Yeah everyone needs to figure this out for themselves. LIke in my case I’d like to semi-retire soon. But if I get wiped out in the market I’ll just go back to work full time.
With that equation I’m able to enjoy my money a lot sooner than if I plan everything around the 5% worst case scenario.
I audited a public finance course in grad school from a prof who later won the Nobel Prize. He said a big puzzle was why more people don’t get annuities since they solve these types of problems.
I know very little about annuities but I thought they were generally rip-offs.
I weigh 250 lbs. All the men on my mom’s side of the family are done by 65-70. Annuity would make sense if I thought I might live to 95. But that ain’t happening.
Hmmm. Looks like a rough formula for a monthly payout from a lifetime annuity at my age (52) is divide initial investment by 250. So I break even, minus interest, if I live to be 73. With interest in even a super safe CD or whatever, I’m sure that age is much higher.
Annuities aren’t a rip off, but insurance companies are generally required to back them with safe assets, and safe assets have terrible yields currently. So as an “investment”, they are “bad” because they corner you into indirectly investing in low interest secure assets. As “insurance” they are less obviously bad because they protect against living too long, if that’s something you’re worried about.
You wouldn’t think a professor would need to sell annuities on the side, but here we have an example of such a case. Wonder if they had a gambling problem or something.
Unless you are terminally ill, you really don’t know this. A common misconception that people have is that they can predict their life expectancy. Even if you can predict your expected age of death accurately, the standard deviation in life expectancy at age 65 is roughly 8 years. So the range in which any individual can accurately predict their age at death is wide, even if you can for some reason precisely identify the midpoint of that range.
It’s not a “big puzzle”, people tell their financial advisors all the time why they don’t want annuities. Dying early and “losing” all your money in the annuity is a risk they can see clearly and want to avoid, living a long time and running out of money is a risk they can easily discount and people tend not to fear living too long.
I’m ok with moving to Honduras and living off Social Security if I live to be 95. I’m also ok with being a Wal-Mart greeter. At least it will get me out of the house.
My dad worked until 75, and is only retired now because I pay him on top of social security. He didn’t mind working, but did hate the current job he was at - concierge/handyman at a retirement home. He was older than some of the residents.
I can’t emphasize enough how little I know about BABA. It’s literally “Munger is smart and bought lots at much higher prices.” The end. Any temptation I have to buy it is comparable to the temptation I occassionally have to say fuck it and start drinking beer at 10am on a random Tuesday.
Actual conversation I had with my wife a couple of weeks ago:
Me: I was thinking of buying stock in something and you should probably just tell me no.
Her: No.
[She also hates the fact we have so much in Berkshire Hathaway, and she’d prefer that everything be in cash because the stock market is too risky.]
I haven’t had the privilege of investing in a non tax advantaged account yet, but I’d like to store this knowledge for later. If you’re to sell and re-buy to tax loss harvest, why does it matter if your dividend reinvestment is turned off?
I was having a chat with someone at the poker table last week and he was talking about what he heard a lot of hedges were doing the last couple years, and it seemed pretty brilliant to me. They held equities and puts against over-inflated stocks that were in the indexes, like TSLA. They concluded it was basically impossible for the broad market to crash with TSLA getting wiped the fuck out, was possible for TSLA to get wiped out without a broad market crash, and both could keep going up and they’d just lose a bit of their returns to carry the puts.
Only thing is at some point those puts probably got pretty expensive.
I haven’t read up a ton on this, but apparently you can buy an annuity in an IRA account and get paid out with it before you hit your normal retirement age with no penalties? If what I’ve skimmed is true, I’m shocked you don’t hear more about people doing this.
It’s not like a normal annuity though, it just pays out the same amount of money each month or year or whatever for X years.
Given how much you’ve posted about buying BABA, I’m now concerned about your random Tuesday morning habits! lol
It’s fine to plan to live to age X and have a backup plan for if you live past age X, just don’t delude yourself into thinking you can pinpoint your age of death with any accuracy unless a doctor is telling you that you have a known medical condition that is terminal. Overall health status and genetics is a predictor of longevity, but only in the sense that thousands of people with that health status and genetic makeup have a predictable average age at death. For any individual person there is a wide range of plausible dates of death because that’s just how probabilities work. Like we all know for certain that the expected outcome of rolling a die is 3.5, but we need to roll it many times before we can be confident that the average outcome will be really close to 3.5. Retirement longevity is like that, but we all only get to roll the die one time so there is no real ability to forecast accurately what the outcome will be.
I can also look at my family. Genetics matter.
My dad is the outlier in his family too. Everyone else is dead. But I wonder if that’s because they live in Queens and New Jersey exposed to so much chemicals. Cancer runs rampant on his side.
My youngest uncle got Parkinsons right at 65. He worked his ass off as a general contractor right up to then. He never got to enjoy himself. I see that as a much bigger tragedy than living to 95 and having to figure things out.
Same as poor hobbes. Although I think he got a lot more fulfillment from his job than my uncle.
Right, but they matter more on average than they do individually. If your expected age of death is 10 years earlier than a “median” person, you probably still have something like a 25% chance of living to the life expectancy of a median person. That’s what is vexing about predicting life expectancy, people underestimate how much variability there is for a single life. The life expectancy curve isn’t made up of some people that were destined to die at 60, some others destined to die at 65, etc., it’s made up of a bunch of sample of random variables with unknown expected values and large standard deviations.
Anyway - bottom line is my biggest fear by far is dying or getting a debilitating disease at 65 while having lived a fairly numbed 9-5 existence from now until then.
Once I finish my book I’m going to go back out into the world and do and see everything I can while I still have my health and brain. I’ll let the chips fall where they may when I’m old.
Because a dividend reinvestment is a purchase, so if it’s done within 30 days of the sale, then you can’t claim the loss on the portion that was rebought.
You can create your own annuity inside an IRA and start drawing on it prior to 59.5. It’s known as a 72(t). You can read up on it here.
SPIAs are generally fine and a not a bad idea at all once you get really old. I’m trying to convince my parents to get one.
Are they indexed to inflation? I can’t imagine buying one with rates so low.
Usually you get to decide if you want it indexed to inflation, but you of course have to pay more for each $1 of income if you want it indexed. A lot more.