This is a question.
I can go to annuity calculator (do search, I do not link to commercial sites), and find that for $300,000 I can get $1,500+/month until I bite the dust.
That is 6% which is very good, much higher than the conventionally quoted 4% withdrawal rate.
So I figure they must make a profit, so maybe them skim a couple percent off the top. Is it possible to earn 7%, 8% on your money? Can I do it myself?
You can't get anything close to that from the bank, bonds only pay around 3%, stock dividends only pay a few percent. So how do you earn 6%-8%? I don't want to mess with real estate.
Friday, June 19, 2009
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8 comments:
$1500/mth should be all you need anyway.
If you need more, just work until you have what you need, then quit and move on to your next adventure.
Don't forget inflation and taxes. Bonds etc. can only help you retain the buying power of your money. If you want more, you need to invest in "riskier" assets like stocks.
Stock market, historically. But obviously that takes risk.
I don't invest in anything beyond savings accounts and CDs. Relying on >4% interest rates means you don't have enough money saved for the lifestyle you wish to lead.
Things to keep in mind:
- The 4% figure usually means 4% of current value, plus future inflation adjustments. Is the $1500/month inflation adjusted?
- A 4% portfolio should be worth something after you've died, leaving an inheritance for your heirs. Not sure if you care about that.
- A portfolio is liquid, you can cash out at any time with only minimal fees.
- Annuities tend to have high overhead, 1-3% if translated into expense ratio terms. That would be highway robbery for a mutual fund.
- There is always risk that the insurance company defaults.
That being said, an annuity can afford to be more brazen with their draw-down rate. An individual can't predict when they will die, so they have to be cautious so the portfolio could last to the age of 100. An annuity company has a pool of thousands of clients, and can use statistics and demographics to predict how much money they will need with a high degree of certainty.
FB,
Yes you can earn 7-8%: with stocks in a bull market (appreciation + dividends). You invest in emerging markets, right? Keep doing so!
...oh, and the only way I can see how 6+% annuities are possible, is because they invest in the stock market. How else would they do it?
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