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SecondCor521 · 09-14-2006, 02:55 PM

John,

Just for kicks I plugged your numbers into Excel a slightly different way. What I did was take $250,000 as an initial payment, then figured one year from now you'd get $11,000, then the next year you'd get 1.03 * $11,000, etc. and that you'd receive 37 payments. This works out to a rate of return of 5.73% using the IRR function. However, according to the IRS (Pub 590 table 1), the life expectancy for a 53 year old is 31.4 years. Reducing the number of payments in Excel to 31 gives an IRR of 4.91%. According to http://www.kansascity.com/mld/kansas...s/15500747.htm, the 30 year Treasury rate is yielding 4.90%. Vanguard can probably create an asset allocation that pays better than that, so they come out ahead on average.

The big thing you're not thinking about is these rates are decent rates if you think of it like a CD or a long-term bond. However, the difference between a CD/bond and the annuity is that at the end of the period in a CD, you get your $250K back; in the annuity case you just made a $250K donation to Vanguard. The question to you then is, do you care if whomever is to receive your inheritance/estate gets $250K less if you go the annuity route?

2Cor521

09-14-2006, 02:55 PM	#6
SecondCor521 Thinks s/he gets paid by the post Join Date: Jun 2006 Location: Boise Posts: 1,489	John, Just for kicks I plugged your numbers into Excel a slightly different way. What I did was take $250,000 as an initial payment, then figured one year from now you'd get $11,000, then the next year you'd get 1.03 * $11,000, etc. and that you'd receive 37 payments. This works out to a rate of return of 5.73% using the IRR function. However, according to the IRS (Pub 590 table 1), the life expectancy for a 53 year old is 31.4 years. Reducing the number of payments in Excel to 31 gives an IRR of 4.91%. According to http://www.kansascity.com/mld/kansas...s/15500747.htm, the 30 year Treasury rate is yielding 4.90%. Vanguard can probably create an asset allocation that pays better than that, so they come out ahead on average. The big thing you're not thinking about is these rates are decent rates if you think of it like a CD or a long-term bond. However, the difference between a CD/bond and the annuity is that at the end of the period in a CD, you get your $250K back; in the annuity case you just made a $250K donation to Vanguard. The question to you then is, do you care if whomever is to receive your inheritance/estate gets $250K less if you go the annuity route? 2Cor521 __________________ "At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.