The 4% Rule vs. Income Annuities

[@Blublod]

I’ll take the risk over the guarantees of an annuity any day of the year because I already have the best annuity of them all with built in COLAs and all (SS) and that provides my income base. Meanwhile I’ve been generating $30K in annual income with $500K invested just on dividends and interest alone. I see no reason for any guarantees, and as they say, no risk, no reward.

[@atlasannuity]

Thank you for commenting! To be fair, if I'm reading your comment correctly, you have $500k plus an annuity that is generating income for you. Your situation seems to be totally different than the example couple in the video that has a total of $500k. And for any viewers reading this, that's all it is...an example. Every single strategy is different. "No risk, no reward", is a true statement and it sounds like you can afford to take the risk since you have a guaranteed income annuity in place already in additional to your $500k portfolio. However, there are many, many, people that do not have an income floor in place and do not want to take the risk/reward approach. Thank you for watching and commenting, Marty

[@Blublod]

@@atlasannuity - no, to clarify, the annuity IS the Social Security. It just happens to pay me enough to allow me to have a stable income base and take more risk with my $500K portfolio. The trick for me is having no debt. Were I to have debt it’d be a different story.

[@sivadbc]

Bengams rule included adding in inflation every year. If you use the average inflation of 2.4% over the last 30 years then per Bungan's rule over 30 years you would actually receive $900,000 not $400,000. This video is very misleading in this aspect. Seems like it would be more realistic to compare using the 4% rule with inflation added every year versus using the $500K to buy a lifetime guaranteed annuity which using the information from this video $500k would buy a $37,500/year annuity guaranteed for life. Over 30 years the retiree would receive $1,125,000 Vs the anticipated $900K if using the 4% rule. Also annuities are guaranteed by the insurance company but not the US GOVT., there is a possibility that they can go bankrupt. Interesting also is that if you start with a 5% withdrawal rate which is what Bengen considered to be safe and more realistic, over 30 years the withdrawals of 5% a year escalated at 2.5% inflation a year would result in an average of $37,500/year over the 30 year time frame. The same number as the annuity which was purchased for $500K. The point is don't forget about how inflation will impact your expenses with a fixed income that is not matched to inflation over 30 yrs or more

[@atlasannuity]

Hello, Thank you for commenting! I believe you may have misinterpreted the video. It sounds like you may be mistaking the numbers I presented as total payout in income, when I was comparing the remaining balance of the portfolio using the exact same income withdrawals, plus inflation. Another common misunderstanding is trying to compare the entirety of a portfolio being used to purchase an income annuity, which cannot be done. If someone has $500k, they cannot use the entire $500k in an annuity. Annuities are backed by the State Guaranty Fund, which all life insurance companies must participate in. And what Bengen said was that there have been times that a 13% withdrawal rate would have been feasible based on the returns of that particular time frame, but since no one can predict the sequence of returns, 4% became the standard as measure of safety. Like I mentioned in the video, there are a thousand different scenarios that can be looked at with these calculations. This was meant to be a simplistic mathematical side-by-side comparison. All the best, Marty