There are a ton of flaws in this comment, and I don't understand why it's at the top of this chain.
"First, the safe withdrawal method of 4% is actually not safe - the safest method of withdrawal is called variable percentage withdrawal and not only takes into account the principle, but also the results year after year."
This is an argument for taking the annuity. When two options have the same expected value, volatility is a bad thing.
"Because you are taking an asset class that can be converted into shares/bonds which has a higher expected returns than an annuity because it can compound."
The author writes under the pretense that the $5K figure is EQUAL to the risk-adjusted rate of return on a $1M principal. Sure, there are asset classes that have higher expected returns than a guaranteed annuity, but that is because they are RISKIER. Obviously, people value risk differently, which is why in general, you can't say "always take $1M"
"Whereas the $1M cash, if moved to bonds and shares, even if it performed at 5% annually, it will mean on the first year break even, but on the second year it will compound (unless you spend all the money)."
The whole point of the $5K figure is that it is the same amount as the risk-adjusted return on a $1M investment. How the user chooses to spend that $5K monthly sum is up to them and they have the freedom to spend or invest that sum in the same manner regardless of which option he/she takes.
"You could say you invest the monthly savings from the $5,000 but simply put it, $1M in shares has a much higher expected return than $5,000 monthly in perpetuity."
Incorrect for the above reasons.
Assuming that $5K/month annuity is the expected rate of return on a $1M invested in a risk-free asset class (which is the assumption this article is written on) and you have the option to cancel the annuity and retrieve your principal at any time, it's pretty clear that the annuity is the better option because it has NO volatility.
"First, the safe withdrawal method of 4% is actually not safe - the safest method of withdrawal is called variable percentage withdrawal and not only takes into account the principle, but also the results year after year."
This is an argument for taking the annuity. When two options have the same expected value, volatility is a bad thing.
"Because you are taking an asset class that can be converted into shares/bonds which has a higher expected returns than an annuity because it can compound."
The author writes under the pretense that the $5K figure is EQUAL to the risk-adjusted rate of return on a $1M principal. Sure, there are asset classes that have higher expected returns than a guaranteed annuity, but that is because they are RISKIER. Obviously, people value risk differently, which is why in general, you can't say "always take $1M"
"Whereas the $1M cash, if moved to bonds and shares, even if it performed at 5% annually, it will mean on the first year break even, but on the second year it will compound (unless you spend all the money)."
The whole point of the $5K figure is that it is the same amount as the risk-adjusted return on a $1M investment. How the user chooses to spend that $5K monthly sum is up to them and they have the freedom to spend or invest that sum in the same manner regardless of which option he/she takes.
"You could say you invest the monthly savings from the $5,000 but simply put it, $1M in shares has a much higher expected return than $5,000 monthly in perpetuity."
Incorrect for the above reasons.
Assuming that $5K/month annuity is the expected rate of return on a $1M invested in a risk-free asset class (which is the assumption this article is written on) and you have the option to cancel the annuity and retrieve your principal at any time, it's pretty clear that the annuity is the better option because it has NO volatility.