SPIA Payout Rates

[ShokWaveRider]

I guess if one just wants to draw off interest, I agree with the last 2 posts. However, as we get older, I think we lean towards a more consistent income.

In our case we have no heirs, other than each other. I am 70 now and our stash will easily out last us by 5 or 10 fold.

I was always anti MoneyGrabbing-InsuranceCompanySponsored-Annuities . But now I am older, I am at least looking at options.

Here is some logic, well at least my logic anyway.

Take $200k a lifetime annuity with an AA+ company is Paying around $1200 a month for our joint lives. 5% interest pays $833 a month not taking any principal. If DW lives another 30 years, I think she would prefer a guaranteed income rather than worrying about investing every 5 years. I am looking into COLA riders too and need to evaluate the financial consequence of them.

 

[PatrickA5]

I guess if one just wants to draw off interest, I agree with the last 2 posts. However, as we get older, I think we lean towards a more consistent income.

In our case we have no heirs, other than each other. I am 70 now and our stash will easily out last us by 5 or 10 fold.

I was always anti MoneyGrabbing-InsuranceCompanySponsored-Annuities . But now I am older, I am at least looking at options.

Here is some logic, well at least my logic anyway.

Take $200k a lifetime annuity with an AA+ company is Paying around $1200 a month for our joint lives. 5% interest pays $833 a month not taking any principal. If DW lives another 30 years, I think she would prefer a guaranteed income rather than worrying about investing every 5 years. I am looking into COLA riders too and need to evaluate the financial consequence of them.

I don't think there are any actual COLA riders available. You can find SPIAs with 2% or 3% annual riders, but your payout goes way down.

 

[ShokWaveRider]

I don't think there are any actual COLA riders available. You can find SPIAs with 2% or 3% annual riders, but your payout goes way down.

That is what I meant. I have yet to talk to the Schwab annuity group to determine what is actually available to us.

 

[pb4uski]

I hear you but it is the control aspect that I can't get over. I'm 69, so similar age to you and similarly situated except we do have heirs to consider.

The PV of $1,200/month for 30 years at 5% is $223,357. So I could get the same $1,200/month from a self-managed $223k investment that I could from a $200k SPIA but if something comes up in the next 30 years and I want access to that money I can get my hands on it with the self-managed portfolio but I can't with the SPIA.

Time will tell.

 

[Chuckanut]

Personally I think a conservative fed gov't back security, or CD ladder or quality bonds just seems more agreeable to me. I still have some type income stream, and ultimately the principal is there if needed for unforeseen circumstance. I think loss of that principal is my biggest issue with annuities. At least currently annuities have better payouts to help get more income for a given amount surrendered.

As one who has not won the game but is going into the 4th quarter with a lead and a healthy team, I like the idea of Federal government backed securities as mentioned above. And there is another Federal government product people may want to consider.

If a person wants a COLA'd annuity consider getting the one Uncle Sam offers by taking SS at age 70. And it is also backed by the Federal government. I did and I am very happy with it. Yes, I did lose some principle as I had to dig into my savings for an extra four years, but the peace of mind is worth it, IMO. Compared to the variable annuities I checked out years ago, SS at 70 was a much better deal. YMMV.

 

[ShokWaveRider]

The PV of $1,200/month for 30 years at 5% is $223,357.

Aren't we assuming we can get a consistent 5% for 30 Years?

Personally, I cannot think that far and will probably not be around to do so anyway. Least of all I probably would not want to manage longer than another 5 years.

 

[pb4uski]

Aren't we assuming we can get a consistent 5% for 30 Years?

Personally, I cannot think that far and will probably not be around to do so anyway. Least of all I probably would not want to manage longer than another 5 years.

Given the last sentence of you post how do you then square that up with a deisre to buy a life-contingent SPIA?

Yes, but you can probably lock in 5% today with some long paper if you wanted to. But the SPIA does shift management over to the insurer at the cost of no access to that money ther than the monthly checks.

...	3 Mo	6 Mo	9 Mo	1 Yr	18 Mo	2 Yr	3 Yr	4 Yr	5 Yr	10 Yr	20 Yr	30 Yr+
CDs	5.51	5.47	5.48	5.45	5.50	5.55	5.20	5.10	5.65	4.65	--	--
Bonds
U.S. Treasuries	5.40	5.42	5.36	5.30	5.10	4.89	4.63	4.53	4.50	4.47	4.84	4.63
U.S. Treasury Zeros	4.85	5.15	5.20	4.90	4.89	4.75	4.56	4.49	4.46	4.62	5.02	4.47
Government Agencies	4.97	5.17	5.28	5.41	5.45	5.18	5.42	5.55	5.73	6.33	--	5.31
Corporates (AAA)	4.28	--	--	5.02	4.94	--	--	--	--	4.66	5.14	5.62
Corporates (AA)	4.93	5.22	--	5.02	5.21	4.98	--	4.75	5.04	4.66	5.43	5.99
Corporates (A)	5.13	5.51	5.57	5.83	5.77	5.78	5.39	5.94	6.18	6.50	6.29	6.47
Municipals (AAA)	3.65	3.38	3.51	3.76	3.92	3.50	3.72	3.41	4.43	4.65	4.85	4.97
Municipals (AA)	3.65	3.50	3.65	3.96	4.55	4.41	4.33	3.57	4.81	4.97	5.09	5.19
Municipals (A)	3.65	3.71	3.75	4.15	4.55	4.41	4.36	4.29	4.81	5.03	5.43	5.31

 

[ShokWaveRider]

Given the last sentence of you post how do you then square that up with a deisre to buy a life-contingent SPIA?

Yes, but you can probably lock in 5% today with some long paper if you wanted to. But the SPIA does shift management over to the insurer at the cost of no access to that money ther than the monthly checks.

...	3 Mo	6 Mo	9 Mo	1 Yr	18 Mo	2 Yr	3 Yr	4 Yr	5 Yr	10 Yr	20 Yr	30 Yr+
CDs	5.51	5.47	5.48	5.45	5.50	5.55	5.20	5.10	5.65	4.65	--	--
Bonds
U.S. Treasuries	5.40	5.42	5.36	5.30	5.10	4.89	4.63	4.53	4.50	4.47	4.84	4.63
U.S. Treasury Zeros	4.85	5.15	5.20	4.90	4.89	4.75	4.56	4.49	4.46	4.62	5.02	4.47
Government Agencies	4.97	5.17	5.28	5.41	5.45	5.18	5.42	5.55	5.73	6.33	--	5.31
Corporates (AAA)	4.28	--	--	5.02	4.94	--	--	--	--	4.66	5.14	5.62
Corporates (AA)	4.93	5.22	--	5.02	5.21	4.98	--	4.75	5.04	4.66	5.43	5.99
Corporates (A)	5.13	5.51	5.57	5.83	5.77	5.78	5.39	5.94	6.18	6.50	6.29	6.47
Municipals (AAA)	3.65	3.38	3.51	3.76	3.92	3.50	3.72	3.41	4.43	4.65	4.85	4.97
Municipals (AA)	3.65	3.50	3.65	3.96	4.55	4.41	4.33	3.57	4.81	4.97	5.09	5.19
Municipals (A)	3.65	3.71	3.75	4.15	4.55	4.41	4.36	4.29	4.81	5.03	5.43	5.31

Thanks, I guess I am struggling with how to get a consistent monthly income from "Paper" when a lot of them only pay at maturity. At least that is how i understand it.

Say I buy a 20y Treasury Zero, how do I get a consistent monthly income from that investment?

 

[pb4uski]

Thanks, I guess I am struggling with how to get a consistent monthly income from "Paper" when a lot of them only pay at maturity. At least that is how i understand it.

How I create consistent monthly "income" is to keep 12-18 months of distributions in an online savings account that pays 4.3% currently and has an automatic monthly withdrawal that goes to the checking account that I use to pay my bills.

Then I periodically replenish the online savings account from portfolio income and maturities as needed.

The yield drag between 5% and 4.3% for such a small part of the total portfolio is negligible.

 

[rembrandt]

The thing I like about annuities is the "set it and forget it" aspect, especially as I get older.

 

[ShokWaveRider]

There is a 5 year MYGA paying 5.55% for 5 years with an A++ company that allows a 10% annual withdrawal that can be set up to pay monthly. That is an option for income for 5 years with return of principal. You will still have to do something in 5 years with it.

 

[ral3210]

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.

Please note the comparison was done taking the SPIA payout rate without inflation adjustment from the balanced portfolio. Assuming a 20 to 25 year life span at retirement I would much rather take more earlier. Knowing that spending declines for most people as they age many would be better off spending the 7.4% from the SPIA and not adjusting for inflation. So, to put in perspective: On a million dollars at age 65 I would prefer to have $74000 per year nominal vs $35k inflation adjusted b/c at 3% inflation it takes 25 years to equal the SPIA---very likely to be dead by that time.

 

[Gearhead Jim]

I guess if one just wants to draw off interest, I agree with the last 2 posts. However, as we get older, I think we lean towards a more consistent income.

In our case we have no heirs, other than each other. I am 70 now and our stash will easily out last us by 5 or 10 fold.

I was always anti MoneyGrabbing-InsuranceCompanySponsored-Annuities . But now I am older, I am at least looking at options.

Here is some logic, well at least my logic anyway.

Take $200k a lifetime annuity with an AA+ company is Paying around $1200 a month for our joint lives. 5% interest pays $833 a month not taking any principal. If DW lives another 30 years, I think she would prefer a guaranteed income rather than worrying about investing every 5 years. I am looking into COLA riders too and need to evaluate the financial consequence of them.

Will DW or I want to be managing our portfolio 15 years from now (ages 93 and 91)? Will we still have enough brain cells to do so?

I'm not good enough with FireCalc to get the comparison, but it looks like $200k in a joint SPIA would get us $18k per year "forever" with no hassle. Interesting, even though there's no inflation protection.

Someone said that "The purpose of investing during retirement is not to die rich, but to avoid dying poor."

 

[teej1985]

I would say it makes sense to annuitize at maybe 75 or 80 for the mortality credits. 60s makes not as much sense because delaying social security to 70 is the most lucrative annuity that you could buy

 

[ncbill]

I would say it makes sense to annuitize at maybe 75 or 80 for the mortality credits. 60s makes not as much sense because delaying social security to 70 is the most lucrative annuity that you could buy

One of my paid retirement planners (MaxiFi) recommends I annuitize not until around age 80...not too many worries about inflation at that age.

 

[ShokWaveRider]

I'm not good enough with FireCalc to get the comparison, but it looks like $200k in a joint SPIA would get us $18k per year "forever" with no hassle. "

Not sure where you get 18k from. The best I can find with lower rated companies is $14,808 for a $200k lifetime Annuity for 70/65 year olds. Where do you get 18k?

 

[rembrandt]

Joint 100% Life Income Annuity ?
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Penn Mutual (App Review: 1-2 Weeks) (A+) $1,493 8.96% 2023-12-20
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New York Life (App Review: 1-2 Weeks) (A++) $1,376 8.26% 2023-12-20
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Symetra Life (A) $1,417 8.50% 2023-12-16
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Nationwide Life (A+) $1,406 8.44% 2023-12-20
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Jackson Nat'l Life (A) $1,380 8.28% 2023-12-13
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[Gearhead Jim]

Not sure where you get 18k from. The best I can find with lower rated companies is $14,808 for a $200k lifetime Annuity for 70/65 year olds. Where do you get 18k?

A quick look on immediate annuities.com for our ages (78 & 76) shows $18,264 per year for a $200k purchase, unknown company. (I posted our ages 15 years from now as 93 & 91).

Policies for higher rated companies or with some kind of inflation rider, would surely be less.

 

[Finance Dave]

I annuitized my company pension (cash balance plan) recently (could roll lump sum into a TIRA, or annuitize...I chose the annuity). It increased recently due to interest rates rising. It's a fairly modest amount, as most of my company retirement was in a 401k plan that was separate.

One thing to remember is that most annuities (I know mine for sure) are not COLA adjusted. The $1,325 a month I'm getting now may not seem like much 20 years from now. Thankfully SS IS COLA indexed, so that part of the equation should keep up fairly well.

 

[rembrandt]

I annuitized my company pension (cash balance plan) recently (could roll lump sum into a TIRA, or annuitize...I chose the annuity). It increased recently due to interest rates rising. It's a fairly modest amount, as most of my company retirement was in a 401k plan that was separate.

One thing to remember is that most annuities (I know mine for sure) are not COLA adjusted. The $1,325 a month I'm getting now may not seem like much 20 years from now. Thankfully SS IS COLA indexed, so that part of the equation should keep up fairly well.

+1

 

[ShokWaveRider]

I hope folks realize that the Payout rate is usually more than double the actual interest rate of return in a lifetime annuity, due to the buydown of the initial capital. Not that it really matters I suppose.

 

[rembrandt]

All that matters to me is the amount of money that hits my checking account every month!

 

[ShokWaveRider]

All that matters to me is the amount of money that hits my checking account every month!

As I get older, I am beginning to think the same way.

 

[Big_Hitter]

This definitely looks like an opportune time to immunize expense streams.

Age 65 Male is over an 8% payout rate on immediateannuities.com

 

[Big_Hitter]

I hope folks realize that the Payout rate is usually more than double the actual interest rate of return in a lifetime annuity, due to the buydown of the initial capital. Not that it really matters I suppose.

I look at it as locking in a 5.0% guaranteed rate of return for my lifetime