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/annuity-rate-of-return-calculator/
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.
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 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/annuity-rate-of-return-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.
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.
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.
According to immediateannuities.com, the payout rate for a 60 year old male is 7.62% with Penn Mutual, an A+ company. Not bad.
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.
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.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.
They are adjusted 2 or 3 percent regardless. They aren’t adjusted for cpi.^^^^ How do you get 2% and 3% inflation adjusted annuity benefits from immediateannuities.com?
They are adjusted 2 or 3 percent regardless. They aren’t adjusted for cpi.