Row 30606

Row ID: 30606 | Dataset Entry | Axioma AXP Content Repository

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This page contains data entry 30606 from the Axioma AXP content repository. The structured data below represents the complete record for this entry.

It's not guaranteed and yes it is higher risk which does need to be factored in, but in the vast majority of cases your principal is not only going to be intact, it's going to grow significantly. It's a necessary corollary of a rate that covers the absolute worst case with volatile investments that in the average case it's going to do much, much better than that.

It is a relevant difference when comparing an annuity to an investment that with the annuity, you have no principal at all any more. So the comparison of what the annuity is paying out to your withdrawal rate is not a direct one. If you can assume any risk, an annuity is unlikely to be optimal. Where you might want it is if you are retired, particularly if on a tight budget and you absolutely need a certain amount of money to live and can't survive on less.

*Most* annuities are not inflation linked, that would make a huge difference as to what it is worth all right.

If he's 32 now, that's 33 years to 65. There's a lot of scope for risk there.

Portfolio Visualizer reckons

* $26,651 in US total market for 35 years = $923,418 nominal, $238,173 inflation adjusted. * $135 invested monthly for 35 years = $545,577 / $141,882. * $135 (increasing with inflation) invested monthly for 35 years = $848,657 / $219,098.

So the not inflation indexed, looks considerably worse. The inflation indexed is more competitive and I get the $135 itself is risk free but in this scenario where you're taking the money and investing it every month you don't have substantively different risk, as most of your returns are coming from the investment bit, not the $135/month (which is only $56,700 over 35 years).

To be honest the $135 is just such a small amount of money, plus that if he's young he doesn't *need* monthly income at this point, that I don't see it as attractive.

To actually have the lower risk benefit, if you stuck it in a 100% safe guaranteed return, you do terribly:

* $135/month in cash (i.e. savings account) = $134,894 / $35,258 * $135 (inflation indexed) in cash = $242,494 / $63,198.

This does still come ahead of sticking the lump sum in cash ($125,505 / $32,548), if you're THAT risk averse, but I don't see the logic in being that risk averse at the age of 33.

Annuity sellers need to make money, and they make that off the difference between what they actually make with your money and what they pay out. It can make sense if you really need the secure regular income. But he doesn't at 33, and it's a tiny amount anyway.

FieldValue
text It's not guaranteed and yes it is higher risk which does need to be factored in, but in the vast majority of cases your principal is not only going to be intact, it's going to grow significantly. It's a necessary corollary of a rate that covers the absolute worst case with volatile investments that in the average case it's going to do much, much better than that. It is a relevant difference when comparing an annuity to an investment that with the annuity, you have no principal at all any more. …
label r/investing
dataType comment
communityName r/investing
datetime 2024-05-21
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Raw Record

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  "text": "It's not guaranteed and yes it is higher risk which does need to be factored in, but in the vast majority of cases your principal is not only going to be intact, it's going to grow significantly. It's a necessary corollary of a rate that covers the absolute worst case with volatile investments that in the average case it's going to do much, much better than that.\n\nIt is a relevant difference when comparing an annuity to an investment that with the annuity, you have no principal at all any more. So the comparison of what the annuity is paying out to your withdrawal rate is not a direct one. If you can assume any risk, an annuity is unlikely to be optimal. Where you might want it is if you are retired, particularly if on a tight budget and you absolutely need a certain amount of money to live and can't survive on less.\n\n*Most* annuities are not inflation linked, that would make a huge difference as to what it is worth all right. \n\nIf he's 32 now, that's 33 years to 65. There's a lot of scope for risk there.\n\nPortfolio Visualizer reckons \n\n* $26,651 in US total market for 35 years = $923,418 nominal, $238,173 inflation adjusted.\n* $135 invested monthly for 35 years = $545,577 / $141,882.  \n* $135 (increasing with inflation) invested monthly for 35 years = $848,657 / $219,098.\n\nSo the not inflation indexed, looks considerably worse. The inflation indexed is more competitive and I get the $135 itself is risk free but in this scenario where you're taking the money and investing it every month you don't have substantively different risk, as most of your returns are coming from the investment bit, not the $135/month (which is only $56,700 over 35 years).\n\nTo be honest the $135 is just such a small amount of money, plus that if he's young he doesn't *need* monthly income at this point, that I don't see it as attractive.\n\nTo actually have the lower risk benefit, if you stuck it in a 100% safe guaranteed return, you do terribly:\n\n* $135/month in cash (i.e. savings account) = $134,894 / $35,258  \n* $135 (inflation indexed) in cash = $242,494 / $63,198.\n\nThis does still come ahead of sticking the lump sum in cash ($125,505 / $32,548), if you're THAT risk averse, but I don't see the logic in being that risk averse at the age of 33.\n\nAnnuity sellers need to make money, and they make that off the difference between what they actually make with your money and what they pay out. It can make sense if you really need the secure regular income. But he doesn't at 33, and it's a tiny amount anyway.",
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