SPIAs Decline With Interest Rates?

[Gearhead Jim]

The monthly payout one gets from a SPIA should rise or fall somewhat with the insurance company's expectation of future rreturns. And I've been told those returns are mostly in the bond market. If so, SPIAs being sold today should have a significantly lower payout than ones issued 5-10 years ago.

Is that correct?
Can anyone give some actual comparisons between then and now? Like how much the monthly payout would be for a person who invested $100,000 at age 65 in 2005, and his brother who buys an identical annuity today?

Thanks!

 

[Midpack]

You're generally correct. Graph through 2009 and you can get a current quote...Immediate Fixed Annuity - SPIA - Bogleheads

 

[Gearhead Jim]

Good chart and good link, thanks.

 

[haha]

What do "M65 Life" and "F65Life" Mean?

 

[Midpack]

What do "M65 Life" and "F65Life" Mean?

SPIA yields Male age 65 and Female age 65 I gather...

 

[zinger1457]

The table below is the annuity interest rate index for the last 5 years for annuities (MetLife) offered through the governments TSP plan. Age, gender, and other factors are used with the interest rates shown to come up with your actual rate of return.

Month	2008	2009	2010	2011	2012
January	4.88%	3.50%	3.63%	3.13%	2.15%
February	4.63%	2.63%	3.75%	3.38%	2.13%
March	4.38%	2.75%	3.88%	3.50%	2.13%
April	4.38%	3.13%	3.75%	3.63%	2.13%
May	4.25%	3.13%	3.75%	3.50%
June	4.38%	3.54%	3.75%	3.38%
July	4.63%	3.63%	3.50%	3.25%
August	4.75%	3.88%	3.13%	3.13%
September	4.63%	3.75%	2.88%	2.88%
October	4.50%	3.75%	2.75%	2.38%
November	4.38%	3.50%	2.63%	2.50%
December	4.25%	3.50%	2.63%	2.25%

 

[Huston55]

The table below is the annuity interest rate index for the last 5 years for annuities (MetLife) offered through the governments TSP plan. Age, gender, and other factors are used with the interest rates shown to come up with your actual rate of return.

Month	2008	2009	2010	2011	2012
January	4.88%	3.50%	3.63%	3.13%	2.15%
February	4.63%	2.63%	3.75%	3.38%	2.13%
March	4.38%	2.75%	3.88%	3.50%	2.13%
April	4.38%	3.13%	3.75%	3.63%	2.13%
May	4.25%	3.13%	3.75%	3.50%
June	4.38%	3.54%	3.75%	3.38%
July	4.63%	3.63%	3.50%	3.25%
August	4.75%	3.88%	3.13%	3.13%
September	4.63%	3.75%	2.88%	2.88%
October	4.50%	3.75%	2.75%	2.38%
November	4.38%	3.50%	2.63%	2.50%
December	4.25%	3.50%	2.63%	2.25%

Comparing this to the SPIA chart MidPack posted above, it looks like TSP starts with 30yr Treas, or equivalent, and would then tack on mortality and gender credits. Is that correct?

 

[rescueme]

The table below is the annuity interest rate index for the last 5 years for annuities (MetLife) offered through the governments TSP plan. Age, gender, and other factors are used with the interest rates shown to come up with your actual rate of return.

FWIW, the initial return is right around what I received when I executed a joint (non-inflation adjusted) life SPIA contract in July of 2007 at 4.79%, through Fidelity.

 

[73ss454]

FWIW, I was happy in Jan of 2011 with a CD at Pen Fed for 5%.

 

[Midpack]

FWIW, the initial return is right around what I received when I executed a joint (non-inflation adjusted) life SPIA contract in July of 2007 at 4.79%, through Fidelity.

I feel bad (really) for those who have to seriously consider buying an annuity now. I sure hope yields are a lot better when/if I buy a SPIA in about 20 years if then...

 

[Midpack]

The table below is the annuity interest rate index for the last 5 years for annuities (MetLife) offered through the governments TSP plan. Age, gender, and other factors are used with the interest rates shown to come up with your actual rate of return.

Month	2008	2009	2010	2011	2012
January	4.88%	3.50%	3.63%	3.13%	2.15%
February	4.63%	2.63%	3.75%	3.38%	2.13%
March	4.38%	2.75%	3.88%	3.50%	2.13%
April	4.38%	3.13%	3.75%	3.63%	2.13%
May	4.25%	3.13%	3.75%	3.50%
June	4.38%	3.54%	3.75%	3.38%
July	4.63%	3.63%	3.50%	3.25%
August	4.75%	3.88%	3.13%	3.13%
September	4.63%	3.75%	2.88%	2.88%
October	4.50%	3.75%	2.75%	2.38%
November	4.38%	3.50%	2.63%	2.50%
December	4.25%	3.50%	2.63%	2.25%

+1, great addition to the thread...

 

[rescueme]

FWIW, I was happy in Jan of 2011 with a CD at Pen Fed for 5%.

That's an investment vehicle, whereas an SPIA is an income vehicle. Two different products for two different financial goals ...

 

[73ss454]

That's an investment vehicle, whereas an SPIA is an income vehicle. Two different products for two different financial goals ...

Well, I use the 5% I'm getting for the next 10 years as an income vehicle.

 

[rescueme]

Well, I use the 5% I'm getting for the next 10 years as an income vehicle.

Actually, you're only using a (small) portion of the total amount, e.g. the interest (of principal & interest) as income, and only under the constraints of the CD payout terms, be it monthly, quarterly, or term end.

An SPIA returns a continuous monthly stream of both principal (e.g. premium paid) and interest - something you can't do with a traditional CD (unless it's a callable CD, and then you have no control on distribution if it is called early, before the maturity date).

Folks keep thinking that a CD (including a CD ladder) is the same as having an SPIA. It isn't.

 

[pb4uski]

The monthly payout one gets from a SPIA should rise or fall somewhat with the insurance company's expectation of future rreturns. And I've been told those returns are mostly in the bond market. If so, SPIAs being sold today should have a significantly lower payout than ones issued 5-10 years ago.

Is that correct?
Can anyone give some actual comparisons between then and now? Like how much the monthly payout would be for a person who invested $100,000 at age 65 in 2005, and his brother who buys an identical annuity today?

Thanks!

Yes. The pricing of a SPIA would be based on what the insurer expects to earn from investment of your premium, less a spread for overhead and profit. As interest rates increase premiums would decrease for the same level of benefit (or benefits would increase for the same premium).

 

[zinger1457]

Comparing this to the SPIA chart MidPack posted above, it looks like TSP starts with 30yr Treas, or equivalent, and would then tack on mortality and gender credits. Is that correct?

If you want to see the nuts and bolts the TSP (tsp.gov) has a manual annuity worksheet but you have to hunt through pages of tables to get the applicable adjustment multipliers for the worksheet. Much easier to use their online calculator. Need to shop around when purchasing a SPIA and select from a high rated insurer. Probably a good idea to spread it among multiple insurers, most states will only guaranty an annuity up to $100K.