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Thread: She took all her money out of market

  1. #11
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    Yes, LDAHL, I think that is the wisest strategy, to cover the basic lifestyle with guaranteed sources. I also think this is much more difficult to those who do not have a defined pension, so then they try to up their ampage in the market. Which can be unfortunate as it is riskier.

  2. #12
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    I have thought about doing something similar from time to time, but it's likely I'll stay with stocks for the long haul. Partly this is inertia, but insofar as I reason about it, my thinking is that around half of my assets are in equities now. If the market tanked--say, lost half its value--my net worth would be reduced by one-quarter. This would be a blow, but not a fatal one. My retirement would go from comfortable to modest, assuming the market didn't recover (although it always has). To me, this is a risk worth taking, one that simple living has made possible. Knowing you can get by with less, not a particular financial strategy, is the best insulation from risk.

  3. #13
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    Oddly before that she invested money mostly in a balanced fund that was 60% stocks, 40% bonds all along, doing really well for not being in stocks more heavily all these years, because really that kind of fund is never heavily in stocks, not if that's what your in in your 30s etc. as she must have been.
    If you want something to get done, ask a busy person. If you want them to have a nervous breakdown that is.

  4. #14
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    Quote Originally Posted by Tybee View Post
    Yes, LDAHL, I think that is the wisest strategy, to cover the basic lifestyle with guaranteed sources. I also think this is much more difficult to those who do not have a defined pension, so then they try to up their ampage in the market. Which can be unfortunate as it is riskier.
    In my case, the pension is really what makes the strategy possible. Even with Social Security delayed to age 70, we wouldn't have enough guaranteed (and I realize there are policy risks involved) income to make it work. I looked at the possibility of a TIPS ladder or some sort of inflation-indexed annuity, but both options seemed more expensive.

    I think you're absolutely right that a largely stock/bond driven retirement can be very risky, especially since so many people have an imperfect understanding of the actual risks involved and insufficient savings to weather the inevitable volatility.

    Another advantage of a "pensionaized" retirement, is that as you age your income is less vulnerable to fraudsters targeting large pools of invested money and your own cognitive decline.

  5. #15
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    I wondered what you all thought about this article so I'm glad to see this thread.

    I cannot help but wonder if there was a settlement from the rich ex she mentions. Also, not mentioned in the article: she was an attorney before quitting to be a library worker (NOT a librarian; a circulation assistant) and part-time writer. So I wonder if there's something she's not telling us.

  6. #16
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    LDAHL,

    On 2 occasions 6 months apart I got quotes from about 20 insurance companies on Single Premium Immediate Annuities on my life, and the same with a Rider for a 3% annual cost-of-living escalator. Assuming that monthly payments begin immediately for a man aged 68 years, buying a $100,000 contract,
    the average of the nine companies with the highest monthly annuity payment was $581.88...
    the average of the same 9 companies initial payment with a rider for a 3% compound annual increase in the monthly payment was $436.04, a reduction of $145.84 in the monthly payments in the first year of the contract.
    Year 2 (age 69) Monthly indexed payment $449.12... reduction of $132.76 per month
    Year 3 (70) $462.59... $119.29
    Year 4 (71) $476.47... $105.41
    Year 5 (72) $490.77... $91.11
    Year 6 (73) $505.49... $76.39
    Year 7 (74) $520.65... $61.23
    Year 8 (75) $536.27... $45.61
    Year 9 (76) $552.36... $29.52
    Year 10 (77) $568.93... $12.07
    Note: Year 10 is the last year when the annuitant's monthly income is reduced by the 3% COLA Rider. The cumulative reductions in monthly payments equal $819.23 over 10 years. In future years the monthly
    payments with the Rider will be greater than $581.88. Using $819.23 as a break-even point, it will be Year 20 (age 87) when the annuitant breaks even with 3% COLA. IF he lives beyond his 86th year he breaks even with the Rider.

    The catch is: at age 68 when the decision needs to be made to go with straight payments or COLA-indexed payments, the individual does not really know if he will still be alive beyond 86. Standard mortality tables like the ones available at the Social Security Administration website say the average male will not live beyond 84. The 9 insurance companies also have their own actuarial statistics that are quite elegant.

    In conclusion, I was not impressed by the value of the 3% COLA Rider, relative to the cost of it in the annuities offered by the the average insurance company. Before I would actually be serious about buying SPIAs, I would want to get new quotes and run the comparisons again. It is possible that a particular insurance company may be an outlier in the pricing of its COLA Rider... and if such a the company is highly rated by A M Best, I would consider it.

  7. #17
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    Hello! I am the person who wrote that Money article. My Google alert brought me to this forum and I've really enjoyed reading your comments about it. It probably won't surprise anyone that my way of life is pretty much aligned with what seems to be the overall philosophy of this site and I look forward to exploring other threads. Roz Warren

  8. #18
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    Quote Originally Posted by dado potato View Post
    LDAHL,

    On 2 occasions 6 months apart I got quotes from about 20 insurance companies on Single Premium Immediate Annuities on my life, and the same with a Rider for a 3% annual cost-of-living escalator. Assuming that monthly payments begin immediately for a man aged 68 years, buying a $100,000 contract,
    the average of the nine companies with the highest monthly annuity payment was $581.88...
    the average of the same 9 companies initial payment with a rider for a 3% compound annual increase in the monthly payment was $436.04, a reduction of $145.84 in the monthly payments in the first year of the contract.
    Year 2 (age 69) Monthly indexed payment $449.12... reduction of $132.76 per month
    Year 3 (70) $462.59... $119.29
    Year 4 (71) $476.47... $105.41
    Year 5 (72) $490.77... $91.11
    Year 6 (73) $505.49... $76.39
    Year 7 (74) $520.65... $61.23
    Year 8 (75) $536.27... $45.61
    Year 9 (76) $552.36... $29.52
    Year 10 (77) $568.93... $12.07
    Note: Year 10 is the last year when the annuitant's monthly income is reduced by the 3% COLA Rider. The cumulative reductions in monthly payments equal $819.23 over 10 years. In future years the monthly
    payments with the Rider will be greater than $581.88. Using $819.23 as a break-even point, it will be Year 20 (age 87) when the annuitant breaks even with 3% COLA. IF he lives beyond his 86th year he breaks even with the Rider.

    The catch is: at age 68 when the decision needs to be made to go with straight payments or COLA-indexed payments, the individual does not really know if he will still be alive beyond 86. Standard mortality tables like the ones available at the Social Security Administration website say the average male will not live beyond 84. The 9 insurance companies also have their own actuarial statistics that are quite elegant.

    In conclusion, I was not impressed by the value of the 3% COLA Rider, relative to the cost of it in the annuities offered by the the average insurance company. Before I would actually be serious about buying SPIAs, I would want to get new quotes and run the comparisons again. It is possible that a particular insurance company may be an outlier in the pricing of its COLA Rider... and if such a the company is highly rated by A M Best, I would consider it.
    I would tend to agree with you. The inflation riders don't seem to be a good value. If I buy annuities at all, it will probably be plain vanilla SPIAs on a piecemeal basis in my later years, and only enough to cover the basics if the pension and social security come up short.

    I'm more in the camp that views annuities as "longevity insurance" than as investments.

  9. #19
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    Hi Roz, how cool that you found us! I found your article very thought provoking, and I wonder how many people our age will come to the same conclusion that you have, that you have enough, and you are getting out of the "game."
    My mom used to have a stock portfolio and used to take me as a kid to watch the ticker at the brokerage office, so I have an emotional attachment to the stock market, but I can certainly see getting out, if I had enough.
    I always wanted to be one of those old ladies you saw at the bank with the long scissors, in the vault, clipping coupons.
    So I am definitely programmed to buy utilities...

  10. #20
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    Quote Originally Posted by bae View Post
    I think it’s a fine strategy if you have “enough” - time is valuable, and not having to spend time investing, doing taxes, and incurring stress related to that is priceless...
    I agree that tax avoidance as a primary concern can eat up my precious life energy, I have a short attention span for micro financial things. That's why my strategy of frugal living combined with a practice of save muchly/throw into simple investment vehicles/forget about it has worked, more or less. I paid attention only to our annual accounting of assets, an amount that usually went up annually. DH pays some attention to the tax exempt issue, more than I do. actually, we are dancing around ACA subsidy rewards with choices in our income stream and that is the most strategic planning I have ever done with the gubmnt's rewards system.

    Right now I am fighting with a stupid financial instrument of $11,000 that is making me crazy. It is under my maiden name and in order to retitle it, it requires 30 pages of hoops to jump through in addition to an official marriage certificate. I could not take time to screw with that in the days I was working, so I just left it alone. Now we have to title it as an asset in our trust, or cash it out. I don't want to cash it this year because it will greatly affect our income for ACA subsidy purposes, but I cannot face the 30 pages of paperwork. Today I think I will continue to ignore it until I am able to take Medicare and these income avoidance games are done.

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