💎Email jennifer@diamondnestegg.com & we will connect you with a colleague who will create your customized annuity plan for you or wait for the rest of our Annuities 2025 series! 💎Get our popular bond course bundle & save $80: www.diamondnestegg.com/home#_paa2isucf 💎Bond Beginners (our foundational-level bond course): www.diamondnestegg.com/bond-beginners 💎Bond Masters (our intermediate-level bond course): www.diamondnestegg.com/bond-masters 💎And join our super-supersaver membership for regular market updates & monthly live member Q&As ruclips.net/channel/UCnexoc6tvesvcCEzZhmI-Agjoin >>>>>>>>>> WATCH NEXT >> Our Bond Courses vs RUclips Membership | Which Is Right For You: ruclips.net/video/H5h4Eyh0hjo/видео.html >> Bond Beginners Course Sneak Peak | I-Bonds vs TIPS: ruclips.net/video/uXPzbje1g2E/видео.html >> Bond Masters Course Sneak Peak | How To Build A Bond Ladder: ruclips.net/video/p90IDmXn19s/видео.html >>>>>>>>>> Here is the overview for Bond Beginners: 1. Bond Basics What A Bond Is & How A Bond Works Why Invest In Bonds New Issue vs Secondary Market Bonds Interest Rates & Bond Prices Current Yield & Yield To Maturity Always Remember This! Buying At Par, Above Par & Below Par Different Types Of Bonds Wrap-Up 2. The Risks Of Bond Investing Seven Key Bond Risks Credit Risk Interest Rate Risk Reinvestment Risk/Call Risk Inflation Risk Liquidity Risk Currency Risk & Country Risk Bond Risk Mitigation Strategies Wrap-Up 3. US Treasuries Overview What Are US Treasuries Why Invest In Treasuries Where Can You Buy Treasuries How Are Treasuries Taxed Wrap-Up 4. Treasury Bills What Are Treasury Bills (T-Bills) When Do T-Bill Auctions Happen Where Should You Buy At Auction Auto-Roll When Buying At Auction Where To Find Recent Auction Results High Rate vs Investment Rate Reopening Auctions Cash Management Bills (CMBs) Buying & Selling On Secondary Market Wrap-Up 5. Treasury Notes & Bonds What Are Treasury Notes & Bonds When Do Auctions Happen Buying Treasury Notes & Bonds Auction High Yield vs Interest Rate Floating Rate Notes (FRNs) Treasury Zeros (STRIPS) Wrap-Up 6. TIPS (Inflation-Protected) What Are TIPS When Do TIPS Auctions Happen Nominal vs Real Yields Negative Yields How Do You Adjust TIPS For Inflation Taxes On Phantom Income Secondary Market Liquidity Wrap-Up 7. I-Bonds (Inflation-Protected) What Are I-Bonds How Does I-Bond Interest Work I-Bonds vs TIPS The Annual I-Bond Limit Wrap-Up 8. Agency Bonds The Universe Of Bonds What Are Agency Bonds How Are Agency Bonds Taxed Treasuries vs Agencies Who Might Want To Consider Agencies Yield-To-Call & Yield-To-Worst Where Can You Buy Agency Bonds Wrap-Up 9. Municipal Bonds Our Bond Universe Gets More Complex What Are Municipal Bonds How Safe Are Munis How Are Munis Taxed The De Minimis Rule Social Security & Medicare Premiums Treasuries, Agencies & Munis Who Might Want To Consider Munis Wrap-Up 10. Corporate Bonds Our Bond Universe Is Complete What Are Corporate Bonds How Safe Are Corporates Corporate Bond Hierarchies Five Key Features Of Corporate Bonds How Are Corporates Taxed Treasuries vs Corporates, Etc. Who Might Want To Buy Corporates Wrap-Up >>>>>>>>>> Here is the overview for Bond Masters: 1. Stocks vs Bonds Historical Performance Are Bonds Really Less Volatile Why Invest In Bonds Accumulation vs Decumulation Allocation of Stocks vs Bonds Wrap-Up 2. Which Bonds Might Be Right For You Treasuries & Other Types of Bonds Nominal vs Real Yields Inflation vs Non-Inflation-Protected Taxable vs Tax-Advantaged Accounts Wrap-Up 3. Bond Ladders & Other Bond Strategies Normal vs Inverted Yield Curve What Is A Bond Ladder 5 Important Bond Laddering Questions Laddering When Rates Are Rising Laddering When Rates Are Falling Laddering When Rates Are Uncertain What Is A Bullet What Is A Barbell Wrap-Up 4. Holding to Maturity vs Selling Early Why Hold to Maturity When To Sell Early Before Maturity Tax Implications Of Selling Early Wrap-Up 5. Individual Bonds, Bond Funds, Etc. Why Buy Individual Bonds Why Buy Bond Funds Bond Fund Considerations Key Bond Fund Concepts CDs vs Treasuries Other High-Yield Investments Wrap-Up 6. Our B.E.S.T. Model Portfolios By Age Our B.E.S.T Model Portfolios By Age Model Portfolios In The Industry B.E.S.T Model Portfolio Difference How Much Do You Need To Retire? How I Use The Rules of 100, 110, & 120 B.E.S.T Model Portfolios (20s) B.E.S.T Model Portfolios (30s & 40s) B.E.S.T Model Portfolios (50s & 60s) B.E.S.T Model Portfolios (70s+) Wrap-Up 7. The Decumulation Phase What Is The Decumulation Phase? Bear Markets & Recessions What Can You Do In Bad/Bear Markets Decumulation Tax Considerations The 4% Rule The Bucket Strategy The Flooring Approach Jen’s Bucket Strategy With A Twist Wrap-Up >>>>>>>>>> Thanks for visiting our personal finance channel! We hope this content will help fast-track your financial journey! Everyone's financial journey is different. Please note that: 1) there are questions/ comments which I will not be able to answer without fully understanding your financial, personal & other circumstances 2) we will not ask you to call us or send us money in the comments on this channel or any of our other social media accounts, so if you see comment(s) along those lines, it is most likely spam - PLEASE DO NOT ENGAGE WITH SPAMMERS OR GIVE OUT YOUR PERSONAL INFORMATION FOR YOUR OWN SAFETY
I have a couple of annuities; they are not investments but good for a fixed income for my wife and I. Also, another good way to address inflation risk is to buy a deferred annuity at 65 for say 10 years. Then at 75 you will get another income stream when inflation has started to erode things like pensions. If a salesperson tries to get you to put more than say 25% of your investable assets in one, then run fast. I never liked annuities, but they have their place if used for what they do and not for what they can do (investment). Wife and I have no children so not as concerned with estate. Plenty of other things left for the relatives to fight over.
OMG, how am I going to remember all this at my old age? I think I need to factor in my mental capacity to manage bond ladders on Lifetime Annuity vs Bond Ladder consideration.
Once you've purchased your bond ladder, there is very little to manage. Bond interest and the return of principal (upon each bond's maturity) automatically flow into a cash account.
Wow wow wow. This is by far one of the best videos out there. Its given me s lot to digest and eork out how to execute a similar bond ladder taking inflation into account and doing it in different kinds of accounts (Roth vs tax deferred IRS vs savings account). Can't wait for the future videos on this subject. Keep up the good work.
When @barungupta6774 said, "a similar bond ladder taking inflation into account", they likely meant something like having the payout increase each year by 2% or 3% to take account of inflation. In Diamond Nest Egg's example, the annual payout was a fixed amount over 20 years, so inflation would erode the purchasing power of that amount over time.
I am interested in the case where people had to fight for the payout or automatic increased premium "adjustment" - since annuity products are run by the private (insurance) companies with different risk rating, could be prone to the 3rd party risks (ex. bankruptcy)
It's worth noting that the insurance companies that offer annuities are generally for-profit enterprises. They've done the math so that, on average, "the house" will win.
Strictly speaking, there are two separate events: the actuarial calculations, which aim to ensure that all the premiums and all the benefits paid out net out to zero before fees; and then the fees. In theory, you and a bunch of buddies could privately organize a pool of money in which the people who die earlier end up transferring money to those who die later. If all of you trust each other, there's no need for fees. There's no "house". If people who want annuities won't do THAT, then of course the regulated firms that provide them should be able to pay their staffs, operate their offices, and still make a profit after that. You can call that "the house winning", but you could say the same thing about EVERY business that pays its staff and operating costs, and still makes a profit. You could say that about Home Depot or Coca-Cola, for example.
Sometimes simplifying finances with a SPIA is worth the cost. Especially since as people age, their financial acumen may decline without their realizing it. They can potentially make poor decisions that cause worse outcomes than a SPIA.
@@chuckbatson595 but a MYGA contract is pretty simple. It's almost the same as a CD with better rates, but no FDIC. I agree about the SPIA, you only "win" if you live longer. It's a bet. Just like the service contract a car dealer tries to sell. But on those you only "win" if you lose (car breaks down)
Great presentation, as usual. One concern: given the longevity table presented, it is unlikely that the purchaser will outlive the bond ladder. The remaining amount when he dies would go to the kids or grandkids. With the annuity, any remaining funds go to the insurance company. Just a consideration.
Good information, Jennifer at age 60 (67 now), I took a portion of my IRA and bought a SPIA to fund a portion of our Floor expenses. During times that the stock markets have soared, I've regretted this, but when the markets go down, and with all the uncertainties of how the incoming administration's tariffs are going to play out, I feel good about the decision. I'm fortunate to have 2 small pensions, social security and the SPIA that adequately covers our floor expenses. We still have rainy day funds in T-bills, Agency bonds (thanks for educating me on Agency bonds BTW), and our IRA. While we are not wealthy, we can sleep at night knowing that as long as we keep an eye on our discretionary spending, we'll be okay.
I totally appreciate and agree and like the flooring strategy. My only worry is that of inflation and the fact that our various income streams may not be increasing to the rate of inflation increases. We already see that Social security is calculated by a percentage of CPI that is not typical for older people. And then, our annuities would be giving us a fixed stream of income, at least that's as I understand it. So as we set up our dollars per month, we'd have to be cognizant of what future inflation is because our expenses, even housing expenses when you consider taxation and such, will be going up over time.
I might be incorrect, but I think since annuities can be complex product. There might be an annunity with a rider that might adjust to the cost of living. It might be called "inflation-protected annuity". Not sure if it might be worth the cost or anything. Maybe Nestegg could cover the topice on a video.
I have both annuities and bond ladders, weighted towards bonds. But, I also have a healthy passive lifetime income stream without them. If I had to depend on them for my only income or to supplement SS, I believe I'd be inclined to lean toward a large annuity product for guaranteed income, and a smaller short term bond portfolio.
Absolutely, Jennifer, I would like to know more about annuities and please discuss the 1035 option for fixed annuities and which companies should be the less risky. Thanks and I love your videos because I learn a lot from you.
My father was a civil engineer who owned a highway construction company, and had two insurance companies go belly-up when he needed them. This was in the 1980s in Texas. There's no way I'd give any of my money to an insurance company. You never know what could happen.
Don't you believe in capitalism? Think Enron and Bernie Madoff. Enron was audited by one of the most prestigious firms, Arthur Andersen. Bernie Madoff was on the board of NASDAQ. As the old saying goes, "Who can you trust?" A socialist named Joseph Stalin said, "I trust no one, not even myself." If you knew what he knew about himself you would not trust him either!
Same happened to my dad. MetLife took over and offered him a $10K life policy for more than $10K per year, he passed it up. Who in their right mind would even consider it?
@@ronmorosey672 Funny though, a lot of those A+ and A++ rated insurance companies have been around since the 1800's and I don't recall them going out of business or missing out paying their obligations.
Jennifer you exquisitely timely. Just bought $200K annuity SPIA. No riders, upon my demise the wife gets what’s left with monthly payout. I will likely buy another later this year. I realized that my IRA has done well but when I must take RMDs and the market is down I end up with more risk. Thanks for your awesome blogs.
Hello Gary. The missing piece to this SPIC for me is what happens to the principal ($200k) when you die? Let’s say your SPIC pays out to you for 15 years, then you die. You said your ‘wife gets the rest in monthly payments’. Does that mean till she dies? Or until a specific payout ceiling is hit and the insurance company has no more obligation? TYIA , John
John. If I pass at year 15 my wife will get the death benefit value at that time as either a lump sum or a monthly payout until that value is exhausted but not until her death. I’m buying from Athene and there are no death riders or transfer rider. Plus Athene is providing a 13% signing bonus, $26k).
@@garymarquez1556 thank you. I understand your arrangement with the principal held by the insurance company and your wife. Appreciate you sharing that w me. (I like your arrangement) Best of luck & may you live long enough and healthy enough to ‘beat’ the insurance company and ‘beat’ social security! 😉💰
Depends. If ia single company issuer goes bankrupt the regulators can likely navigate that. If it is a systemic failure of the financial system then all bets are off. Therefore Treasuries remain your safest bet.
Exactly, I believe charitable annuities at big universities are safer than insurance companies. Usually you get about 5% distribution based on the balance. But these good universities historically have very good investment gains, so your balance does not go down due to distribution. Since it is charitable, you will get big gift tax deductions and exemption for investment if it has large capital gains. The only thing is you will give up the money when you die. So for people without heirs,it’s a good choice for a lifetime income.
Very clear as always. Thank you Jennifer. One question - if you plug in real world pricing on the bond ladder and the annuity it it likely that the annuity will cost you more since the insurance company surely builds in a profit margin which is not relevant to the bond ladder?
As others have mentioned, it seems inflation protection is missing from standard annuities and bond ladders that don't include TIPs and IBonds. If one's time horizon is 10 to 20 years, I'd want inflation protection to be part of the financial plan.
inflation, that's always my concerns when I hear fixed payments for 10x years. Likely we will see the return of inflation in the USA in 2025. I've yet to see many annuities that want to tackle inflation and offer COLA. Now if you want peace of mind, it's a good instrument if you're with a highly rated insurance firm. Keep in mind those age charts...that's the average...someone has to be on either side of that average.
I like the annuity concept as it is simpler and for life with no stock market risk. Bonds require more knowledge and capped at 20 years. When I am in retirement, I want to have less to worry about, and the annuity gives you that.
We'll be talking more about annuity fees over the next several weeks. The bond ladder portion of this video should help or you can check out this video here: ruclips.net/video/p90IDmXn19s/видео.html
I had a variable annuity with an income rider, but when I turned 63 in 2023, I realized the cost of the variable annuity with rider was going to eat away at my investment. I decided since the interest rate went up because the fed was raising rates, to cash out the annuity and buy a 30 year US treasury bond at 4%. I paid $116,000 for a $137,000 bond which will mature in 11/15/2022 when I will be 92. The primary reason is I will receive the $137,000 back if I am still alive and in the mean time gives me $5480 income a year. It is true that now, the bond is losing value if I were to sell. But since I am using this money to build my floor and never intend to sell until maturity, I believe this was a good move. Simple question. Am I not looking at this right? With the exception of interest risk and losing interim value on the bond, is not a 20 or 30 bond a good way to build your floor ?
Currently we have enough floor income to cover our expenses. I'd rather continue with a bond ladder that I keep reinvesting unless I need it, rather than run the risk of my family losing out on the money in an annuity if I die early. If it came down to it, we could also downsize our house for additional money since it's paid off.
Wondering the same. Also some bonds would need to be bought on the secondary market to create those increments. I'd rather have someone skilled in this give me a list of the 20 bonds to buy than risk trying it myself. Buying 5, 7, 10 etc at new auction is easy. It would be nice to see a "real world" list of bonds for a 20 year ladder with CUSIP's provided and in the increments in this ladder.
No Annuities for me. I have pension income, annuities are expensive, have surrender charges, and don't increase with inflation and most importantly, i am not giving up control and flexibility.
last year i bought a 10 year fixed annuity w/a 5.15% interest rate. i am 62. when that completes, i plan on converting it into a spia with a fixed 2.6% annual increase to cover inflation. i like the idea of having the guarantee for life as i don't have an pension. i also did this out of my roth ira so it is completely tax free.
here are a few more numbers..........Illinois’s life expectancy rate is 76.8 years in 2020, down from 79 years in 2019 and 78.8 in 2018. The state falls in a similar range to a few other states, including Texas, Florida, North Dakota, South Dakota, Montana, Alaska, Pennsylvania, Delaware, and Maryland
That life expectancy table is stunning. I always thought people would live longer than in past years. Nope! It's shrinking, and fast. I looked up why this is happening. It turns out that COVID-19 and drug overdoses are the main reasons for the drop. Life expectency in 1900 was 47 (M & W combined), 68 in 1950, 79 in 2019. 77 in 2020 and 76 in 2021. COVID caused the biggest 2-year decline since 1920.
How do you feel about annuities with a long term care rider. Being 61, long term care is something I am trying to decide the best way to go. From what i understand, an annuity with a long term care ride is less expensive than long term care insurance. Would love to hear your thoughts on long term care riders
$600 a month is great but over 20 years I'm likely to lump sum into an equities total market index fund for a significant percentage of that $100k. I would ask myself if I actually need that $600 every month and for argument sake maybe I don't. 40/60 equities to bonds might do the trick.
With respect to annuities, only buy them from an A+ or A++ carrier. I’ve done the same annuity scenario with my spouse in joint survivorship so we’re both covered for our individual lifetimes with a cash refund of any unused premium to our children.
Great video, keep up the good work, the community appreciates it! My question is related to taxes. Do you pay regular income tax on the annuities from the Insurance companies? Because we bond ladders the taxes will be considered capital gains and to certain amount we’ll be exempt from those.
I WOULD CONSIDER AN ANNUITY FOR ONLY 20% OF MY INCOME REQUIREMENTS. THAT, AND MY AND MY WIFE'S SOCIAL SECURITY PAYMENTS WOULD THEN MAKE UP 60-70% OF OUR INCOME REQUIREMENTS. THEN, I'D CONSIDER 401K OR ROTH WITHDRAWALS TO MAKE UP THE DIFFERENCE. I DO CONVERSIONS EVERY YEAR, TO GET AHEAD OF THE R.M.D.'S THAT I KNOW ARE COMING IN ABOUT 10 YEARS...
Great video. I just subscribed. My wife and I are struggling with the very concepts you discuss here. We are retired and need to maximize our guaranteed income flow while allowing for some ready cash for emergencies etc. We are not happy with our current advisor and the direction we seem to be heading. I am considering contacting you.
That would be 5-pay dividend paying life insurance from top mutual insurers like New York Life or Mass Mutual. No gain for about 4 years but then the money would compound grow around 5%+ every year till the life of the policy. Need to be of reasonably young age and health, or do it through someone with insurable interest who is. Tax free via practical wash loans.
Any annuity can be a Roth. I have a fixed indexed annuity earning interest (based on S&P performance with a cap -- which I'm sure Jennifer will be explaining in other videos). My plan is to activate the guarantee lifetime stream of income in about 15-years (and like SS, the longer you wait, the higher the monthly payment), then the income will not affect taxes/IRMAA. My RMDs will be minimal, but the SS & pension will always be taxable. Until I "semi-retired," I never realized how we can minimize taxes with some good planning. I retired, and WHAM! My entire income floor was taxed at ordinary income. :(
If possible, I would really like to see the SPIA compared to a ladder of TIPS bonds please. They are currently offering real yields over 2% out to 30 years. How might inflation affect the purchasing power provided by these at 10, 20, and 30 years out? Thank you!
@ that’s why I was interested in the comparison - in other words how much value would the SPIA lose compared to the likely/possible higher initial investment cost of the TIPS bonds to cover the inflation premium
Great video. I prefer T bonds over annuities. At age 65 a mix of 10, 20 and 30 year bonds (I just bought a 20 year with a YTM of 5.02%) can provide lifetime guaranteed income to age 95 while providing some additional capital along the way as bonds mature. If I die before age 95 my heirs get all the bonds compared to an annuity that dies along with me. Yes you need to invest more into the bond ladder to get the same monthly payments or take on some reinvestment risk but that is a small price to pay for getting your money back at the end. Am I missing something?
Spias have a cash back option in case you meet your end early. That means that the money you put into your Spia at the beginning WILL be returned to your beneficiaries, IF AND ONLY IF you die before that premium has not already been returned to you. If you make it to 95 , then you are likely correct, nothing will remain, unless you bought your Spia really really late , very late, too late, in life. The only way you make money on a Spia is if you live long enough to collect more in monthly paybacks than the cost of the initial premium when you first bought the Spia. It is a hedge against longevity and a good one, considering the costs associated with living a long time. So its old age insurance, and will protect your ninety year mind from influencers trying to get you into crypto as well🤣
When you say 10, 20, and 30 year bonds, do you mean you will be getting your principal back a decade apart (at 10, 20 and 30 years FROM NOW), or are you buying one bond of each maturity every year so that you get back some principal every year starting on year 10?
I posted this before the end of the video where the ladder was shown. If more than the interest is needed annually that is a better approach. I prefer the higher rates of long bonds and rather invest more so the interest income covers the need and the principal is gravy on top for emergencies. As far as annuities, social security is the best annuity.
I am 63, I have a good pension, I also am buying 10, 20 T bonds. Last night sold more stock and purchased 70K 20 yr 4.625, 4.98YTM. I slept well. I say last night because I am in Thailand, I have to stay up late to trade. hahah. Over the last 6 months I sold 400k of stock . The more I sold the better I felt. I kept apple, coke. att, vz, agnc, for now.
A 5-pay dividend paying life insurance from top mutuals like New York Life or Mass Mutual would very likely beat both bond ladder and annuity for someone who's not too old and/or unhealthy and can't do it through someone with insurable interest. No gain for about 4 years but then it should compound and grow around 5%+ for the life of the policy while ready to use via practical wash loans, which is what was happening even when rates were near zero for 15 years until recently, so it should be a little better going forward. As an example of how better it is, NYL was offering 12% for year 1 and 6% every year after for people who prefund it, and it gladly did so it could put the money in 7%+ corporate bonds to hold for 20+ years and pass off gains as tax free dividends. Income taxes kill the returns on bonds and annuity payouts, and prevents compounding. It's way more efficient with fewer hassles than swapping CDs and Treasuries your whole life.
For fixed income annuities the payment is fixed regardless of what the market does. With indexed and/or variable annuities your payment varies based on what is going on.
Mona - insurance companies invest in a wide variety of instruments. Not just stocks or junk bonds (which I know you have been concerned about in the past as well. I'll talk more about this in the upcoming weeks/months as we dive deeper into annuities. Jen
Is an annuity basically giving your money to an insurance company, having the insurance company invest your money any way it wants, and letting the insurance company pay you back your money in installments until you die without the option of taking your money out the way you want? Does an annuity ever pay out more money to an individual than the individual put in and earned through investment? After an insurance company begins paying out the annuity to the individual in installments, does the money remaining in the person's annuity earn money for the individual or for the insurance company? What happens when the insurance company underestimates the projected lifetime of the individual and runs out of the individual's annuity money before the individual dies? Will the insurance company keep paying annuity installments to the individual even though the money the individual put into the annuity and the individual earned in the annuity is all gone? Does the insurance company take the loss? What happens to the money the individual put into the annuity and earned in the annuity if the person does earlier than the insurance company projected? Does the insurance company keep the remaining money?
Are these SPIA's underwritten for your health? If you are very healthy you would collect for more years, and if you have lots of chronic conditions - your life expectency is less - so it would be a good deal.
No annuities are underwritten for health. Income annuities are rather like Social Security: the longer you wait to start, the higher your monthly amount is. These are known as "mortality credits." The insurance companies know when we are going to die. They just turn that into a math calculation to help determine the monthly amount.
The recurring question in various forms and my big question is What Happens To The Principal? In a Lifelong SPIA how does it work. That’s the Big Unknown in Annuity Land ??? Can we decode this? 💰
It's paid back to you each month in the form of interest and principal and after several years if you are alive, it keeps right on paying you until you are no longer living. An example... A 70-year-old man buys a 100k life Spia with a 10 year period certain it will take around 11.87 years for his principal to come back to him and after that he's living off the insurance company until he dies. It's really quite simple.
@ thank you & happy new year 🎆! The topic of the principle in 3,4,5,6,10 seems obvious. But the SPIA annuities at the ‘end of the contract’ or if I die 9 years into it is the concern. Fidelity breaks out annuities by state from 3 to 10 year period. No SPIAs
@@johnrac3302 Sounds like Fidelity is showing you a MYGA annuity which is akin to a CD. They most certainly sell Spias as I have used their calculator many times but they are generally a lower payout. You do realize a Spia can be bought with a cashback of the unused premium or one can buy a life and 20 year certain or even just a non life but 20 year payout.
The hardest decision is actually picking the right insurer for the SPIA. Pick the wrong one, and they may go bankrupt before paying you the entire guaranteed duration, especially "lifetime." They die before you do, bringing you down with them into bankruptcy in your most vulnerable final years.
So it all comes down to longevity. If you live longer than average, then an annuity is a better deal, but if you die sooner than average, then a bond ladder is preferable. Can I borrow your crystal ball?
insurance company is betting you will die sooner than avg. even if you dont they are paying back your principal for the first 14 years. they will profit.
Annuity is just dividing someones lump savings into monthly payments with little div idends then your money is tied for yearssss. Its better investment on monthly CDs. Money is liquid after a month.🤑🤑🤑
I rolled majority of my 401 k in a lifetime transferable Anuity.I also left full Co pension to my wife By purchasing at 59.5 and waiting to draw monthly payout they added 20 percent to my amount and 4 percent bigger payout each year I wait for four years compounding. The remainder of my 401 k i put in an IRA money market
In some cases, yes & especially if that is where your money is, but the monthly payouts are taxed differently. I'll talk about this in the coming weeks as we continue our annuity series. Jennifer
@@stephenshefsky5201 Yep. And to be clear, I am not dismissing the idea of using an annuity as a plank in a retirement income floor. AAMOF I use that strategy myself. Just encouraging edification as a fan of accuracy
What? If you need $600 a month in income, just buy 200k worth of 20 yr bond - paying 5% today, and get 10k a year for 20 years - then you still have your 200k you started with at the end. Am I missing something here?
I agree with you but I think her example might be for someone who only has 100k, I did what you are saying, I have been selling my stocks and buying 10and 20 year. I bought 70 k 20 year at YTM 4.98. yesterday. I have 425k in 10 and 20 averaging around 4. 5 YTM. I bought some when the rate was around 3.9 %. I was happy with that, I am even happier with 5%. I also already have an annuity that i bought 15 years ago when I rolled over a 401k, that is paying me 14k a year. I also have a good pension. I will take 5 % right now and sleep well.
SCHD etf for the win. 3.5% dividend yield that's qualified and the dividend grows by over 10%/year, I'll take that. Then if I ever need the principal I can sell shares. Not too shabby. 😁
Life expectancy tables are worse than useless. Look around. Even rich people with “great” healthcare and health, have a tough time making it past 90-92. My aggressively healthy MIL died at age 90. Surely she would have lived to 100. My grandad lived another 17 years after having multiple strokes in his 60s to about 80. Grandma, age 83 which seemed pretty old. No illnesses. Your expiration date is anytime from later today until reasonably about 88-92. Longevity is a total crapshoot. Go with current assets for next 10 years, then shift to longer timeframe income sources if you can still afford it after the nursing home.
Regarding life expectancy. All the experts keep saying plan to 95 years old. lol. very very few will live that long as the charts clearly show. This causes way too many people to die with a ton of money they never got to spend because they were scared into thinking they would like to 90 or 95.
It's a ladder of 21 bonds with maturities spread over 21 years. Every year you get the principal from the bond that matures, plus the annual interest from the remaining bonds.
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>> Our Bond Courses vs RUclips Membership | Which Is Right For You: ruclips.net/video/H5h4Eyh0hjo/видео.html
>> Bond Beginners Course Sneak Peak | I-Bonds vs TIPS: ruclips.net/video/uXPzbje1g2E/видео.html
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Here is the overview for Bond Beginners:
1. Bond Basics
What A Bond Is & How A Bond Works
Why Invest In Bonds
New Issue vs Secondary Market Bonds
Interest Rates & Bond Prices
Current Yield & Yield To Maturity
Always Remember This!
Buying At Par, Above Par & Below Par
Different Types Of Bonds
Wrap-Up
2. The Risks Of Bond Investing
Seven Key Bond Risks
Credit Risk
Interest Rate Risk
Reinvestment Risk/Call Risk
Inflation Risk
Liquidity Risk
Currency Risk & Country Risk
Bond Risk Mitigation Strategies
Wrap-Up
3. US Treasuries Overview
What Are US Treasuries
Why Invest In Treasuries
Where Can You Buy Treasuries
How Are Treasuries Taxed
Wrap-Up
4. Treasury Bills
What Are Treasury Bills (T-Bills)
When Do T-Bill Auctions Happen
Where Should You Buy At Auction
Auto-Roll When Buying At Auction
Where To Find Recent Auction Results
High Rate vs Investment Rate
Reopening Auctions
Cash Management Bills (CMBs)
Buying & Selling On Secondary Market
Wrap-Up
5. Treasury Notes & Bonds
What Are Treasury Notes & Bonds
When Do Auctions Happen
Buying Treasury Notes & Bonds
Auction High Yield vs Interest Rate
Floating Rate Notes (FRNs)
Treasury Zeros (STRIPS)
Wrap-Up
6. TIPS (Inflation-Protected)
What Are TIPS
When Do TIPS Auctions Happen
Nominal vs Real Yields
Negative Yields
How Do You Adjust TIPS For Inflation
Taxes On Phantom Income
Secondary Market Liquidity
Wrap-Up
7. I-Bonds (Inflation-Protected)
What Are I-Bonds
How Does I-Bond Interest Work
I-Bonds vs TIPS
The Annual I-Bond Limit
Wrap-Up
8. Agency Bonds
The Universe Of Bonds
What Are Agency Bonds
How Are Agency Bonds Taxed
Treasuries vs Agencies
Who Might Want To Consider Agencies
Yield-To-Call & Yield-To-Worst
Where Can You Buy Agency Bonds
Wrap-Up
9. Municipal Bonds
Our Bond Universe Gets More Complex
What Are Municipal Bonds
How Safe Are Munis
How Are Munis Taxed
The De Minimis Rule
Social Security & Medicare Premiums
Treasuries, Agencies & Munis
Who Might Want To Consider Munis
Wrap-Up
10. Corporate Bonds
Our Bond Universe Is Complete
What Are Corporate Bonds
How Safe Are Corporates
Corporate Bond Hierarchies
Five Key Features Of Corporate Bonds
How Are Corporates Taxed
Treasuries vs Corporates, Etc.
Who Might Want To Buy Corporates
Wrap-Up
>>>>>>>>>>
Here is the overview for Bond Masters:
1. Stocks vs Bonds
Historical Performance
Are Bonds Really Less Volatile
Why Invest In Bonds
Accumulation vs Decumulation
Allocation of Stocks vs Bonds
Wrap-Up
2. Which Bonds Might Be Right For You
Treasuries & Other Types of Bonds
Nominal vs Real Yields
Inflation vs Non-Inflation-Protected
Taxable vs Tax-Advantaged Accounts
Wrap-Up
3. Bond Ladders & Other Bond Strategies
Normal vs Inverted Yield Curve
What Is A Bond Ladder
5 Important Bond Laddering Questions
Laddering When Rates Are Rising
Laddering When Rates Are Falling
Laddering When Rates Are Uncertain
What Is A Bullet
What Is A Barbell
Wrap-Up
4. Holding to Maturity vs Selling Early
Why Hold to Maturity
When To Sell Early Before Maturity
Tax Implications Of Selling Early
Wrap-Up
5. Individual Bonds, Bond Funds, Etc.
Why Buy Individual Bonds
Why Buy Bond Funds
Bond Fund Considerations
Key Bond Fund Concepts
CDs vs Treasuries
Other High-Yield Investments
Wrap-Up
6. Our B.E.S.T. Model Portfolios By Age
Our B.E.S.T Model Portfolios By Age
Model Portfolios In The Industry
B.E.S.T Model Portfolio Difference
How Much Do You Need To Retire?
How I Use The Rules of 100, 110, & 120
B.E.S.T Model Portfolios (20s)
B.E.S.T Model Portfolios (30s & 40s)
B.E.S.T Model Portfolios (50s & 60s)
B.E.S.T Model Portfolios (70s+)
Wrap-Up
7. The Decumulation Phase
What Is The Decumulation Phase?
Bear Markets & Recessions
What Can You Do In Bad/Bear Markets
Decumulation Tax Considerations
The 4% Rule
The Bucket Strategy
The Flooring Approach
Jen’s Bucket Strategy With A Twist
Wrap-Up
>>>>>>>>>>
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Awesome ! I know very little about annuities and mostly the negative aspects so I look forward to learning more about them from Jennifer.
I have a couple of annuities; they are not investments but good for a fixed income for my wife and I. Also, another good way to address inflation risk is to buy a deferred annuity at 65 for say 10 years. Then at 75 you will get another income stream when inflation has started to erode things like pensions. If a salesperson tries to get you to put more than say 25% of your investable assets in one, then run fast. I never liked annuities, but they have their place if used for what they do and not for what they can do (investment). Wife and I have no children so not as concerned with estate. Plenty of other things left for the relatives to fight over.
OMG, how am I going to remember all this at my old age? I think I need to factor in my mental capacity to manage bond ladders on Lifetime Annuity vs Bond Ladder consideration.
Once you've purchased your bond ladder, there is very little to manage. Bond interest and the return of principal (upon each bond's maturity) automatically flow into a cash account.
Wow wow wow. This is by far one of the best videos out there. Its given me s lot to digest and eork out how to execute a similar bond ladder taking inflation into account and doing it in different kinds of accounts (Roth vs tax deferred IRS vs savings account). Can't wait for the future videos on this subject. Keep up the good work.
Bonds, even TIPS & I-Bonds, as well as annuities, are not meant as tools to "beat" inflation
When @barungupta6774 said, "a similar bond ladder taking inflation into account", they likely meant something like having the payout increase each year by 2% or 3% to take account of inflation. In Diamond Nest Egg's example, the annual payout was a fixed amount over 20 years, so inflation would erode the purchasing power of that amount over time.
I am interested in the case where people had to fight for the payout or automatic increased premium "adjustment" - since annuity products are run by the private (insurance) companies with different risk rating, could be prone to the 3rd party risks (ex. bankruptcy)
It's worth noting that the insurance companies that offer annuities are generally for-profit enterprises. They've done the math so that, on average, "the house" will win.
Strictly speaking, there are two separate events: the actuarial calculations, which aim to ensure that all the premiums and all the benefits paid out net out to zero before fees; and then the fees.
In theory, you and a bunch of buddies could privately organize a pool of money in which the people who die earlier end up transferring money to those who die later. If all of you trust each other, there's no need for fees. There's no "house".
If people who want annuities won't do THAT, then of course the regulated firms that provide them should be able to pay their staffs, operate their offices, and still make a profit after that. You can call that "the house winning", but you could say the same thing about EVERY business that pays its staff and operating costs, and still makes a profit. You could say that about Home Depot or Coca-Cola, for example.
Sometimes simplifying finances with a SPIA is worth the cost. Especially since as people age, their financial acumen may decline without their realizing it. They can potentially make poor decisions that cause worse outcomes than a SPIA.
@@chuckbatson595 but a MYGA contract is pretty simple. It's almost the same as a CD with better rates, but no FDIC. I agree about the SPIA, you only "win" if you live longer. It's a bet. Just like the service contract a car dealer tries to sell. But on those you only "win" if you lose (car breaks down)
What business stays afloat if they don't make a profit??
@@teresawood6830 I can see your point down the road a ways. Working with my mom later in life was difficult
Great presentation, as usual. One concern: given the longevity table presented, it is unlikely that the purchaser will outlive the bond ladder. The remaining amount when he dies would go to the kids or grandkids. With the annuity, any remaining funds go to the insurance company. Just a consideration.
Good information, Jennifer at age 60 (67 now), I took a portion of my IRA and bought a SPIA to fund a portion of our Floor expenses. During times that the stock markets have soared, I've regretted this, but when the markets go down, and with all the uncertainties of how the incoming administration's tariffs are going to play out, I feel good about the decision. I'm fortunate to have 2 small pensions, social security and the SPIA that adequately covers our floor expenses. We still have rainy day funds in T-bills, Agency bonds (thanks for educating me on Agency bonds BTW), and our IRA. While we are not wealthy, we can sleep at night knowing that as long as we keep an eye on our discretionary spending, we'll be okay.
You aged only _seven_ years in *10* years? _What is your secret?_ LOL
@@youbetyourwrasse Inquiring minds want to know...lol!
@@youbetyourwrasse nice catch🤣
Math
I like your partial diversification strategy within your IRA. Thanks for sharing the concepts & enjoy your retirement
I totally appreciate and agree and like the flooring strategy. My only worry is that of inflation and the fact that our various income streams may not be increasing to the rate of inflation increases. We already see that Social security is calculated by a percentage of CPI that is not typical for older people. And then, our annuities would be giving us a fixed stream of income, at least that's as I understand it. So as we set up our dollars per month, we'd have to be cognizant of what future inflation is because our expenses, even housing expenses when you consider taxation and such, will be going up over time.
I might be incorrect, but I think since annuities can be complex product. There might be an annunity with a rider that might adjust to the cost of living. It might be called "inflation-protected annuity". Not sure if it might be worth the cost or anything. Maybe Nestegg could cover the topice on a video.
I have both annuities and bond ladders, weighted towards bonds. But, I also have a healthy passive lifetime income stream without them. If I had to depend on them for my only income or to supplement SS, I believe I'd be inclined to lean toward a large annuity product for guaranteed income, and a smaller short term bond portfolio.
Jennifer, please, please, please, do a video on international bonds, soon! Thank you.
Good information. Would you please talk about the Fixed Index Annuity?
Absolutely, Jennifer, I would like to know more about annuities and please discuss the 1035 option for fixed annuities and which companies should be the less risky. Thanks and I love your videos because I learn a lot from you.
My father was a civil engineer who owned a highway construction company, and had two insurance companies go belly-up when he needed them. This was in the 1980s in Texas. There's no way I'd give any of my money to an insurance company. You never know what could happen.
Don't you believe in capitalism? Think Enron and Bernie Madoff. Enron was audited by one of the most prestigious firms, Arthur Andersen. Bernie Madoff was on the board of NASDAQ. As the old saying goes, "Who can you trust?" A socialist named Joseph Stalin said, "I trust no one, not even myself." If you knew what he knew about himself you would not trust him either!
Thanks for sharing, but there are state guarantees involved - stay tuned for more. It can get complicated.
Are there any fees on a SPIA
@@tracyphillips6938 no
Same happened to my dad. MetLife took over and offered him a $10K life policy for more than $10K per year, he passed it up. Who in their right mind would even consider it?
I'm a retired institutional credit risk manager. I would much rather take credit risk on the US Treasury than on an insurance company.
Don't you believe in capitalism? Think Enron and Bernie Madoff.
@@francisebbecke2727Forgive me for being obtuse, but could you please spell out the connection between what you wrote and what @Toxophilus wrote?
" based on the claims paying ability of the issuing insurance company" notice how thats said very fast on the radio?
@@ronmorosey672 Funny though, a lot of those A+ and A++ rated insurance companies have been around since the 1800's and I don't recall them going out of business or missing out paying their obligations.
Jennifer you exquisitely timely. Just bought $200K annuity SPIA. No riders, upon my demise the wife gets what’s left with monthly payout. I will likely buy another later this year. I realized that my IRA has done well but when I must take RMDs and the market is down I end up with more risk. Thanks for your awesome blogs.
Hello Gary. The missing piece to this SPIC for me is what happens to the principal ($200k) when you die? Let’s say your SPIC pays out to you for 15 years, then you die. You said your ‘wife gets the rest in monthly payments’. Does that mean till she dies? Or until a specific payout ceiling is hit and the insurance company has no more obligation? TYIA , John
John. If I pass at year 15 my wife will get the death benefit value at that time as either a lump sum or a monthly payout until that value is exhausted but not until her death. I’m buying from Athene and there are no death riders or transfer rider. Plus Athene is providing a 13% signing bonus, $26k).
@@garymarquez1556 thank you. I understand your arrangement with the principal held by the insurance company and your wife. Appreciate you sharing that w me. (I like your arrangement) Best of luck & may you live long enough and healthy enough to ‘beat’ the insurance company and ‘beat’ social security! 😉💰
Question on risk. What happens if the insurance company goes bankrupt. Is there anything like fdic?
Individual states insurance guarantee funds provide limited coverage to participating insurers. usually similar or lower than fdic limits.
Personally I wouldn't want an entity that is run like the Mafia, in this case an Insurance Company, being resentful that I am alive. _Jus' sayin'!_
@@ronbronb The annuity will most likely be picked up by another company, as there is still money to be made by them.
Depends. If ia single company issuer goes bankrupt the regulators can likely navigate that. If it is a systemic failure of the financial system then all bets are off. Therefore Treasuries remain your safest bet.
Exactly, I believe charitable annuities at big universities are safer than insurance companies. Usually you get about 5% distribution based on the balance. But these good universities historically have very good investment gains, so your balance does not go down due to distribution. Since it is charitable, you will get big gift tax deductions and exemption for investment if it has large capital gains. The only thing is you will give up the money when you die. So for people without heirs,it’s a good choice for a lifetime income.
How do you know if that annuity company will be around in years to come? That is my fear, like life insurance the company may be gone.
Thank you, Jen. Great explanation as always and I look forward to the rest of the series.
Very clear as always. Thank you Jennifer. One question - if you plug in real world pricing on the bond ladder and the annuity it it likely that the annuity will cost you more since the insurance company surely builds in a profit margin which is not relevant to the bond ladder?
As others have mentioned, it seems inflation protection is missing from standard annuities and bond ladders that don't include TIPs and IBonds. If one's time horizon is 10 to 20 years, I'd want inflation protection to be part of the financial plan.
Yup, going out 20 years with no inflation protection is a bad idea. But Jenifer did say her examples excluded inflation calculations
inflation, that's always my concerns when I hear fixed payments for 10x years. Likely we will see the return of inflation in the USA in 2025. I've yet to see many annuities that want to tackle inflation and offer COLA. Now if you want peace of mind, it's a good instrument if you're with a highly rated insurance firm. Keep in mind those age charts...that's the average...someone has to be on either side of that average.
I like the annuity concept as it is simpler and for life with no stock market risk. Bonds require more knowledge and capped at 20 years. When I am in retirement, I want to have less to worry about, and the annuity gives you that.
I have heard annuity fees are high. That’s the only reason I haven’t considered one. I am interested in learning how to structure a bond ladder.
We'll be talking more about annuity fees over the next several weeks. The bond ladder portion of this video should help or you can check out this video here: ruclips.net/video/p90IDmXn19s/видео.html
I had a variable annuity with an income rider, but when I turned 63 in 2023, I realized the cost of the variable annuity with rider was going to eat away at my investment. I decided since the interest rate went up because the fed was raising rates, to cash out the annuity and buy a 30 year US treasury bond at 4%. I paid $116,000 for a $137,000 bond which will mature in 11/15/2022 when I will be 92. The primary reason is I will receive the $137,000 back if I am still alive and in the mean time gives me $5480 income a year. It is true that now, the bond is losing value if I were to sell. But since I am using this money to build my floor and never intend to sell until maturity, I believe this was a good move. Simple question. Am I not looking at this right? With the exception of interest risk and losing interim value on the bond, is not a 20 or 30 bond a good way to build your floor ?
Is there records of insurance companies able to pay out over 30 years. Do they also fall into financial problems. How can you be sure
Great video , great explanations looking forward to the other videos in the series
Could you go cover MYGa’s? Multi Year Guaranteed Annuities
Thank you so much for your knowledge. Much appreciated!!
Currently we have enough floor income to cover our expenses. I'd rather continue with a bond ladder that I keep reinvesting unless I need it, rather than run the risk of my family losing out on the money in an annuity if I die early. If it came down to it, we could also downsize our house for additional money since it's paid off.
Looking at the principal value column, where do we buy bonds at these amounts, e.g., 1 year bond at $3,256, 20 year bond at $607? Thank you
Wondering the same. Also some bonds would need to be bought on the secondary market to create those increments. I'd rather have someone skilled in this give me a list of the 20 bonds to buy than risk trying it myself. Buying 5, 7, 10 etc at new auction is easy. It would be nice to see a "real world" list of bonds for a 20 year ladder with CUSIP's provided and in the increments in this ladder.
You are amazing. Thank you for your great work.
No Annuities for me. I have pension income, annuities are expensive, have surrender charges, and don't increase with inflation and most importantly, i am not giving up control and flexibility.
I bought annuity from mass mutual last year. Nit aure if it was a great decision. I paid money from an old 401k
I did a FIA. And waited one year. So..used it like a SPIA.
last year i bought a 10 year fixed annuity w/a 5.15% interest rate. i am 62. when that completes, i plan on converting it into a spia with a fixed 2.6% annual increase to cover inflation. i like the idea of having the guarantee for life as i don't have an pension. i also did this out of my roth ira so it is completely tax free.
Great explanation!
here are a few more numbers..........Illinois’s life expectancy rate is 76.8 years in 2020, down from 79 years in 2019 and 78.8 in 2018. The state falls in a similar range to a few other states, including Texas, Florida, North Dakota, South Dakota, Montana, Alaska, Pennsylvania, Delaware, and Maryland
Covid caused those decrease in years! If there is not another virus scare again in the next 20 years, those numbers will climb up again.
Thank you so much for your knowledge.
That life expectancy table is stunning. I always thought people would live longer than in past years. Nope! It's shrinking, and fast. I looked up why this is happening. It turns out that COVID-19 and drug overdoses are the main reasons for the drop. Life expectency in 1900 was 47 (M & W combined), 68 in 1950, 79 in 2019. 77 in 2020 and 76 in 2021. COVID caused the biggest 2-year decline since 1920.
How do you feel about annuities with a long term care rider. Being 61, long term care is something I am trying to decide the best way to go. From what i understand, an annuity with a long term care ride is less expensive than long term care insurance. Would love to hear your thoughts on long term care riders
Stay tuned
@@DiamondNestEgg will do.
Can I buy SPIA through my IRA? And the PAYMENT Is considered part of the RMD Required minimum distribution?
I have a 6 year, 125K MYGA at 5.65%. I will be 65 when it matures. I may then take that balance and get a SPIA.
$600 a month is great but over 20 years I'm likely to lump sum into an equities total market index fund for a significant percentage of that $100k.
I would ask myself if I actually need that $600 every month and for argument sake maybe I don't. 40/60 equities to bonds might do the trick.
With respect to annuities, only buy them from an A+ or A++ carrier. I’ve done the same annuity scenario with my spouse in joint survivorship so we’re both covered for our individual lifetimes with a cash refund of any unused premium to our children.
Great video, keep up the good work, the community appreciates it! My question is related to taxes. Do you pay regular income tax on the annuities from the Insurance companies? Because we bond ladders the taxes will be considered capital gains and to certain amount we’ll be exempt from those.
Is a SPIA better than a 403b annuity?
What happens to the money you invest the annuity after you die?
If you research it, the number of annuity producers is fairly high, like Muni's much better and if you do it right a good return and no taxes.
Is there a downside to doing all of the above? SCHD, Bond ladder & SPIA?
Yes more about other kinds of annuities. Already have bonds. Tax free bonds in your example. What are they munis?
I WOULD CONSIDER AN ANNUITY FOR ONLY 20% OF MY INCOME REQUIREMENTS.
THAT, AND MY AND MY WIFE'S SOCIAL SECURITY PAYMENTS WOULD THEN MAKE UP 60-70% OF OUR INCOME REQUIREMENTS.
THEN, I'D CONSIDER 401K OR ROTH WITHDRAWALS TO MAKE UP THE DIFFERENCE.
I DO CONVERSIONS EVERY YEAR, TO GET AHEAD OF THE R.M.D.'S THAT I KNOW ARE COMING IN ABOUT 10 YEARS...
hope you live a very long time...check out the math on conversions...takes many years to come out "ahead"..
Great video. I just subscribed. My wife and I are struggling with the very concepts you discuss here. We are retired and need to maximize our guaranteed income flow while allowing for some ready cash for emergencies etc. We are not happy with our current advisor and the direction we seem to be heading. I am considering contacting you.
On allll annuity RUclips including this one, no one mention about what happens to the initial fund that I put in, when I pass away.
depends on your annuity contract
Is there something like a Roth IRA annuity? Where the income stream is not taxable?
I assume you may be able to buy an annuity inside a Roth IRA but I am not sure.
That would be 5-pay dividend paying life insurance from top mutual insurers like New York Life or Mass Mutual. No gain for about 4 years but then the money would compound grow around 5%+ every year till the life of the policy. Need to be of reasonably young age and health, or do it through someone with insurable interest who is. Tax free via practical wash loans.
Any annuity can be a Roth. I have a fixed indexed annuity earning interest (based on S&P performance with a cap -- which I'm sure Jennifer will be explaining in other videos). My plan is to activate the guarantee lifetime stream of income in about 15-years (and like SS, the longer you wait, the higher the monthly payment), then the income will not affect taxes/IRMAA. My RMDs will be minimal, but the SS & pension will always be taxable. Until I "semi-retired," I never realized how we can minimize taxes with some good planning. I retired, and WHAM! My entire income floor was taxed at ordinary income. :(
@@J-2024-v8i I want to know that too. Can I use my Roth IRA to buy? Would this be wise or leave it in equities for growth?
does Anunity have RMD required when a person reach 72.5 age ?
If possible, I would really like to see the SPIA compared to a ladder of TIPS bonds please. They are currently offering real yields over 2% out to 30 years. How might inflation affect the purchasing power provided by these at 10, 20, and 30 years out? Thank you!
You can’t really do this comparsion as most SPIAs do not offer inflation protection
@ that’s why I was interested in the comparison - in other words how much value would the SPIA lose compared to the likely/possible higher initial investment cost of the TIPS bonds to cover the inflation premium
How are bond ladders and annuities are affected by inflation?
Great video. I prefer T bonds over annuities. At age 65 a mix of 10, 20 and 30 year bonds (I just bought a 20 year with a YTM of 5.02%) can provide lifetime guaranteed income to age 95 while providing some additional capital along the way as bonds mature. If I die before age 95 my heirs get all the bonds compared to an annuity that dies along with me. Yes you need to invest more into the bond ladder to get the same monthly payments or take on some reinvestment risk but that is a small price to pay for getting your money back at the end. Am I missing something?
Spias have a cash back option in case you meet your end early. That means that the money you put into your Spia at the beginning WILL be returned to your beneficiaries, IF AND ONLY IF you die before that premium has not already been returned to you.
If you make it to 95 , then you are likely correct, nothing will remain, unless you bought your Spia really really late , very late, too late, in life.
The only way you make money on a Spia is if you live long enough to collect more in monthly paybacks than the cost of the initial premium when you first bought the Spia. It is a hedge against longevity and a good one, considering the costs associated with living a long time. So its old age insurance, and will protect your ninety year mind from influencers trying to get you into crypto as well🤣
When you say 10, 20, and 30 year bonds, do you mean you will be getting your principal back a decade apart (at 10, 20 and 30 years FROM NOW), or are you buying one bond of each maturity every year so that you get back some principal every year starting on year 10?
I posted this before the end of the video where the ladder was shown. If more than the interest is needed annually that is a better approach. I prefer the higher rates of long bonds and rather invest more so the interest income covers the need and the principal is gravy on top for emergencies. As far as annuities, social security is the best annuity.
I am 63, I have a good pension, I also am buying 10, 20 T bonds. Last night sold more stock and purchased 70K 20 yr 4.625, 4.98YTM. I slept well. I say last night because I am in Thailand, I have to stay up late to trade. hahah. Over the last 6 months I sold 400k of stock . The more I sold the better I felt. I kept apple, coke. att, vz, agnc, for now.
Love it!
Pensions are still common for government employees, including teachers and college staff at public schools.
Finally, someone who understands it’s just one tool in your retirement arsenal and not the devil.
A 5-pay dividend paying life insurance from top mutuals like New York Life or Mass Mutual would very likely beat both bond ladder and annuity for someone who's not too old and/or unhealthy and can't do it through someone with insurable interest. No gain for about 4 years but then it should compound and grow around 5%+ for the life of the policy while ready to use via practical wash loans, which is what was happening even when rates were near zero for 15 years until recently, so it should be a little better going forward. As an example of how better it is, NYL was offering 12% for year 1 and 6% every year after for people who prefund it, and it gladly did so it could put the money in 7%+ corporate bonds to hold for 20+ years and pass off gains as tax free dividends. Income taxes kill the returns on bonds and annuity payouts, and prevents compounding. It's way more efficient with fewer hassles than swapping CDs and Treasuries your whole life.
Can annuity companies file for bankruptcy, and stop payments?
As to risk…..these annuity payments are based on stocks…..my concern is what happens when stocks fall?….and how are they securitized?
For fixed income annuities the payment is fixed regardless of what the market does. With indexed and/or variable annuities your payment varies based on what is going on.
that is not correct statement.
Mona - insurance companies invest in a wide variety of instruments. Not just stocks or junk bonds (which I know you have been concerned about in the past as well. I'll talk more about this in the upcoming weeks/months as we dive deeper into annuities. Jen
@@igorkot5895 can you then clarify what would be the correct answer?
What happens to your initial investment in an annuity if you die 5, 10 years into it? With the bond the money would go to beneficiary, correct?
I have this same question. I hope it is addressed on a future video.
Since $7200 is 7.2% of $100,000, how can a payout of $7,200/year be equivalent to 4.25% average return on a bond ladder?
Is an annuity basically giving your money to an insurance company, having the insurance company invest your money any way it wants, and letting the insurance company pay you back your money in installments until you die without the option of taking your money out the way you want? Does an annuity ever pay out more money to an individual than the individual put in and earned through investment? After an insurance company begins paying out the annuity to the individual in installments, does the money remaining in the person's annuity earn money for the individual or for the insurance company? What happens when the insurance company underestimates the projected lifetime of the individual and runs out of the individual's annuity money before the individual dies? Will the insurance company keep paying annuity installments to the individual even though the money the individual put into the annuity and the individual earned in the annuity is all gone? Does the insurance company take the loss? What happens to the money the individual put into the annuity and earned in the annuity if the person does earlier than the insurance company projected? Does the insurance company keep the remaining money?
Are these SPIA's underwritten for your health? If you are very healthy you would collect for more years, and if you have lots of chronic conditions - your life expectency is less - so it would be a good deal.
No annuities are underwritten for health. Income annuities are rather like Social Security: the longer you wait to start, the higher your monthly amount is. These are known as "mortality credits." The insurance companies know when we are going to die. They just turn that into a math calculation to help determine the monthly amount.
how is a treasury bond ladder at 4.25% give 7200 in interest? I got 4250 per year
They split the principle by 20 years + interest to come up with the 7200 figure.
It doesn't, that's why she shows how some of it comes from the original principle.
Relook at the video starting at 12:00 through 13:20. It's all explained quite elegantly there.
The recurring question in various forms and my big question is What Happens To The Principal? In a Lifelong SPIA how does it work.
That’s the Big Unknown in Annuity Land ??? Can we decode this? 💰
It's paid back to you each month in the form of interest and principal and after several years if you are alive, it keeps right on paying you until you are no longer living.
An example... A 70-year-old man buys a 100k life Spia with a 10 year period certain it will take around 11.87 years for his principal to come back to him and after that he's living off the insurance company until he dies.
It's really quite simple.
Stay tuned John & happy new year
@ thank you & happy new year 🎆! The topic of the principle in 3,4,5,6,10 seems obvious. But the SPIA annuities at the ‘end of the contract’ or if I die 9 years into it is the concern. Fidelity breaks out annuities by state from 3 to 10 year period. No SPIAs
@@johnrac3302 Sounds like Fidelity is showing you a MYGA annuity which is akin to a CD.
They most certainly sell Spias as I have used their calculator many times but they are generally a lower payout.
You do realize a Spia can be bought with a cashback of the unused premium or one can buy a life and 20 year certain or even just a non life but 20 year payout.
I would put my 100K in VOO SCHD and VIG evenly today and let it grow
The hardest decision is actually picking the right insurer for the SPIA. Pick the wrong one, and they may go bankrupt before paying you the entire guaranteed duration, especially "lifetime." They die before you do, bringing you down with them into bankruptcy in your most vulnerable final years.
can't get a COLA from a bond ladder
TIPS and I-bonds adjust for inflation.
So it all comes down to longevity. If you live longer than average, then an annuity is a better deal, but if you die sooner than average, then a bond ladder is preferable. Can I borrow your crystal ball?
insurance company is betting you will die sooner than avg. even if you dont they are paying back your principal for the first 14 years. they will profit.
With Social Security, no one really runs out of money in retirement. Without enough retirement savings, you CAN run out of lifestyle.
Annuity is just dividing someones lump savings into monthly payments with little div idends then your money is tied for yearssss. Its better investment on monthly CDs. Money is liquid after a month.🤑🤑🤑
I rolled majority of my 401 k in a lifetime transferable Anuity.I also left full Co pension to my wife
By purchasing at 59.5 and waiting to draw monthly payout they added 20 percent to my amount and 4 percent bigger payout each year I wait for four years compounding.
The remainder of my 401 k i put in an IRA money market
What happens to an annuity if you buy one and happen to die let's say 2 years into drawing on it. You've in no way drawn your contribution.
Depends on the annuity. Some annuities will pay to your beneficiary the remainder of the initial premium that has not yet been returned to you.
@@J-2024-v8i Yes , often known as the 'cash back option'
Hi - Does it make sense to buy an annuity within an IRA?
In some instances, it can - please email jennifer@diamondnestegg.com for further details! Sophie
@@DiamondNestEgg Wondering this too -- will it be addressed in a future video?
In some cases, yes & especially if that is where your money is, but the monthly payouts are taxed differently. I'll talk about this in the coming weeks as we continue our annuity series. Jennifer
Not indexed for inflation. In 20 years that 7,200 will be worth 3,600 to 4,000
Yep. And that assumes an average inflation rate of 3% to 3.5%. U.S. inflation has been a fair bit higher than that in recent memory.
@@stephenshefsky5201 Yep. And to be clear, I am not dismissing the idea of using an annuity as a plank in a retirement income floor. AAMOF I use that strategy myself. Just encouraging edification as a fan of accuracy
What? If you need $600 a month in income, just buy 200k worth of 20 yr bond - paying 5% today, and get 10k a year for 20 years - then you still have your 200k you started with at the end. Am I missing something here?
I agree with you but I think her example might be for someone who only has 100k, I did what you are saying, I have been selling my stocks and buying 10and 20 year. I bought 70 k 20 year at YTM 4.98. yesterday. I have 425k in 10 and 20 averaging around 4. 5 YTM. I bought some when the rate was around 3.9 %. I was happy with that, I am even happier with 5%. I also already have an annuity that i bought 15 years ago when I rolled over a 401k, that is paying me 14k a year. I also have a good pension. I will take 5 % right now and sleep well.
SCHD etf for the win.
3.5% dividend yield that's qualified and the dividend grows by over 10%/year, I'll take that. Then if I ever need the principal I can sell shares. Not too shabby. 😁
Not really 😮
Life expectancy tables are worse than useless. Look around. Even rich people with “great” healthcare and health, have a tough time making it past 90-92. My aggressively healthy MIL died at age 90. Surely she would have lived to 100. My grandad lived another 17 years after having multiple strokes in his 60s to about 80. Grandma, age 83 which seemed pretty old. No illnesses. Your expiration date is anytime from later today until reasonably about 88-92. Longevity is a total crapshoot. Go with current assets for next 10 years, then shift to longer timeframe income sources if you can still afford it after the nursing home.
Who trusts insurance companies with their lives? Not me.
Regarding life expectancy. All the experts keep saying plan to 95 years old. lol. very very few will live that long as the charts clearly show. This causes way too many people to die with a ton of money they never got to spend because they were scared into thinking they would like to 90 or 95.
How can you get $7200.00 from $100,000.00 at 4.25%? What am I missing?
It's a ladder of 21 bonds with maturities spread over 21 years. Every year you get the principal from the bond that matures, plus the annual interest from the remaining bonds.
Annuities policies are only for individuals. Very few can provide benefits for the couples.
Than can and they do, depends on the annuity
This is not a correct statement. Like Ed says - it depends on how you customize an annuity. Stay tuned for more.
Average life span in US is about 76 for a male and 78 for a female. China now has longer life spans than US. Obesity in the US is a killer!