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Interesting offer from Vanguard: At a 0.95% of assets annual fee, they'll guarantee a 5% withdrawal for life for a 65-year-old.

http://www.vanguard.com/pdf/z070.pdf

Here's the Bogelheads discussion on the product.

http://www.bogleheads.org/forum/viewtopic.php?f=10&t=845...

Sounds expensive to me (even though Vanguard is charging half the cost of other firms for the rider), but others may have less risk tolerance.

intercst
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I don't know much about annuities ... but isn't it the case that even though the person has a guaranteed dollar amount of income, that dollar amount is fixed, and the forward march of inflation will mean that the purchasing power of that income will grow smaller and smaller?

This seems to compare most unfavorably with something like the 4% Safe Withdrawal Rate, which then adjusts the annual dollar amount withdrawn in order to keep up with inflation.

culcha
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culcha asks,

I don't know much about annuities ... but isn't it the case that even though the person has a guaranteed dollar amount of income, that dollar amount is fixed, and the forward march of inflation will mean that the purchasing power of that income will grow smaller and smaller?

This seems to compare most unfavorably with something like the 4% Safe Withdrawal Rate, which then adjusts the annual dollar amount withdrawn in order to keep up with inflation.

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There are annuities available that increase your payment each year for inflation, but they cost about 40% more.

http://www.principal.com/retirement/incomeannuity/elm/income...

An inflation-adjusted annuity should be safer than taking a 4% withdrawal from a stock portfolio if you believe the insurer can survive the next financial market meltdown. But it comes at great cost -- up to 30% of the purchase price of an annuity is lost to the insurance company's various fees, costs and expenses.

http://retireearlyhomepage.com/annuity_costs.html

intercst
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Yes, I think your numbers are about right. When you think about it, the annuitor, whether and insurance company or a brokerage like Vanguard, MUST hedge their 'guaranteed' payout, or they would risk substantial loss or even going bankrupt during market down-cycles. This hedging can be expensive. But for some, this expense is worth it...and I suspect these are the individuals Vanguard is marketing this product to.

BruceM
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