PSA: Cost of SPIA Annuity vs Age & Yield

[Midpack]

I am NOT planning to buy an annuity, but I've waited a long time to illustrate how age and especially yields can alter the upfront cost of an annuity. The chart shows the cost of an immediate annuity by quarter, for the exact same lifetime monthly payout. Of course an annuity gets cheaper as we age, a case for waiting if possible. And as yields increase, annuities also get cheaper, another case for waiting. With the dramatic increase in interest rates/yields over the last year (finally), you can readily see how waiting (if possible) can pay off substantially.

A SPIA in Jan 2023 costs almost 31% less than in Jan 2022 - for the exact same payout (albeit one year less). FWIW

 

[VanWinkle]

It appears that fixed indexed annuities from 2013 with an income rider are still quoting lifetime income on the 2013 interest rates. With a 945,000 income rider amount(not the actual contract value) the insurance company will pay 42000 per year for life. Take that same amount and use it in Immediate Annuity and it pays 65000 per year. What a great deal the insurance is giving....... that's why they have the big buildings. think a MYGA is the best way to go currently.

 

[MarieIG]

Wonder if that big drop in cost was a result of the rising interest rates?

I can see how buying a SPIA with a portion of funds could be beneficial to some retirees, but oh boy, would it be painful to sail those funds off into the sunset.

I have an (old) variable annuity which I had purchased through Vanguard which I had thought to trigger around age 65; but I will probably postpone that so as to leave more room for Roth conversions, and "save" it for additional longevity insurance.

 

[RunningBum]

I'm not going to try to go back a year, but I bought an SPIA that started on Aug 2 last year. To get that same yield now, starting next month, would save me less than 5%, and that's using an A+ rated insurer now, compared to A++ when I bought. If I went with the highest A++ insurer the savings is 3.5%. Your chart shows a steep drop in that time period which I'm not seeing.

Source is immediateannuities.com

 

[copyright1997reloaded]

I am NOT planning to buy an annuity, but I've waited a long time to illustrate how age and especially yields can alter the upfront cost of an annuity. The chart shows the cost of an immediate annuity by quarter, for the exact same lifetime monthly payout. Of course an annuity gets cheaper as we age, a case for waiting if possible. And as yields increase, annuities also get cheaper, another case for waiting. With the dramatic increase in interest rates/yields over the last year (finally), you can readily see how waiting (if possible) can pay off substantially.

A SPIA in Jan 2023 costs almost 31% less than in Jan 2022 - for the exact same payout (albeit one year less). FWIW

Source?

Another factor might be the updated death rates, i.e. downtick in longevity in the last couple yeras?

 

[Midpack]

Source?

Another factor might be the updated death rates, i.e. downtick in longevity in the last couple yeras?

https://www.immediateannuities.com/

I assume interest rates are the biggest factor, followed by Covid longevity decline and age (1 more year).

 

[Midpack]

This seems to show how radically payouts have changed in the past year, my chart is fixed payouts showing annuity cost, the inverse of these charts…confirming the quotes I used.

https://www.immediateannuities.com/annuity-trends/

 

[braumeister]

Something to consider: I have often noticed that charitable gift annuities have always seemed to provide a better payout than others. If you have any charities you really care about, it's worthwhile looking at whether they offer such instruments. Many have information on their websites about such investments.

Personally, I have several entities that I'm considering using this way.

Here is one place to start looking.
Current Gift Annuity Rates

Generally speaking, the ACGA's suggested maximum rates are designed to produce a target gift for charity at the conclusion of the contract equal to 50% of the funds contributed for the annuity.

 

[pb4uski]

^^^ No thank you.

No regulatory oversight + No rating agency oversight + No guaranty association protection = Lots of credit risk.