Well, to start, Pfau is well known as a schill for the annuity industry. Second, is Pfau's recommendation for a SPIA for a couple in their mid-80s?
The main problem that I have with a SPIA for people of that age is a common problem with SPIA's generally, if the annuitant dies shortly after buying the SPIA then the money goes "poof".
The payout for a joint life annuity for life with 10 years certain for an 86yo male and 84yo female according to
immediateannuities.com is 10.54% so you don't get any return at all until you are ~9-1/2 years in so that is 95-1/2 and 93-1/2.
Below is the IRR of a $120,000 premium and $1,054 monthly benefit for an 85 year old. Note that you don't start getting a positive return until age 94-1/2... for those first 9-1/2 years you are just getting your own money back... and you don't get a "return" comparable to a CD/bond ladder until age 98. OTOH, if you live beyond 98 then the returns are attractive compared to a CD/bond ladder. All things considered, I just don't see it as a good investment. YMMV.
Age n Cash flow IRR |
85 0 -120,000 |
86 1 12,648 |
87 2 12,648 |
88 3 12,648 |
89 4 12,648 -27.4% |
90 5 12,648 -18.1% |
91 6 12,648 -11.7% |
92 7 12,648 -7.1% |
93 8 12,648 -3.6% |
94 9 12,648 -1.0% |
95 10 12,648 1.0% |
96 11 12,648 2.5% |
97 12 12,648 3.8% |
98 13 12,648 4.8% |
99 14 12,648 5.7% |
100 15 12,648 6.4% |
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ETA: According to the
Society of Actuaries Longevity Illustrator, there is only about a 25% chance of a healthy 86 yo male living to 94 and a 84yo female living to 95, so the expected return is very low.
Probability Him Her Either Both |
90% 0 1 3 0 |
75% 2 3 6 1 |
50% 5 7 9 3 |
25% 8 11 12 6 |
10% 11 14 15 8 |
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