PSA: Annuity Cost vs Age Purchased

[Midpack]

I was doing this for my own benefit, thought it might interest others. Using online quotes from Immediate Annuities - Instant Annuity Quote Calculator. assuming a couple looking for a joint life annuity. Details shown below graph...FWIW only.

 

[Gone4Good]

So it looks like a 5%, joint life, payout for a 55 year old couple? With a joint life expectancy of 36 years, that means a yield of 3.7%, which is better than I would have thought.

 

[2B]

This simply shows how the insurance company's longevity tables work. The older you are, the sooner you'll die. Since most buyers know this too, they offer increased payouts as people age.

It does show that you need a lot of cash when young to buy a decent, non-COLA'd cash flow when young(er). It also exposes the purchaser to extensive heath risk. You might be healthy as a horse at 55 but develop cancer at 56. If you are healthy at 75, you have a better shot at beating the odds and actually collecting past your longevity table. Of course, the insurance companies book this into their tables. Your other benefit is that the ravages of inflation will be two decades less.

 

[EvrClrx311]

I'm a bit naive when it comes to Annuities so sorry for the 'dump question'...

If my family has a history of longevity (g-Grandfather lived to be 105, his wife 97, his 5 brothers all 93+... can't think of anyone 3 generations up that died before 78)... do the annuity companies take that into consideration? Do I have to disclose that information to them?

 

[easysurfer]

I'm a bit naive when it comes to Annuities so sorry for the 'dump question'...

If my family has a history of longevity (g-Grandfather lived to be 105, his wife 97, his 5 brothers all 93+... can't think of anyone 3 generations up that died before 78)... do the annuity companies take that into consideration? Do I have to disclose that information to them?

No, the companies won't hold it against you if you come from healthy genes.

 

[EvrClrx311]

No, the companies won't hold it against you if you come from healthy genes.

 

[Steel Rain]

Just watch out for Bus's and dont dry your hair while in the tub and you can beat them

Steel

 

[2B]

I'm a bit naive when it comes to Annuities so sorry for the 'dump question'...

If my family has a history of longevity (g-Grandfather lived to be 105, his wife 97, his 5 brothers all 93+... can't think of anyone 3 generations up that died before 78)... do the annuity companies take that into consideration? Do I have to disclose that information to them?

Insurance companies have legions of actuaries that create their longevity tables that ultimately price out a SPIA. They use standard mortality data but they then "handicap" it for people like you. Pretty much no one buys a SPIA if they have cancer, MS or any one of the obvious life shortening conditions. So that is also taken into account.

Even with the longevity in your family, I would encourage you to not rush out and get one. I think one of the big downsides of a SPIA is inflation risk. It doesn't take much inflation to make the nice, big annuity payment you started at age 60 to look pretty miserly at age 80. My normal advice to people wanting to buy an annuity is to wait and evaluate it around age 75. In your case, 80 or 85 may make more sense. The other factor would be the longevity history of your spouse's (if you have one) family.

 

[Independent]

Oddly, the Society of Actuaries puts a lot of mortality information on its website. I'd think it would be proprietary.
For example, item 3 here: SOA - Society of Actuaries

 

[Midpack]

Oddly, the Society of Actuaries puts a lot of mortality information on its website. I'd think it would be proprietary.

Interesting reading, I never would have found it myself, thanks!