One thing that may have been said but I haven't seen is that the famous "4% SWR" is fully indexed for inflation. There aren't any limits in the FIRECalc program except past history.
It's somewhat questionable comparing an indexed 4% with an insurance company fixed 6%. To do so would require an exact knowledge of the future inflation rate.
I went on the Vanguard site and put in a Texas male born on Jan 1, 1955 that would start receiving annuity payments annually on Jan 1, 2009. If you assume receiving 35 payments (age 86), I got an IRR of 6.36%. Live to 76 and it falls to 5.14%. Live to 96 and the IRR becomes 6.82%. This is the same story. Live forever and an annuity starts looking pretty good.
One of the SPIA arguments is that for "fixed income" the SPIA return is still pretty good. Right now you can't reliably get 4% on a CD. I don't buy that argument because interest rates fluxuate and CDs can be rolled over to the prevailing interest rate at that time. I've seen many years in my lifetime where a 7% 5 yr interest rate was considered very low.
Back to the inflation adjustment, at a nominal 3% inflation rate the payment is cut in half in 25 years. Inflation at 5% would cut it in half in about 14 years. I've seen my 87 year old FIL's private pension that was pretty good 20 years ago when it started fall to an almost insignificant amount today. If it wasn't for his military pension and SS (both COLA'd), he'd be hurting today (actual DW and I would be hurting because he is beyond understanding any finacial question).
If you are worried about losing control of your money, the best route is a custodial/guardian account (for us non-uber weathy). These can be easily set up while you still have your mental capacity.
I can't see any reason for a SPIA unless, as mathjak states, the money is managed by a financial incompetent. Most with ex-wives/husbands would probably put them into that camp. I refuse to accept that anyone that can find this forum can't develop enough financial literacy and understanding to outperform any form of annuities and has no need for a financial advisor to manage their portfolio. I will agree that a FA can help those with more "interesting" finacial situations develop some strategies to address more complicated issues. Long term care of "special needs" individuals comes to mind but there a significant amount of assets would be required. I also think that if you're a basic, plain vanilla type with assets under $5MM you can get what you need with a decent will, POA and living will.
It's somewhat questionable comparing an indexed 4% with an insurance company fixed 6%. To do so would require an exact knowledge of the future inflation rate.
I went on the Vanguard site and put in a Texas male born on Jan 1, 1955 that would start receiving annuity payments annually on Jan 1, 2009. If you assume receiving 35 payments (age 86), I got an IRR of 6.36%. Live to 76 and it falls to 5.14%. Live to 96 and the IRR becomes 6.82%. This is the same story. Live forever and an annuity starts looking pretty good.
One of the SPIA arguments is that for "fixed income" the SPIA return is still pretty good. Right now you can't reliably get 4% on a CD. I don't buy that argument because interest rates fluxuate and CDs can be rolled over to the prevailing interest rate at that time. I've seen many years in my lifetime where a 7% 5 yr interest rate was considered very low.
Back to the inflation adjustment, at a nominal 3% inflation rate the payment is cut in half in 25 years. Inflation at 5% would cut it in half in about 14 years. I've seen my 87 year old FIL's private pension that was pretty good 20 years ago when it started fall to an almost insignificant amount today. If it wasn't for his military pension and SS (both COLA'd), he'd be hurting today (actual DW and I would be hurting because he is beyond understanding any finacial question).
If you are worried about losing control of your money, the best route is a custodial/guardian account (for us non-uber weathy). These can be easily set up while you still have your mental capacity.
I can't see any reason for a SPIA unless, as mathjak states, the money is managed by a financial incompetent. Most with ex-wives/husbands would probably put them into that camp. I refuse to accept that anyone that can find this forum can't develop enough financial literacy and understanding to outperform any form of annuities and has no need for a financial advisor to manage their portfolio. I will agree that a FA can help those with more "interesting" finacial situations develop some strategies to address more complicated issues. Long term care of "special needs" individuals comes to mind but there a significant amount of assets would be required. I also think that if you're a basic, plain vanilla type with assets under $5MM you can get what you need with a decent will, POA and living will.