pb4uski
Give me a museum and I'll fill it. (Picasso) Give me a forum ...
.....The numbers he uses in annuity cost examples are in the range of this board's old favorite, the 4% withdrawal rate. In some cases the annuity seems to provide even more. If I understood his first example, a $1M portfolio would buy an annuity that paid $50K -- 5%. I don't know how to reconcile that with a 4% number except to question it. If true, certainly buying such an annuity should be attractive to all of us -- a 25% raise with running-out-of-money risk eliminated at no cost The article is from 2012 so interest rate differences probably don't explain it. ....
I think the main difference is because the 4% rule is designed assuming that withdrawals increase for inflation and most SPIA's have fixed benefits. Another difference is that the 4% rule is typically based on underlying assets that are 40-60% equities and most insurers back annuity blocks with bonds rather than equities. 5% sounds a bit low... according to immediateannuities.com the payout rate for an immediate annuity (with refund) for a 65 yo male in NY would be 6.2% and 5.9% for a female.... not sure what age the 5% payout rate was for.
.... Sounds like you were in the business. What percentage of annuitants live long enough to take the insuror's profit to zero? I'm still guessing not many.
I was.... with an insurer from the mid 1980s to the late 1990s... was Controller/CAO for the company and I was CFO for our annuities line of business for a few years during my tenure. At least for us, and I think for most insurers, the vast majority of annuities are in accumulation phase and very little (as a percentage of the total) is in payout phase.... since mortality is so predictable and mortality variances are so slight the last part isn't anything that we would have spent brain cells on... besides, typically the smallest subset that profitability would bessessed for would be a block or cohort of policies... never for individual policies.
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