SPIA Annuity vs MYGA with systematic Withdrawals as part of one's Withdrawal Strategy

[ShokWaveRider]

We are at the point that we need to withdraw money from our IRAs or we will never draw it down in the foreseeable future. Up till now (70y and 65y olds), we have not needed to touch them. We still do not but should take the money out at some point. We have no heirs other than charities to leave anything to. Our home is worth a significant sum and this is my DW's LTC insurance for after I cark it. I have recently done some simple basic sums of the difference between a MYGA with DIY systematic withdrawals and having a SPIA for the same period doing it automatically for you. I do not want to manage a ladder of bonds or CDs.

The 2 scenarios I tested were:

1) A 10 year MYGA with an interest rate of 5%
2) A SPIA 10 Year Period Certain with a monthly payout of $2,543

I did not take taxes into consideration as taxes would need to be paid on both using qualified funds.

Without getting to granular, they both lasted the same amount of time ..... 10 years. I do not see a good reason for managing the funds and withdrawals oneself when with a SPIA the objective seems to be achieved. I.E. Withdrawing money for 10 years till depleted from a $250k cash bucket.

I was wondering what folks thought.

 

[pb4uski]

If you have Excel or Librecalc you can easily calculate the implicit interest rate of a period certain annuity. Your $250k 10-year period certain annuity with a monthly payout of $2,543 is 4.1%.

=RATE(10*12,2543,-250000)*12 = 4.10%

You can use a mortgage amortization calculator to see the components of principal and interest. https://www.bankrate.com/mortgages/amortization-calculator/

I would go with the MYGA with annual surrender penalty-free withdrawals using the 10% provision common to most contacts. Just remember to retain the first year of payments because surrender penalty free wthdrawals are typically only available within a short time window of each policy anniversary IIRC.

Date	Principal	Interest	Remaining balance
2024
February	$1,688.86	$854.17	$248,311.14
March	$1,694.63	$848.40	$246,616.51
April	$1,700.42	$842.61	$244,916.09
May	$1,706.23	$836.80	$243,209.86
June	$1,712.06	$830.97	$241,497.80
July	$1,717.91	$825.12	$239,779.89
August	$1,723.78	$819.25	$238,056.11
September	$1,729.67	$813.36	$236,326.44
October	$1,735.58	$807.45	$234,590.86
November	$1,741.51	$801.52	$232,849.36
December	$1,747.46	$795.57	$231,101.90
2025	$40,339.18	$18,150.43	$209,660.82
2026	$62,676.06	$26,329.88	$187,323.94
2027	$85,946.15	$33,576.11	$164,053.85
2028	$110,188.46	$39,850.13	$139,811.54
2029	$135,443.58	$45,111.33	$114,556.42
2030	$161,753.86	$49,317.38	$88,246.14
2031	$189,163.35	$52,424.21	$60,836.65
2032	$217,717.99	$54,385.89	$32,282.01
2033
January	$2,432.73	$110.30	$29,849.28
February	$2,441.04	$101.99	$27,408.23
March	$2,449.38	$93.64	$24,958.85
April	$2,457.75	$85.28	$22,501.10
May	$2,466.15	$76.88	$20,034.95
June	$2,474.57	$68.45	$17,560.38
July	$2,483.03	$60.00	$15,077.35
August	$2,491.51	$51.51	$12,585.84
September	$2,500.03	$43.00	$10,085.81
October	$2,508.57	$34.46	$7,577.24
November	$2,517.14	$25.89	$5,060.11
December	$2,525.74	$17.29	$2,534.37
2034
January	$2,534.37	$8.66	$0.00

 

[ShokWaveRider]

If you have Excel or Librecalc you can easily calculate the implicit interest rate of a period certain annuity. Your $250k 10-year period certain annuity with a monthly payout of $2,543 is 4.1%.

=RATE(10*12,2543,-250000)*12 = 4.10%

You can use a mortgage amortization calculator to see the components of principal and interest. https://www.bankrate.com/mortgages/amortization-calculator/

I would go with the MYGA with annual surrender penalty-free withdrawals using the 10% provision common to most contacts. Just remember to retain the first year of payments because surrender penalty free wthdrawals are typically only available within a short time window of each policy anniversary IIRC.

I used this calculator to get the time period, it is just basic. I used 5% for return and 0% in taxes. They both came out pretty close. Then I would not have to worry about doing the withdrawals myself.

https://www.nerdwallet.com/article/...ty/how-long-will-your-retirement-savings-last

 

[pb4uski]

It looks like the calculator that you used rounds the period down to whole years. Given the parameters that you describe the time would be 10.56 years.

=NPER(5%/12,-2543,250000)/12 = 10.56

The benefit of the SPIA is that it is set and forget for 10 years, the downside is that if you need that money it is locked up other than the 10% annual penalty-free withdrawal.

 

[ShokWaveRider]

It looks like the calculator that you used rounds the period down to whole years. Given the parameters that you describe the time would be 10.56 years.

=NPER(5%/12,-2543,250000)/12 = 10.56

The benefit of the SPIA is that it is set and forget for 10 years, the downside is that if you need that money it is locked up other than the 10% annual penalty-free withdrawal.

We will NEVER need the amount I am prepared to tie up. We have not needed it for the past 20 years either. One has to spend it sometime.

 

[pb4uski]

Then I think the period-certain SPIA will be a good choice .. it's an automated withdrawal plan.

I do it a bit differently with very little work. I have a online savings account that I fund with a year's worth of withdrawals and an automated withdrawal of $x per month from that account to the credit union checking account that we use to pay our bills. I just replenish the online savings account once a year.

 

[ShokWaveRider]

Then I think the period-certain SPIA will be a good choice .. it's an automated withdrawal plan.

I do it a bit differently with very little work. I have a online savings account that I fund with a year's worth of withdrawals and an automated withdrawal of $x per month from that account to the credit union checking account that we use to pay our bills. I just replenish the online savings account once a year.

That works too.

 

[PatrickA5]

I think I'd do the SPIA and forget about it.

I've owned MYGAs, but have never withdrawn from them, so I don't know how much of a hassle it is.

 

[pb4uski]

I think I'd do the SPIA and forget about it.

I've owned MYGAs, but have never withdrawn from them, so I don't know how much of a hassle it is.

I think the issue is that you need to set an annual reminder for yourself of when the penalty free withdrawal window opens and closes.

 

[ShokWaveRider]

I think the issue is that you need to set an annual reminder for yourself of when the penalty free withdrawal window opens and closes.

You would also need remind your spouse in case you carked it unexpectedly. I think in my case the SPIA would be better for her. She will have enough other things to worry about.

BTW, I started using a spreadsheet for my calcs instead of websites.

 

[aja8888]

I'm considering using a 5 year MYGA paying about 5.5% to replace maturing CD's in my TIRA as part of my fixed income %.

I don't want the additional interest income in my taxable brokerage account as it could move me into a higher bracket. And leaving the interest grow in the taxable account only delays a tax bomb at the 5 year mark. Does this make sense?

I could just let the MYGA income build up in the TIRA and take RMDs as required (which I have to now anyway).