How much $ to invest in a retirement fund that GUARENTEED 7%/yr returns?

[JEDI]

An option in the NYC Teacher's retirement plan:
https://www.trsnyc.org/trsweb/passportFunds/fixedReturnFund.html

7% for members who are serving in (or resigned/retired from) titles represented by the United Federation of Teachers (UFT) and 8.25% for other members.

If you were eligible, How much of your paycheck would you put into this?
and I Wonder which groups get 7% and which get 8.25%?

 

[glenn1]

An option in the NYC Teacher's retirement plan:
https://www.trsnyc.org/trsweb/passportFunds/fixedReturnFund.html

7% for members who are serving in (or resigned/retired from) titles represented by the United Federation of Teachers (UFT) and 8.25% for other members.

If you were eligible, How much of your paycheck would you put into this?
and I Wonder which groups get 7% and which get 8.25%?

What's your age and risk profile? If you believe the guarantee by the State of New York then that's triple the riskless return of 10-year T-Bill (quoted today by Bloomberg at 2.3750%) then I'd load up.

 

[vi edit]

At 7% *guaranteed*....?

I'd go all in. It's certainly not going to match the year to year returns you'd see with index funds, but you won't ever see your nestegg cut in half in weeks worth of losses either.

I question how they can even do that. Typically defined benefits are set at salary % and not at a performance %. I would be scared to see what happens when they have no way of meeting those guarantees in a period of long term market loss and investment growth.

 

[monkeydelmagico]

It's an annuity. Variable retirement allowance based upon actuarial mortality rates. Check to ensure it lines up with income expectations during latter years.

 

[Attic]

What's your age and risk profile? If you believe the guarantee by the State of New York then that's triple the riskless return of 10-year T-Bill (quoted today by Bloomberg at 2.3750%) then I'd load up.

This.

But there's always risk. When that risk is hidden, it's more of a problem.


But this 7% return is backed by the gubment, it's a risk that only gets exposed if there are other bigger problems.

7% basically riskless is an insane investment oppurtunity. I'd start looking at how to put as much of my paycheck as soon as possible into that. Max out.

 

[Attic]

Oh, annuity.

Screw that.

 

[Muse]

Sounds good. I guess this is what my cousin in NYC got his ~8% return I heard about, he was a teacher there, I think he still does some on occasion, probably subs.

I had an 8% corporate bond (GMAC), it was AAA rated when I bought it, it was 15 year callable, and when GM went into bankruptcy, I started sweating. However, I didn't lose the principle and they didn't call it until a couple years ago, a few years short of maturity. Those checks coming 2x/year were nice. The lower interest rates got, the nicer the checks got! I was surprised they took so long to call the bond. However, if I'd known GM would get into trouble, I would never have bought the bond.

 

[Sho'Nuff]

All depends on risk and profile. At my age (37) if a reliable entity is guaranteeing a 7.5% rate of return I would dump money into it fast. At that rate money put in at 37 would double roughly three times before average retirement age. The investment gets more attractive as one gets younger, so long as the risk does not appreciably increase.

E.g., say you invest 6k a year (500/month) at 7.5% interest from the time you are 20. By age 65 that investment would be valued at roughly 2 million dollars. And that assumes compounding only once a year.

I cannot stress the importance of early investing enough. If you start early, you don't need big returns to secure a comfortable retirement. All you need is a steady returns on a modest regular investments. I am living proof of this. I started investing at age 19. I couldn;t put 5 k away yearly at first, but I put invested a couple grand. Then when I started getting paid really well (~age 27) I started pouring money (~30-40k year) into relatively low risk investments. I am now 37. To date my non-vested average rate of return is 7.4%. If I could assume that same rate of return (which I don't out of caution), I could literally invest nothing more for the rest of my life and retire at age 55 (assuming I need 70% of my current income). All because I invested early.

As someone once said, compound interest is one of the most powerful forces in the universe. So stop making excuses people. Start investing early.

 

[glenn1]

It's an annuity. Variable retirement allowance based upon actuarial mortality rates. Check to ensure it lines up with income expectations during latter years.

Monkey did more due diligence than I did (basically zero in my case) in determining this was a fixed annuity. This gives you an idea of the downsides of an annuity investment.

http://www.forbes.com/sites/davidma...romises-of-annuities-and-annuity-calculators/

 

[JEDI]

It's an annuity. Variable retirement allowance based upon actuarial mortality rates. Check to ensure it lines up with income expectations during latter years.

where does it say that?!

the link says:
The Fixed Return Fund offers a guaranteed rate of return set by the New York State

 

[vi edit]

where does it say that?!

the link says:
The Fixed Return Fund offers a guaranteed rate of return set by the New York State

Go to the PDF in the upper right of that page and go to the last page on it. It's an annuity.

"Fixed Return Fund
This paragraph describes how interest is determined for retired members receiving monthly payments under the QPP or TDA Program
that include money from the Fixed Return Fund. The calculation of a QPP retirement allowance or TDA annuity is determined based on
the balance of the member’s Fixed Return Fund account and his or her life expectancy, as well as an assumed interest rate and other
actuarial assumptions. The assumed interest rate is 7% if the annuity was calculated on a unisex mortality table, or 4% if the annuity
was calculated based on the applicable male or female mortality table. By law, the mortality table that provides the highest payment to
the member must be selected.
For a retired member, the amount paid monthly from the Fixed Return Fund will not change, unless the member changes the investment
composition of his or her account"

 

[JEDI]

hm.. so to the worker, s/he doesn't see a 7% return on their $?

normally, put in $100k lifetime earning 7%/yr, it should grow to $X.

but here, at 62, there wont be $X in the account???
what will be there at time of retirement?

 

[vi edit]

Did you read the article above on how annuities work?

It's basically a hedge game by the insurance company. They are taking a big pile of money from you now and hoping you kick the bucket before you collect back on your principal.

It's also a locked in rate that pays out very high in the beginning, but after 20 years can end up being severely gimped due to inflation.

 

[DaveSimmons]

As an annuity it's fine if you don't care about losing 100% of the principal.

It doesn't earn / return / grow at all. You hand over all the money, they keep it, they pay 7% until you die. Your heirs get nothing. Good day sir!

 

[Muse]

All depends on risk and profile. At my age (37) if a reliable entity is guaranteeing a 7.5% rate of return I would dump money into it fast. At that rate money put in at 37 would double roughly three times before average retirement age. The investment gets more attractive as one gets younger, so long as the risk does not appreciably increase.

E.g., say you invest 6k a year (500/month) at 7.5% interest from the time you are 20. By age 65 that investment would be valued at roughly 2 million dollars. And that assumes compounding only once a year.

I cannot stress the importance of early investing enough. If you start early, you don't need big returns to secure a comfortable retirement. All you need is a steady returns on a modest regular investments. I am living proof of this. I started investing at age 19. I couldn;t put 5 k away yearly at first, but I put invested a couple grand. Then when I started getting paid really well (~age 27) I started pouring money (~30-40k year) into relatively low risk investments. I am now 37. To date my non-vested average rate of return is 7.4%. If I could assume that same rate of return (which I don't out of caution), I could literally invest nothing more for the rest of my life and retire at age 55 (assuming I need 70% of my current income). All because I invested early.

As someone once said, compound interest is one of the most powerful forces in the universe. So stop making excuses people. Start investing early.

That was non other than Albert Einstein:

“Compound interest is the eighth wonder of the world. He who understands it, earns it ... he who doesn't ... pays it.” - Albert Einstein

Actually, you can probably do more than 7.4% on average. The S&P500 averages ~10% annually including dividends. It's not guaranteed, but unless things get a lot worse, 7.4% looks easily achievable with just plowing your money into the SPY and holding on through thick and thin.

 

[BurnItDwn]

Im in my 30s, I do not plan to retire for 30 years or so.

I have 90% of my investments in my 401K, 100% of that in index funds / high risk.

I have 8% of my investments in my brokerage account, Currently I own shares of 2 different stocks in that account.

I have 2% in a low risk fund, more or less in case I need some shorter term liquidity for something.

I plan to keep 98% in high risk, but slightly diversified to limit exposure from any one company or sector until i hit 50. When I hit 50, I will likely move 5-10% of my investments over to low risk investments.

 

[Slew Foot]

Annuity? F that. Just buy some ATT stock, it pays about a 6ish percent dividend, and you get to keep your principal.

On the other hand, if there was an investment that gave me a guaranteed 7% return (and I got to keep my principal) Id plow a ton of cash into it, especially if it was govt backed.

 

[DCal430]

Did you read the article above on how annuities work?

It's basically a hedge game by the insurance company. They are taking a big pile of money from you now and hoping you kick the bucket before you collect back on your principal.

It's also a locked in rate that pays out very high in the beginning, but after 20 years can end up being severely gimped due to inflation.

That isn't how this program works at all, people should actually look into this specific program before they comment.

You invest into a 403b plan, the money in the plan is borrowed by the city at a 7% interest rate, so everything in the 403b plan a guaranteed rate of 7%. When you retire you can elect to convert all assets into a guaranteed annuity whose guaranteed monthly payment was based on 7% return. This isn't mandatory though, you can elect to keep the funds in the 403b plan and from that point on it is just like any other 403b plan.

This plan is highly subsidized by tax payers, as 7% is significantly higher than the real world borrowing cost of NYC.

Also if you die before you convert the account, your estate gets all of the money.

 

[glenn1]

That isn't how this program works at all, people should actually look into this specific program before they comment.

You invest into a 403b plan, the money in the plan is borrowed by the city at a 7% interest rate, so everything in the 403b plan a guaranteed rate of 7%. When you retire you can elect to convert all assets into a guaranteed annuity whose guaranteed monthly payment was based on 7% return. This isn't mandatory though, you can elect to keep the funds in the 403b plan and from that point on it is just like any other 403b plan.

This plan is highly subsidized by tax payers, as 7% is significantly higher than the real world borrowing cost of NYC.

Congratulations, you just described how a variable annuity works. The "when you retire" part is when you annuitize the paid-in value. Since the linked tearsheet doesn't provide the surrender cost to cash out of the fund I'm guessing it's likely fairly steep. And I'm glad it has a death rider but that still doesn't make it a good "investment".

 

[DCal430]

Congratulations, you just described how a variable annuity works. The "when you retire" part is when you annuitize the paid-in value. Since the linked tearsheet doesn't provide the surrender cost to cash out of the fund I'm guessing it's likely fairly steep. And I'm glad it has a death rider but that still doesn't make it a good "investment".

There is no cost to cash out the fund, if you elect not to annuitize, all amounts in the fund become yours, and you may do with it like any other 403b plan. It doesn't have a surrender cost like you think. The only cost is the same as any other 403b or 401k that you cannot withdraw it before age 59.5. If you die before you are able to widthraw it, the ENTIRE AMOUNT becomes your estates, there is no charge.

 

[monkeydelmagico]

There is no cost to cash out the fund, if you elect not to annuitize, all amounts in the fund become yours, and you may do with it like any other 403b plan. It doesn't have a surrender cost like you think. The only cost is the same as any other 403b or 401k that you cannot withdraw it before age 59.5. If you die before you are able to widthraw it, the ENTIRE AMOUNT becomes your estates, there is no charge.

Well done. I did not find this information on the fact sheet but did not go as far as reading the entire prospectus. If what you say is true this is an attractive investment vehicle.

At the very least JEDI owes you some beers

 

[DCal430]

It us called Tax Differed Anuity because it is a 403b plan and when congress first created them it required the investments in them to be annuities. This was changed decades ago, but the name stuck