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Do dropping rates make you think of buying a SPIA earlier?
Old 10-06-2019, 05:27 PM   #1
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Do dropping rates make you think of buying a SPIA earlier?

I had been thinking that in a few years I might purchase a SPIA. In a few years I'll have a better idea of my life span prospects and also qualify for mortality credit.

Now...the possibility of rates dropping maybe below what they've ever been before, makes me think it might be a good idea to buy one now.

Is anyone else thinking along these lines?
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Old 10-06-2019, 06:24 PM   #2
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I received an "annuity-like" buy out that paid for 28 years. I'm at year 26. I've seen what very modest inflation has done to that pay out over the years.

Annuities? Not for me. I have a very healthy respect for inflation.
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Old 10-06-2019, 06:31 PM   #3
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I received an "annuity-like" buy out that paid for 28 years. I'm at year 26. I've seen what very modest inflation has done to that pay out over the years.

Annuities? Not for me. I have a very healthy respect for inflation.
Good point! Inflation risk...
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Old 10-06-2019, 07:17 PM   #4
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I am thinking about buying a QLAC-- qualified longevity annuity contract. I finally found one that has a return of premium.
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Old 10-06-2019, 07:37 PM   #5
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No. The dropping rates made me think of getting a mortgage on the home we were planning to pay cash for.
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Old 10-07-2019, 06:07 AM   #6
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I feel like rates are already pretty low right now. Even if rates will be dropping, I would not be buying an SPIA now because I am concerned they will be higher in the future than today. If I were really planning to buy an SPIA now, I would probably pull the trigger now rather than wait. In my case, I'm not certain about buying an SPIA at all, and not ready now. I will probably only buy one if there is a rate spike and I want to lock in at a higher rate. It would have to be higher than it is today.
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Old 10-07-2019, 06:16 AM   #7
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Quote:
Originally Posted by 4legsgood View Post
I had been thinking that in a few years I might purchase a SPIA. In a few years I'll have a better idea of my life span prospects and also qualify for mortality credit.

Now...the possibility of rates dropping maybe below what they've ever been before, makes me think it might be a good idea to buy one now.

Is anyone else thinking along these lines?
No. If I were in the market for a SPIA (and I'm not) I would wait for rates to rise.

Lower rates means lower payouts so why would one buy a SPIA now?
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Old 10-07-2019, 06:36 AM   #8
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No. If I were in the market for a SPIA (and I'm not) I would wait for rates to rise.

Lower rates means lower payouts so why would one buy a SPIA now?
If one thinks rates will continue to drop, and more significantly than mortality credit will raise payout.
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Old 10-07-2019, 08:26 AM   #9
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The premium is going to the pv of expected benefits (contractual benefit * probability of payment/annuitant being alive) discounted at the rate that they can earn on the premium less a spread to cover policy administration expenses, a provision for overhead, taxes and cost of required capital).

Other than the earnings rate, all of those elements are fixed. If the earnings rate declines, then the premium will be higher for the same amount of benefits.
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Old 10-07-2019, 08:53 AM   #10
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No. If I were in the market for a SPIA (and I'm not) I would wait for rates to rise.

Lower rates means lower payouts so why would one buy a SPIA now?
+1. Rates are still historically low, I'd wait - but I have no plans to buy any kind of annuity.
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Old 10-07-2019, 09:02 AM   #11
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+1. Rates are still historically low, I'd wait - but I have no plans to buy any kind of annuity.
True for the past several years. I think of the Long term care policies that didn't factor in huge increases in costs, and wonder if current SPIA's aren't factoring in possibilities of lower/negative interest rates.
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Old 10-07-2019, 09:24 AM   #12
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... wonder if current SPIA's aren't factoring in possibilities of lower/negative interest rates.
Since the single premium will be received now and invested in bonds now, SPIAs would be based on current/near term interest rates... so there is really nothing to use rate projections for.
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Old 10-07-2019, 09:25 AM   #13
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Good point! Inflation risk...
There is no inflation risk. Inflation is a certainty, right up there with death and taxes.

Inflation in the last 30 years averages around 2.5% but over the last 50 years is over 4% with a peak in the 17% range.

Remember, too, that if the dollar loses its status as the world's reserve currency things could get exciting. A 20% reduction in the dollar's value means 25% increase in the import cost of most of what the US consumes. Even after importers eat some of that and we substitute like crazy, that would still leave us with double-digit inflation.

IMO there is no such thing as a "fixed" annuity as far as real world value is concerned. Do the math using some sample inflation rates before you buy into that "fixed" concept.

Our answer is to hold a significant amount in TIPS. It's not a 100% bulletproof solution because Uncle levies taxes on the inflation increases but I think it's the best option out there.
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Old 10-07-2019, 11:03 AM   #14
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+1. Rates are still historically low, I'd wait - but I have no plans to buy any kind of annuity.
+1 Agreed.

It's been a long haul for those on the losing side of the War On Savers. I remember in my 20s getting 4% on my passbook account at a Savings and Loan.

I hope the younger folks buying their first home or car appreciate how lucky they are to have these low rates. When I bought my home I got an 8 3/4% loan and considered it a good rate. I later refinanced to 7.5% 15 year mortgage , again thinking what a great rate that was. How times have changed.
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Old 10-07-2019, 11:19 AM   #15
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It is well accepted that annuities are of lesser value and hence less attractive in low rate environments. My last 18 month, 22 month, 24 month and 60 month CD's at 3% - 3.85% I consider to be a better bet.
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Old 10-07-2019, 02:32 PM   #16
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True for the past several years. I think of the Long term care policies that didn't factor in huge increases in costs, and wonder if current SPIA's aren't factoring in possibilities of lower/negative interest rates.
Annuities aren’t rocket surgery, it’s a pretty straightforward conservative investment risk pool with a (big) upfront drag on your purchase fee for the provider. They invest upfront using what’s available, they’re not hedging with a crystal ball. Unless you know something the rest of us don’t...
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Old 10-07-2019, 02:43 PM   #17
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Unless you know something the rest of us donít...
I don't I'm sure, for one thing I don't know how you'd finish this sentence.
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Old 10-09-2019, 09:10 AM   #18
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I think it might be good to read "SAFETY-FIRST RETIREMENT PLANNING" An Integrated Approach for a Worry-Free Retirement
by Wade D. Pfau PhD, CFA, RICP

It just came out and it does go into interest rate and inflation risk. I can not summerize as too much information.
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Old 10-12-2019, 04:02 PM   #19
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No. SS is my annuity.
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Old 10-13-2019, 09:56 AM   #20
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No. SS is my annuity.
I think of SS that way too, and hope its solvency gets addressed -soon-. I guess the new reality of negative interest rates has me thinking about the fixed income portion of my portfolio. Over the years, I've had my doubts about my high fixed rate I-bonds and munis but now very pleased. Seems possible that I could be happy in 10 years about buying a SPIA now at current rates, even though historically low. I think most people of retirement age now weren't factoring in the possibility of negative interest when planning their retirement.
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