I would like some feedback on the concept of replacing any bond allocation in my portfolio with a SPIA. This has been discussed by Wade Pfau, and I like the concept of replacing the 30% of total portfolio that is bonds with a SPIA. This will still leave 60% stock/10% cash. These are the pros and cons, from my understanding. I appreciate your insight. Which one have you chosen, and why?
Pros of SPIAs:
-Much simpler than bond ladders: Nothing to track or invest
-Nothing to maintain: Similar to the above point, as my faculties diminish or if I pass, my mate does not have to balance or invest. It is also tamper proof from well intentioned loved ones that may act as our proxies someday.
-Higher monthly payment than just bond coupons: to match the monthly payment would require that I sell/allow to mature some of the bonds to withdraw their principal from the bond portfolio.
Cons of SPIAs:
-Much lower growth than stocks: We should not have a portfolio of 100% SPIA.
-You lose the principal at death: This doesn't matter to us since we have no dependents or legacy. But this is a serious con for parents.
-You lose control of the principal: This could hurt if a serious emergency arises such as long term care. It seems this is mitigated by keeping cash/stock portfolio apart from the SPIA.
Pros of SPIAs:
-Much simpler than bond ladders: Nothing to track or invest
-Nothing to maintain: Similar to the above point, as my faculties diminish or if I pass, my mate does not have to balance or invest. It is also tamper proof from well intentioned loved ones that may act as our proxies someday.
-Higher monthly payment than just bond coupons: to match the monthly payment would require that I sell/allow to mature some of the bonds to withdraw their principal from the bond portfolio.
Cons of SPIAs:
-Much lower growth than stocks: We should not have a portfolio of 100% SPIA.
-You lose the principal at death: This doesn't matter to us since we have no dependents or legacy. But this is a serious con for parents.
-You lose control of the principal: This could hurt if a serious emergency arises such as long term care. It seems this is mitigated by keeping cash/stock portfolio apart from the SPIA.
Statistics: Posted by MonsterInvestor — Sat Sep 07, 2024 8:12 am — Replies 13 — Views 561