No. of Recommendations: 10
I would appreciate your advice on how to invest to protect for lengevity- stocks, annuities, etc.Well, it's always very dangerous to give financial advice. It really is necessary to know a lot more about someone's situation, but I don't want you to tell me that. And besides, I'm just some guy on the internet.
But some general thoughts:
* You're a little older than the average person planning a retirement withdrawal portfolio, which makes a difference, especially for annuities. The older you are, the more they make sense, since longevity risk dominates discussion of internal rate of return.
* The usual assumption is that at some point you simply don't feel like making fresh investment decisions--simple is great.
I won't discuss the issue of the size of your estate you want to leave. Just carve that off separately and the following notions are for the remainder, which is presumably for living expenses.
In your shoes, much as I hate buying something with a negative investment return, I'd certainly lean strongly towards annuities.
Here is a random thought--imagine what the result would feel like.
Pick an amount that you might use for annuitization. Maybe all of it, maybe not.
Put 79% of your annuitization money into an immediate joint annuity with no inflation protection. A random spot check in the US suggests this will pay 10.73%/year (nominal) till the second of you dies.
Put 9.4% into a 3 year TIPS bond. When it matures, put it into an immediate joint annuity. (if only one of you is still alive, a single annuity = higher income)
Put 5.3% into a 6 year TIPS bond. When it matures, put it into an immediate joint annuity. ( " )
Put 3.7% into a 9 year TIPS bond. When it matures, put it into an immediate joint annuity. ( " )
Put 2.6% into a 12 year TIPS bond. When it matures, put it into an immediate joint annuity. ( " )
This will give you a constant real income (variation less than 7% from starting amount--rounding error!) till age 97, and erode with inflation thereafter.
By my estimation, it will give you spending money equal to a real coupon of 8.42%/year on initial funds till you are both gone. (min 7.89%, max 8.78%)
These are my back-of-the-envelope estimates of the annual payments, nominal (today's dollars) and real (assuming 3.5% inflation).
$8474 $8474 (age 83)
8474 8178
8474 7891
9772 8782
9772 8474
9772 8178
10872 8779
10872 8472
10872 8176
12094 8777
12094 8469
12094 8173
13468 8783
13468 8475
13468 8179
13468 7892 (losses from inflation start)
13468 7616
13468 7349
13468 7092
13468 6844
13468 6604
13468 6373
13468 6150 (age 105)
Jim
