I'm going to be able to retire this year because of being able to buy a SPIA with about 1/4 of my savings. Doing so will allow me to reduce my withdrawal rate of my portfolio from over 4% to more like 3%. There's no mutual fund that will pay me 6.2% annually, guaranteed, for the rest of my life.
I will take this opportunity to solicit ideas for how to achieve my aim, without buying an immediate annuity.
Does the SPIA provide true inflation protection? If not, then you won't really be getting 6.2% annually, will you? (disregarding the likely "minor" observation that the 6.2% annuity "return" includes "return of your own money", so it isn't comparable to a real investment return). Over the long term, inflation may be the number one risk to the financial future of many retirees, it could easily chop the real value of that fixed SPIA monthly check by 60% in 30 years. If this money is supposed to cover "must pay" expenses, that's a problem. Price out an annuity that actually increases with inflation and see how it looks. To the degree that it is much more expensive than an annuity with a "fixed" monthly payout, you can see that the insurance companies apparently believe that future inflation is a significant risk (i.e. they charge a lot to cover that risk)--and if they believe the risk is significant, maybe it is something important for retirees to consider, too. Bottom line: If a person is buying an annuity to cover "must pay" expenses for a decades-long period, then it doesn't make much sense to gamble with regards to future inflation. They are paying big money to avoid market risk, why would they ignore inflation risk?
Annuities are providing very poor value right now, from an historical perspective. The government has announced an all-out drive to raise interest rates, will result in higher returns for annuities >purchased after the rates go up<. It is a bad time to buy. If you wait, your lump sum that you hand over to the insurance company will almost surely provide a larger monthly check because 1) Interest rates will likely go up and 2) you'll be older, so your mortality credits will increase.
If you buy an annuity, be sure to shop around. Prices can vary a lot, and these are high-profit items for many "helpful" advisors.
Agreed. They have their place, and can be useful (your post does a very good job of pointing out some cases of that). I just don't like that the fees are high, the sales info is often misleading, and that many purchasers believe they have purchased something that is different from what they actually got ("income that I can count on for my entire life to meet my basic expenses").I’ve simply concluded that it [an annuity] is another tool in the toolbox and, under the right circumstances, would likely buy one.
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