Annuity Payout SL or JL

[chinaco]

I am beginning some analysis of SPIA payouts.

Given a specific age:

• Male Single Life seems to have a higher payout than Female Single Life (because of life expectancy no doubt)
• Joint Life seems to be less than either the Male or Female Single Life payouts.

If one was considering buying a JL for a husband and wife... would they perhaps be better off splitting the money allocation and buying separate SL annuities with a period certain of 30 years and each spouse have the other as a beneficiary.

There is the obvious longevity risk component. If a spouse dies early, after 30 years, the survivor's annuity payment is cut in half.

However, after 30 years, inflation will most likely reduce the value. IOW 30 years later at a long-term inflation average of 3.5%... Example: $10k/yr has the purchasing power of about $3.6k/yr... close to 1/3.

There are several trade-offs. Longevity versus more dollars earlier. The benefit of more dollars earlier would seem to help since a larger early income stream would take a little more pressure off of the portfolio (in earlier years).

However, If the annuity is for a relatively small amount of payout... marginal increases may not be of any practical benefit.


Anyone done this form of analysis or know of whitepapers published on strategies for selecting annuity payouts?

[easysurfer]

Would be nice if the market went on a tear so our assets grow nice and high, then the fed would raise interest rates high to keep the market in check. At that point get a SPIA to lock in the payout with high interest for the rest of your life. Then the next time the market tanks, you'd still have the nice income stream each month like clockwork, regardless of how shaky the market is. Of course, that's my ideal situation.

Currently, psychologically, I think it's difficult to pull the trigger and apply for a SPIA with interest rates so low. Unless, you are totally sold on SPIAs as the way to go, and put in say 100K now, than 5 years another 100K, then 5 years later, another 100K, etc. spreading the interest rates around.

[dgoldenz]

SPIA rates in general right now are pretty low. You could buy a life insurance policy with the difference in payout between joint and single-life, but whether that would make sense depends on age/health and how much of a difference in payouts there are. Pension maximization has probably been talked about here before, same concept.

Having a lump sum payout gives some additional inflation protection if interest rates are high at that time since you could use the insurance proceeds to buy a new SPIA at the higher rates or do whatever else you want at that point instead of being locked in on the lower-payout joint SPIA.

[LOL!]

Otar's "Unveiling the Retirement Myth" has quite a lot on annuities. He has a calculator on his web site as well. It's probably not exactly what you want, but it's a start. He writes about laddering annuities as well.

Separate annuities and laddering can probably help keep you under state guaranty limits as well.

[kcowan]

Quote:

Originally Posted by LOL! Otar's "Unveiling the Retirement Myth" has quite a lot on annuities. He has a calculator on his web site as well. It's probably not exactly what you want, but it's a start. He writes about laddering annuities as well. Separate annuities and laddering can probably help keep you under state guaranty limits as well.

Quote:

Originally Posted by Jim Otar I thought of giving back something to reflect the spirit of upcoming festive holidays; something potentially useful for your readers too … I’d be happy to make the green edition of my book “Unveiling the Retirement Myth – Advanced Retirement Planning based on Market History”, a textbook on non-Gaussian approach to retirement planning, to your readers for a limited time, from now until January 2nd.

Jim Otar’s Book

[Independent]

Quote:

Originally Posted by chinaco I am beginning some analysis of SPIA payouts. Given a specific age: Male Single Life seems to have a higher payout than Female Single Life (because of life expectancy no doubt) Joint Life seems to be less than either the Male or Female Single Life payouts. If one was considering buying a JL for a husband and wife... would they perhaps be better off splitting the money allocation and buying separate SL annuities with a period certain of 30 years and each spouse have the other as a beneficiary. There is the obvious longevity risk component. If a spouse dies early, after 30 years, the survivor's annuity payment is cut in half. However, after 30 years, inflation will most likely reduce the value. IOW 30 years later at a long-term inflation average of 3.5%... Example: $10k/yr has the purchasing power of about $3.6k/yr... close to 1/3. There are several trade-offs. Longevity versus more dollars earlier. The benefit of more dollars earlier would seem to help since a larger early income stream would take a little more pressure off of the portfolio (in earlier years). However, If the annuity is for a relatively small amount of payout... marginal increases may not be of any practical benefit. Anyone done this form of analysis or know of whitepapers published on strategies for selecting annuity payouts?

It depends on what you're trying to accomplish with your annuity. I don't think you specified that.

I would buy an annuity to insure a base level of retirement income that I/we can't outlive. Since financial needs go down after the first death, I would try to match the payouts to the needs. The choice for me would be a joint life, 2/3 to survivor, no certain period.

AFAIK, annuity pricing is "fair" in the sense that insurance companies aren't trying to make extra profits on one version as opposed to other versions. So premiums pretty well reflect expected payouts based on mortality and interest. e.g. Annuities with certain periods may pay even after your death, but because of that you pay a higher premium.

Of course, like any insurance product, the company prices in expenses and profits, so you don't want to buy more than you "need". One corollary to that is that you want to consider deferring until you reach an age with a "higher" mortality rate.