000. The annuity company has been sold twice and now owned by ING (involved in current scandal).

Florida, like most states, only guarantees an annuity up to $100,000. If we had purchased individual annuities we would have $100,000 more State guarantee.

2. Like you, Pat and I might like to have different benefits and more individual flexibility (annuitant, beneficiaries, ownership, periods certain, etc.) With a jointly owned annuity this is difficult or impossible.

Consider separate annuities for you and your wife.

Best wishes.
Taylor

Originally posted in thread: 38119 Related Topics AnnuitiesbeneficiaryING

The only kinds of annuity I am at all considering in the future is an "immediate" annuity that would guarantee some sort of lifetime income. The other type of annuity that "might" be worth considering is a fixed annuity in place of something "safe" like CDs. For some reason, the returns on these fixed annuities is sometimes much better than CDs and sometimes much worse. Since I am very close to 59 1/2, there is not the withdrawal problem with these.

As far as whether it is two lifetimes or one, or the 50% survivor benefit, that will really depeend on our circumstances at the time we might purchase one or two of these.

dan

Originally posted in thread: 38119 Related Topics returnsAnnuitiesCDfixed annuityfixed annuities

Hi:

TIAA-CREF research papers have shifted locations. The updated links are provided below:

The (Mostly)Pros and (Few)Cons of Lifetime Payout Annuities
Inflation and Annuities

regards,
blb

Originally posted in thread: 38119 Related Topics AnnuitiesinflationresearchTIAA-CREF

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