immeadiate annuities

[brewer12345]

Check the price -- very much more than standard. I'd rather invest the balance and buy a small add'l annuity as needed to keep up with inflation, plus you get more money back since you are older when you buy.

Personally, I would want to do an awful lot of modelling and head scratching before I was willing to do the strategy you are suggesting. I suspect you would still get walloped by inflation.

Put it this way: I know insurance companies all too well. There is a reason they are happy to sell payout annuities to all comers.

 

[Peter]

Hmmm, seems to me that the comparison that should be made is between immediate annuities and fixed income investment.

For example, I have $100,000. If I put it in Treasurys yielding 5%, and am prepared to eat capital over, say, 20 years, then the amount I can withdraw each year is $8,024. This is calculated in the same way as mortgage amortization, but in reverse.

If I'm, say, 75, then I could get an immediate annunity that would pay out $859 per month, or $10,308 per year for as long as I live. If I think I might live into my 90's, then the annuity looks pretty attractive.

Inflation doesn't enter into this comparison, since it affects both cases equally.

Of course, if I only live to be 76, then the insurance company wins out big. But I'm now dead and don't care.

I agree with those who say that you shouldn't rely on annuities for your entire income, for all the reasons they state. But to dismiss the whole concept as being a 'ripoff' seems a bit extreme.

Peter

 

[brewer12345]

Hmmm, seems to me that the comparison that should be made is between immediate annuities and fixed income investment.

For example, I have $100,000. If I put it in Treasurys yielding 5%, and am prepared to eat capital over, say, 20 years, then the amount I can withdraw each year is $8,024. This is calculated in the same way as mortgage amortization, but in reverse.

If I'm, say, 75, then I could get an immediate annunity that would pay out $859 per month, or $10,308 per year for as long as I live. If I think I might live into my 90's, then the annuity looks pretty attractive.

Inflation doesn't enter into this comparison, since it affects both cases equally.

Of course, if I only live to be 76, then the insurance company wins out big. But I'm now dead and don't care.

I agree with those who say that you shouldn't rely on annuities for your entire income, for all the reasons they state. But to dismiss the whole concept as being a 'ripoff' seems a bit extreme.

Peter

Hmmm, I think that comparing immediate annuities to FI is about right, and you gave a nice example. The problem is that your choices aren't limited to annuities or FI. There are lots of different asset classes and combinations thereof to choose from. We already know that you will get killed by inflation if you rely too heavily on FI, and the same goes for payout annuities. OP was wondering if piling into annuities would magically fix the problem of not really having enough capital, and clearly it does not.

Oh, and I'm not sure I would call payout annuites a ripoff either. They are what they are an insurers generally make a nice profit off them, but a goodly part of the profit comes from their being able to spread longevity risk across a large pool of insured lives. Now equity indexed annuities - THAT'S a ripoff.

 

[mathjak107]

Hmmm, seems to me that the comparison that should be made is between immediate annuities and fixed income investment.

For example, I have $100,000. If I put it in Treasurys yielding 5%, and am prepared to eat capital over, say, 20 years, then the amount I can withdraw each year is $8,024. This is calculated in the same way as mortgage amortization, but in reverse.

If I'm, say, 75, then I could get an immediate annunity that would pay out $859 per month, or $10,308 per year for as long as I live. If I think I might live into my 90's, then the annuity looks pretty attractive.

Inflation doesn't enter into this comparison, since it affects both cases equally.

Of course, if I only live to be 76, then the insurance company wins out big. But I'm now dead and don't care.

I agree with those who say that you shouldn't rely on annuities for your entire income, for all the reasons they state. But to dismiss the whole concept as being a 'ripoff' seems a bit extreme.

Peter

yep this is the delema.....it isnt easy to figure out...at first most of us thought this was a no brainer.of course our own investments win out vs the annuity...but as you see when it comes to dollars and cents to live on forever without regard for the principal the annuity suddenly dosnt look so bad...problem with our own investing is its like the goose that layed the golden egg.....we cant touch the principal without diminishing our monthly withdrawl because thats our goose so the fact that theres this big pile of money and we cant spend it only counts to our heirs....