load on annuity


Can someone elaborate on how the load on annuities works within the program? I don't and won't have any annuities as investments. I'm using it only as a tool to model smooth withdrawals before SS benefits kick in. Since it's all my own money in the first place and I'll get 100% of it back, should I use 0 load?


dan royer's picture

Yes, 0. the load only applies if you are annuitizing a percentage of your retirement assets.

Just to add to Dan's reply, for what you are doing, you should assume a zero load since you aren't actually buying an annuity. Loads are extra costs added onto insurance policies by insurance companies to cover their marketing and related costs of selling their policies. Loads don't reflect the need to pay out claims to those who buy a policy and experience a loss (in the case of an annuity a loss references not dying and, therefore, needing money). Such payouts to those suffering a loss are balanced out by not having to make payouts to those who don't suffer a loss.

Thanks. Since I'm only using it to simulate early withdrawals, I set the load to 0% and set the earnings to the expected return rate of my portfolio in that period of time. If I understand correctly, that compensates for investment losses in the retirement fund due to having withdrawn a large chunk on day 1 of retirement.

Hi Chris, Not sure what you mean by investment losses. Best call me at 617 834 2148. Larry

Larry, I'm okay and don't think I'm making an error. I just didn't explain myself well.

I didn't mean an actual loss. I meant the lost potential earnings compared to having left the principal of the pseudo-annuity in my retirement account. If I set the annuity earnings to 0, I'd get the cash back but the return on the investment would not be earned. By setting the return on the annuity equal to that of my retirement portfolio during the period I'll actually withdraw the cash, the total investment earnings known to ESP will be a wash.

That only works because I'm not changing my portfolio during the time I'll be getting the "annuity".

dan royer's picture

I guess I don't follow this. You can't do this using special withdrawals in the retirement area? I've never known anyone to use this as a pseudo-annuity, but perhaps you've created a new way to model something.

Please call me. best, Larry

Larry, I'll call you next week when I have some free time.

Dan, I could use special withdrawals but others have reported that special withdrawals cause havoc with Monte Carlo results.


Chris, Dan, Larry,

I am the one who commented in another thread that special withdrawals can cause problems in the Monte Carlo reports. I had reported this last year and ended up trading emails with Larry and talking to him on the phone about it. After some investigation, he found that using too many years of Special Withdrawals can have odd effects because of the way they are handled during the Monte Carlo runs.

There may be something unique to my situation because other users have reported that years of Special Withdrawals of Retirement Assets works for them. I suspect it may only happen if your default profile is borrowing constrained as is my case. I am delaying Social Security and need another source of funds to "fill the gap".

The figures below show what happens to my Monte Carlo reports when I use Special Withdrawals from my Retirement Assets to bridge the gap. These images are from two runs as follows:

Run 1: A default profile which is borrowing constrained. This profile used no Retirement Asset Special Withdrawals or Smooth Withdrawal annuity.

Run 2: The same profile which used Special Withdrawals EQUAL TO those recommended by ESPP in Run 1. In other words, I looked at the report from Run 1 and then manually entered the amounts ESPP showed as recommended into the Special Withdrawals grid for Run 2.

The main sections (Suggestions & Details) of the two reports showed all report values as being within $5 of each other throughout the full lifetime period of the report. (The two reported Living Standards were equal.) The standard portions of the reports were essentially identical. Not until you get to the Monte Carlo reports do you see any differences in the two reports.

It was after Larry and I talked that I started using the "Fake Retirement Annuity" method to pull money from my Retirement Assets to bridge the period of borrowing constraint. I did just what you have reported. I now use the Smooth Withdrawals tab and specify a small percent of my Retirement Assets to be annuitized. I then set the growth to keep up with inflation and the rate of return to equal the average rate of my Retirement Asset portfolio (as reported at the beginning of the reports).

In practice, I then use the Total Income report in Suggestions to guide me in my yearly Retirement Asset withdrawal rate.

I hope this clears things up at least a little bit. Using Special Withdrawals doesn't affect the Suggestions in the the main body of the reports. It does, however, cause the Monte Carlo report to give me some strange results such that I cannot judge my plan risk. I now just use the "fake annuity" method so I can get some meaning from the Monte Carlo section of the reports. Using this method allows the Monte Carlo reports to resemble those of a base profile.

Best Regards,

Comment Image: 

I appreciate the effort you went thru to describe this flaw with the MC reports when special withdrawals are used in a borrowing constrained profile. I am noticing this as well. But in mine it seems that only the Percentile Distribution of Regular Assets is off. The other MC reports look OK. I was wondering for those that have experienced this, are any of your other MC reports besides Regular Assets affected ?

I think I understand the fake annuity method. But in my case I purposely want to use different withdrawal amounts from my Retirement Accounts to cover big expenses in certain years, and to keep money in Retirement Accounts as long as possible (particularly Roth accounts) to avoid taxation on earnings. With the fake annuity I think it would be more challenging to accommodate these needs. If only the Regular Asset MC report is askew, I think I can live with that. So I am interested to hear if other MC reports are affected.



I'm curious if increasing maximum indebtedness causes this problem to go away for those who see it. This may have to be increased to a large amount depending on your constraints.

To be clear...I'm not suggesting that you borrow anything in real life. Just wondering if this removes the constraint so the special withdrawal method is no longer an issue.


Thanks for responding, Brian. My maximum indebtedness was zero. so I tried your suggestion and specified 2 different (large) values to see if it made a difference. It did not help with the Regular Assets MC chart. It did increase my consumption around 0.7%. What would be nice is if they could fix this. I don't know if they have looked at it or gave up. In the meantime, I am just trying to get an idea of how severe the problem really is.

Hi Tom,

Thanks for reporting back. Did you try this with a "huge" value of perhaps a few million dollars for maximum indebtedness? I'd have to think this through as having a large maximum debt value could mean a decent amount of "interest" that you'd owe (based on regular asset rate of return) if the program actually used this amount of debt in any given year. Of course, for most years the program probably would only use a much smaller amount that's actually needed to smooth consumption. The reason for the "huge" value is below:

My guess is that the issue is a function of a certain percentage of MC runs having a bad ~5-10 year sequence of initial returns combined with one other factor. Normally ESPlanner keeps tax-sheltered asset withdrawals fairly smooth (although with special withdrawals, coping for RMDs, etc.) and varies regular asset withdrawals to cover the annual "delta" needed to smooth spending. So typically regular asset withdrawals vary much more widely than tax-sheltered withdrawals.

Given the variability of MC, when I look at John's graphic above, this could make sense. If you start out somewhat constrained in regular assets, then have a poor sequence of MC returns for tax-sheltered assets (and perhaps regular assets as well), this could force the regular assets into negative territory. Since MC goes through 500 runs, this is certainly probable for a few runs or perhaps many more.

Although...perhaps I have this wrong as I can't look at the code. With three different people experiencing this, it would be good to know more as you describe.

As an aside, after spending a lot of time on MC, I went back to "normal" calcs and rate of return. That's a whole different conversation, but it seems to make sense in my case as I haven't had an issue optimizing profiles with special withdrawals (among other factors).


Hi Brian,

I did one run with 100,000 in maximum indebtedness and another with 500,000.

I haven't had a chance to really analyze and ponder whether the the chart might actually be right, but after reading your post and thinking about it a bit, I am also starting to think it might make some sense. Let me explain...

First, a little background ...

This month I updated my plan to put in special withdrawals to accomplish 2 things; 1) In year 2022 I have a vehicle purchase planned (paying in cash) and 2) in 2024 I plan to pay off my house. Before doing the Special Withdrawals my Regular Assets were really getting low around those years (close to zero). So I put in more special withdrawals to have higher Regular Asset balances in those years. In addition, since I am not planning to take SS until 2020, to fill the income gap between now and then, I took special withdrawals for the next 5 years and these are on graduated scale (idea is to maximize returns in retirement accounts while I draw down Regular Assets to a comfortable point). FYI, my MC portfolios for regular assets are configured with lower returns than in my retirement accounts).

So all these special withdrawals are over the next 10 years. After that I let ESPlanner do the normal smoothing. (BTW, my start of smooth withdrawals is this year - 2015 - turned 60 last year).

My chart looks different than John's, but it looks really different than before doing special withdrawals. Prior to doing these special withdrawals, my chart showed that all the percentile lines were really close to the mean return line. After the run with special withdrawals, the lines were significantly more dispersed, ESPECIALLY in the years I was doing the special withdrawals. And in 2024 (the house payoff year), they were the most dispersed with the lower percentile lines going negative. After 2024, the lines gradually got closer and closer together over the next 10 to 15 years and eventually the lines were as close to one another as in the older report (pre special-withdrawal run).

So I am thinking that with the MC bad market years (i.e. 5th, 25th percentiles), the retirement account balances would be a lot lower. So maybe this lowered the probability that my Regular Assets would have healthy balances. Does that make sense?

But in John's case, he used a fake annuity instead of special withdrawals, and as I understand it, the fake annuity resulted in the same amounts of money being withdrawn as when he using special withdrawals. Yet his MC charts were significantly different. So given that, I don't know what to think. Something is amiss ... either the fake annuity is resulting in the wrong chart, or the special withdrawals is resulting the wrong chart ... but since the charts are different, something is wrong.

Bottom line for me is I just want to trust that ESP is giving me good info in the main reports and some of the other MC reports.


Hi Tom,

I think what you are seeing, when using MC along with being constrained in regular assets and "forcing" special withdrawals, is a magnification effect playing out over 500 MC runs. I'll try to explain what I think is happening.

Depending on how close you are to being constrained, the variation in MC returns will lead to at least a few runs hitting negative assets. The earlier this happens (such as a bad sequence of returns in the next few years) and the larger the negative returns, causes the worst results.

Since multiple factors come into play, it's hard to tell for certain. But...there are variations in MC return randomness, return sequencing, amounts of assets in regular assets in different years, different special withdrawals in certain years, etc.

ESPlanner's MC calcs should take the special withdrawals exactly as you input. Normally, the smoothing algorithm adjusts these as needed. Since you are "forcing" the program to withdraw various amounts of money over ~10 years, you can get in trouble at any number of points in the MC calculations. My guess is that this "forcing" of withdrawals is the key factor. Your results seem (to me at least) to show the interplay of these constraints and MC return randomness during the first 10-15 years or so.

My guess is that over 500 runs, during the years when you have special withdrawals, the interaction of multiple factors causes the wide dispersion that you see. As you describe, once you get past this "Special WD era" (SWD), everything seems to start behaving "normally". Basically, the smoothing algorithm has an easier time once you get past the constrained years, but is forced to contend with the combination of constraints and randomness which causes the more chaotic results early on.

You can think of the interim MC report values at the end of 2024 (SWD era) as being the initial conditions for a much less constrained era until end of life. Once you get past 2024 and stop the special withdrawals along with reduced constraints in regular assets due to SS and no mortgage, the wide initial spread of results (and associated asset values) starts to get back to "normal" by late in life.

Regarding John's case and the "fake annuity" method, it's harder for me to speculate since he says he talked to Larry about "using too many years of Special Withdrawals can have odd effects because of the way they are handled during the Monte Carlo runs". Perhaps this is just what we are talking about? My guess is the "forcing" of the program to do special withdrawals is the issue here as well, but that's just speculation. Given my experience with MC, I'm not shocked at all with the wide variation in his charts.

Anyway...I don't know that we've resolved anything, but the speculation seems to be somewhat reasonable that the program's results are coping with constraints and MC randomness. But...perhaps this isn't 100% accurate given John's conversation with Larry about his profile?

If the ESPlanner team can add/clarify anything on this, that would be great.

One suggestion that I've used to cope with the uncertainty (without MC), is to develop a "range of reasonable estimates" using some "what if" assumptions. This way you can use conventional planning and still model low returns, losing $XX assets, high inflation, tax increases, Social Security cuts individually or everything in combination. At the same time I use a "safety factor" approach based on the “Standard of Living” (SOL) index in the Assumptions tab. To do this, create a copy of your profile and set your last few years to a high SOL. That will force the program to reduce consumption in earlier years and preserves assets for late in life. The approach is very flexible and is sort of a general purpose risk cushion that can be used to essentially self-insure to some extent against various risks.


Good discussion, Brian. Thanks for your interest and insights. I agree the forced withdrawals are likely to stress the MC logic and are likely the reason for the wide dispersion. Also, this discussion has led me to believe that maybe the chart is not necessarily inaccurate. But I don't think either of us knows for sure. An ESPlanner MC expert would have to get involved. Maybe that will happen eventually. Hope so. In the meantime, I don't think I am going to make any changes at this point. All the other reports seem OK so far and this discussion has educated me more on what could be happening.


John's situation describes mine. I'm constrained in borrowing and regular assets. Retirement assets and future Social Security benefits seem sufficient to support my desired standard of living.

Special or smooth withdrawals will fill a gap until I start drawing social security benefits. Annuity growth = inflation and returns are set to match those of the portfolio in effect at the time of the withdrawals. Like John, I'll use the Total Income report to guide annual withdrawals. My goal is credible MonteCarlo reports to validate suggestions reported elsewhere.

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