Evaluating and annuity (SPIA) with the planner

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frp user
Posts: 65
Joined: Fri Feb 29, 2008 12:55 pm

Evaluating and annuity (SPIA) with the planner

Post by frp user »

Dear Jim,
I've followed your web-article suggestion and used the flexible
planner for evaluating an SPIA with inflation protection. I'd
appreciate your comments on how I've used the planner to take into
account certain limitations in my figures.
This option could mean that my fixed-income sources will cover
80-90% of my basics right away. However, 38% of that income isn't
COLA. To compensate for this, I've used 6.8% as my total portfolio rate
of return instead of 7 or more. I haven't used the Additional buttons
to handle this detail. Maybe I should lower that rate? I'm assuming
that even though the Detailed Report shows everything in "constant"
dollars, behind the scenes it's taking inflation into account. Is that
I'm also now puzzled about what this "floor" means for my asset
allocation in my portfolio. That is, how much should I allocate to
bonds? A remark by Zev Bodie on SPIAs in a Wash Post conversation with
Margaret Hamilton suggests that if one has the SPIA infla-prot then the
rest of the portfolio could be more speculative. But I can't imagine
eliminating bond funds (I'd certainly use one for "cash" reserves).
Many thanks --

User avatar
Site Admin
Posts: 79
Joined: Thu Feb 28, 2008 5:27 pm

Re: Evaluating and annuity (SPIA) with the planner

Post by admin »

Thanks for writing. If I understand your situation correctly, you have various fixed income sources in retirement, some of which don't include COLAs.

The planner has a way for you to enter No Cola income on the "additional inputs" tab. I By default all income is adjusted each year to keep up with inflation. Any No Cola income entries(on the additional inputs tab) aren't adjusted for inflation and thus lose purchasing power each year.

As you suspected, the values shown on the Detailed Output tab (and everywhere else) are shown in current (2008) value dollars even though inflation is taken into account in all internal calculations.

Next, I don't understand your question about the "floor". Are you asking about the spending floor on the spending policy configuration pop-up window? Or is it something else?

As far as asset allocation questions and the percent of bonds to keep in your portfolio, I'm probably not the best one to help with that. May I suggest an Internet forum called the Bogleheads Forum that has several best selling authors including Larry Swedrow, Mel Lindauer, and Taylor Larimore who post regularly. Their web address is http://www.diehards.org/forum/index.php. This is an outstanding web forum and they're very willing to look over your asset allocation plan and make suggestions.

Good luck and be sure to email back if you have more questions. Also, I'm interested in hearing your impression of the original article and of the process of using the planner to evaluate an SPIA.

Best Regards,

- Sho

Posts: 3
Joined: Thu Jun 19, 2008 9:26 pm

Re: Evaluating and annuity (SPIA) with the planner

Post by archieholmesjr »

I am starting to play with immediate annuities with this calculator and am trying to decide how to account for the lump sum payment. Is it taxed if coming from a 403(b)?

Posts: 614
Joined: Thu Feb 28, 2008 6:48 pm

Re: Evaluating and annuity (SPIA) with the planner

Post by jimr »

Hello and thanks for the question.

Unfortunately, I'm not sure about the tax implications of a lump-sum distribution from a 403(b). You might ask your question on the bogleheads forum.

No matter what the tax treatment of this distribution is, I'd expect you can model this in the flexibleRetirementPlanner. You would probably include it on the additional inputs page as an additional cashflow in the year the distribution occurs. Depending on how taxes are handled, it would either be added to your investment portfolio as "taxable savings", "tax deferred savings", or "tax free savings".

Hope that helps,


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