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SPIA Payout Rates
Old 11-12-2023, 09:48 AM   #1
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SPIA Payout Rates

Do you think SPIA payout rates are at or about their maximum for the forseeable future, or do you think it is worth waiting for them to go up further? Thanks.
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Old 11-12-2023, 10:30 AM   #2
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I was looking at them recently for my sister-in-law. They are certainly the highest they have been in a while but who knows. I do think now is a good time to study them closely if you considering buying one anytime in the next few years.
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Old 11-12-2023, 01:08 PM   #3
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What kind of rates are you seeing? The best my Fidelity Advisor came up with was 6.91%. Fidelity only uses A++ kind of companies, so I'm sure some of the smaller, more risky, companies are probably paying out more.
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SPIA Payout Rates
Old 11-12-2023, 01:38 PM   #4
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SPIA Payout Rates

According to immediateannuities.com, the payout rate for a 60 year old male is 7.62% with Penn Mutual, an A+ company. Not bad.
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Old 11-12-2023, 02:27 PM   #5
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I cannot find any specific reference since it's been a long time, but hasn't it been put forth before that anything over about 6% from an annuity is The Promised Land as far as "withdrawal" rates go? You can live well within the cash flow and bank (invest) the difference to cover for the inevitable inflation erosion. Essentially "forever money" with as close to no risk as this world offers, and no stock market stuff.

I haven't been tracking annuities but was shocked when I checked on it. And I thought I was making a ton just on my money market funds. With these payout rates I could be a millionaire! I find it hard (probably impossible) to relinquish control of the money to an annuity company, though.
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Old 11-12-2023, 02:34 PM   #6
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I like to use this calculator for SPIA (the Period Certain Type) to calculate the interest rate, as opposed to the payout rate which really has no real relation to the rate of return on your money for any given time.

https://iqcalculators.com/calculator...rn-calculator/
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Old 11-12-2023, 03:13 PM   #7
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Originally Posted by ShokWaveRider View Post
I like to use this calculator for SPIA (the Period Certain Type) to calculate the interest rate, as opposed to the payout rate which really has no real relation to the rate of return on your money for any given time.

https://iqcalculators.com/calculator...rn-calculator/
Thanx for that. I ran it for a 20 year certain annuity. The payout rate is 8.2% but according to the calculator the actual interest rate is 5.35. IOW only a bit more than I'm making in the MMF, but the MMF is heavily into governments. So the interest rate is, maybe, a bit less than a typical fund.

On the upside though, the mmf will inexorably go lower. Same for bonds and CD's. The annuity rate is there forever. Or 20 years.

And does the actual interest rate, as calculated, really matter? Anyone doing this would be living off of the payout rate.
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Old 11-12-2023, 04:10 PM   #8
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What kind of rates are you seeing? The best my Fidelity Advisor came up with was 6.91%. Fidelity only uses A++ kind of companies, so I'm sure some of the smaller, more risky, companies are probably paying out more.
I should have noted that the 6.91% was a joint, age 65, with refund possible quote.
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Old 11-12-2023, 04:13 PM   #9
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Thanx for that. I ran it for a 20 year certain annuity. The payout rate is 8.2% but according to the calculator the actual interest rate is 5.35. IOW only a bit more than I'm making in the MMF, but the MMF is heavily into governments. So the interest rate is, maybe, a bit less than a typical fund.
I would buy it for that, when I do it, I get 3.11%. Which company gives you 5.35%?
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Old 11-12-2023, 04:28 PM   #10
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Originally Posted by ShokWaveRider View Post
I like to use this calculator for SPIA (the Period Certain Type) to calculate the interest rate, as opposed to the payout rate which really has no real relation to the rate of return on your money for any given time.

https://iqcalculators.com/calculator...rn-calculator/
When I plug in the 6.91% rate of return that I was quoted (joint, 65, refund), I see that the rate of return is 5.54% if (Big IF) I make it to 95. If I only make it to 85, it drops to 3.3%. I have to make it to 81, to make any return. Up to that point, I'm just getting back my own money.

Still, there are other factors that might make a SPIA attractive to some people, mainly you can't outlive the payout and it can help build a base floor of income, similar to a pension.
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Old 11-12-2023, 04:52 PM   #11
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Originally Posted by PatrickA5 View Post
When I plug in the 6.91% rate of return that I was quoted (joint, 65, refund), I see that the rate of return is 5.54% if (Big IF) I make it to 95. If I only make it to 85, it drops to 3.3%. I have to make it to 81, to make any return. Up to that point, I'm just getting back my own money.

Still, there are other factors that might make a SPIA attractive to some people, mainly you can't outlive the payout and it can help build a base floor of income, similar to a pension.
It's not my cup of tea, but I know people who, with a decent guaranteed income, will be more likely to invest other funds into the stock market, brokered CDs, bonds, etc. Sometimes, a little hand holding via a SPIA is needed to get some people to cross that bridge. There is a psychology to investing.
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Old 11-12-2023, 05:36 PM   #12
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It's not my cup of tea, but I know people who, with a decent guaranteed income, will be more likely to invest other funds into the stock market, brokered CDs, bonds, etc. Sometimes, a little hand holding via a SPIA is needed to get some people to cross that bridge. There is a psychology to investing.
I doubt I will purchase a SPIA in the near future, but I'm not one of those lucky people that have 100%+ of expected expenses covered by SS, Pensions, etc. Wish I was. We'll be around 60%-70% there when DW takes SS in 4 years (at 70).

I'd probably be much more aggressive (i.e. stock exposure) if I knew my needs were already met with guaranteed income.
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Old 11-12-2023, 06:29 PM   #13
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Every time a SPIA thread comes up, I'll run some numbers again. I must admit, it looks a good bit better this time and if I were going to buy, it would probably be now.

OTOH, I'm pretty happy with my fixed income investments and at my age, I think I just keep doing what I've been doing.
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Old 11-12-2023, 08:15 PM   #14
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Every time a SPIA thread comes up, I'll run some numbers again. I must admit, it looks a good bit better this time and if I were going to buy, it would probably be now.

OTOH, I'm pretty happy with my fixed income investments and at my age, I think I just keep doing what I've been doing.
When I retired I had a lump sum option and I knew the smart thing to do would be to take it and keep it safe until rates went up. That was 8 years ago. I would’ve gone crazy the last 6 yrs. I probably would’ve jumped in 2 years ago when rates first started to edge up. Then’d be kicking myself for the last two years as rates went up, up, up. No Regrets.
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Old 11-12-2023, 09:39 PM   #15
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According to immediateannuities.com, the payout rate for a 60 year old male is 7.62% with Penn Mutual, an A+ company. Not bad.
That's a good one.
I got one at 59.5 yrs old but it's for me and wife (joint lifetime, not single), and payout rate is 7.13% lifetime annuity From Tiaa. No commissions.
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Old 11-13-2023, 06:01 AM   #16
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With the stock market underperforming its long term average the past 23 years (i.e., approximately 6.5% for the S&P with gut wrenching drawdowns vs 9 to 10% historically) and with stocks still significantly overvalued by most measures that have good forecasting ability I think many investors would do well to buy a SPIA now. Presently, a 100k investment throws off a 7.44% payout for 25 year certain. For comparison, see what the probability is of taking 7.44% from a balanced portfolio for 25 years--about 55% with a 12k median balance according to ********. And, because of behavioral issues, most will not see the returns of an index. So, why in the last 2 or 3 decades of life does one want the uncertainty of an investment portfolio for the portion of their essential need money when they can guarantee it with a SPIA? In my view, it is far better to guarantee this and invest aggressively with the rest. Overall performance is likely to be much better with the security of guaranteed income for your monthly expenses.
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Old 11-13-2023, 06:47 AM   #17
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^^^ =(1+RATE(25*12,7.44/12,-100))^12-1= 5.74% IRR vs 4.77% for 30-year Treasury and 4.97% for 20-year Treasury

Pretty good... I'm just not sure that I would want to lock up money for that long... for me until I am 94.

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Every time a SPIA thread comes up, I'll run some numbers again. I must admit, it looks a good bit better this time and if I were going to buy, it would probably be now.

OTOH, I'm pretty happy with my fixed income investments and at my age, I think I just keep doing what I've been doing.
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Old 11-13-2023, 04:37 PM   #18
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With the stock market underperforming its long term average the past 23 years (i.e., approximately 6.5% for the S&P with gut wrenching drawdowns vs 9 to 10% historically) and with stocks still significantly overvalued by most measures that have good forecasting ability I think many investors would do well to buy a SPIA now. Presently, a 100k investment throws off a 7.44% payout for 25 year certain. For comparison, see what the probability is of taking 7.44% from a balanced portfolio for 25 years--about 55% with a 12k median balance according to ********. And, because of behavioral issues, most will not see the returns of an index. So, why in the last 2 or 3 decades of life does one want the uncertainty of an investment portfolio for the portion of their essential need money when they can guarantee it with a SPIA? In my view, it is far better to guarantee this and invest aggressively with the rest. Overall performance is likely to be much better with the security of guaranteed income for your monthly expenses.
Not unless you're much older than traditional retirement age given the loss in purchasing power over the years (or decades) in retirement.

E.g., MaxiFi Planner doesn't recommend one for me until around age 80.

Given my limited lifespan at that age inflation won't much matter versus buying it at age 65.
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Old 11-13-2023, 05:26 PM   #19
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I think at some point, getting a guaranteed income for life from an A++ rated company may be more reassuring than getting the highest interest rate return for a limited time. If one is drawing down on part of one's nest egg anyway, why not invest part of it for a guaranteed monthly return.

As I get older, I am leaning towards that approach for a portion of our stash. I think I would be prepared to sacrifice a point or so to go with an A++ rather than an A or A-, especially as DW may be drawing on it for another 20 - 30 years.
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Old 11-14-2023, 01:34 AM   #20
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With the stock market underperforming its long term average the past 23 years (i.e., approximately 6.5% for the S&P with gut wrenching drawdowns vs 9 to 10% historically) and with stocks still significantly overvalued by most measures that have good forecasting ability I think many investors would do well to buy a SPIA now. Presently, a 100k investment throws off a 7.44% payout for 25 year certain. For comparison, see what the probability is of taking 7.44% from a balanced portfolio for 25 years--about 55% with a 12k median balance according to ********. And, because of behavioral issues, most will not see the returns of an index. So, why in the last 2 or 3 decades of life does one want the uncertainty of an investment portfolio for the portion of their essential need money when they can guarantee it with a SPIA? In my view, it is far better to guarantee this and invest aggressively with the rest. Overall performance is likely to be much better with the security of guaranteed income for your monthly expenses.
Basic SPIAs are not inflation adjusted so you are comparing apples to oranges.

Also, not sure why someone would want a term certain. I’d rather have a TIPS ladder.

SPIAs are most attractive as longevity insurance. At immediateannuities.com I used a 60 year old with younger spouse and a straight up SPIA was 6.6% into perpetuity. Add in a 2% annual COLA adjustment and it goes to 5.0%. A 3% cost escalator is 4.3%. Those are pretty attractive rates compared to a few years ago.
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