SPIA Payout Rates

[ShokWaveRider]

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

That is a valid point. We are toying with the idea of what to do with our IRAs that mature in early 2024. They are quite large by standards, and we would have to split them up between a few insurance companies in order to stay within the State guarantee ceilings.

What are the thoughts of exceeding the $250k guarantee limits for a SPIA with an A++ company?

 

[marko]

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

Wow! What a great insight! +100

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

Amen.

IMO, As we age--I'll soon be 72-- there is a subtle mental shift, away from an almost unlimited timeline to grow one's portfolio to realizing that it only needs to last X years. At 40, one's departure is considerably more abstract than at 75.

Oddly, I think as you get older your tolerance for risk might go UP as the "running out of money" concern becomes less of a worry. (Being 90 years old with a $5MM portfolio you can shoot for the moon).

Time left and portfolio size become an interesting intersection.

 

[Big_Hitter]

What are the thoughts of exceeding the $250k guarantee limits for a SPIA with an A++ company?

that's definitely a risk

 

[marko]

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.

Agree. I just have some mental bridge that I cannot cross about "giving up control (and ownership)" of my money.

Over the past decade, I'm averaging just under 7% in my fixed so I'm in the "what problem am I trying to solve?" mindset.

Maybe in 10 years I might reconsider if it became clear that I wouldn't be around much longer in the short term (physically/mentally) as DW's investing skills are practically nil.

 

[Trooper]

Great thread, and like some, makes me think of having a SPIA (again).

In my case the funds to buy one would hypothetically come from a tIRA. In that case, what would the tax impact be? I assume I could roll-over the finds from the tIRA to the SPIA -- I believe it would be classified as a 1035 exchange -- and the monthly payments would be taxable as ordinary income?

And if the funds came from a taxable account, only a portion of the monthly payments would be taxable.

Do I have this correct?

 

[jazz4cash]

Great thread, and like some, makes me think of having a SPIA (again).

In my case the funds to buy one would hypothetically come from a tIRA. In that case, what would the tax impact be? I assume I could roll-over the finds from the tIRA to the SPIA -- I believe it would be classified as a 1035 exchange -- and the monthly payments would be taxable as ordinary income?

And if the funds came from a taxable account, only a portion of the monthly payments would be taxable.

Do I have this correct?

No, I don’t think so. You can buy an annuity directly using IRA funds. There is no tax impact per se. The annuity payouts will be taxed as ordinary income. If you funded the annuity with after tax funds only the gain would be taxed. A 1035 is used to exchange one annuity for another.

 

[Sunset]

No, I don’t think so. You can buy an annuity directly using IRA funds. There is no tax impact per se. The annuity payouts will be taxed as ordinary income. If you funded the annuity with after tax funds only the gain would be taxed. A 1035 is used to exchange one annuity for another.

Purchasing an annuity from an IRA, does have a tax impact, as the annuity amount is removed from the IRA for purposes of calculating the RMD.
It's a good impact.

 

[Trooper]

Purchasing an annuity from an IRA, does have a tax impact, as the annuity amount is removed from the IRA for purposes of calculating the RMD.
It's a good impact.

Totally agree about the RMD impact; I should have been clearer that i was asking about nearer term impacts.

I still think something needs to be filed with the IRS at the time the SPIA is purchased. Otherwise how will hey know I've "rolled it over"? The IRS will just see the 1099-R from my IRA custodian, correct?

 

[jazz4cash]

Totally agree about the RMD impact; I should have been clearer that i was asking about nearer term impacts.

I still think something needs to be filed with the IRS at the time the SPIA is purchased. Otherwise how will hey know I've "rolled it over"? The IRS will just see the 1099-R from my IRA custodian, correct?

No. Buying an annuity using IRA funds is like a direct transfer and does not get reported to IRS. When you setup the transfer you should specify ‘direct transfer’,’ trustee to trustee’ or similar instructions. I know it seem weird for this to be a non-reportable event. I bought 2 MYGAs this way. If you were doing a 60 day rollover most tax software will ask you if any of the funds on the 1099R were rolled over.

 

[jazz4cash]

TSP (SPIA) Annuity

The TSP Annuity is a much-maligned and misunderstood option for Federal retirees. A TSP annuity is offered by a vendor (Metlife) and can only be purchased using funds from the TSP program. Right now the "index" used to calculate the payout is 5.2 which is the highest it's been since 2007! The index translates to a payout of 8.3% for a 65 yr old annuitant, 100% survivor benefit, and survivor is less than 5 yrs older. Using Blueprint Income and immediate annuities.com I'm getting payout ratios of 7.3-7.8.

It was really tough to find the worksheet for these estimates. I think the 'calcuator' on the TSP web site is not accessible.

 

[teej1985]

The TSP Annuity is a much-maligned and misunderstood option for Federal retirees. A TSP annuity is offered by a vendor (Metlife) and can only be purchased using funds from the TSP program. Right now the "index" used to calculate the payout is 5.2 which is the highest it's been since 2007! The index translates to a payout of 8.3% for a 65 yr old annuitant, 100% survivor benefit, and survivor is less than 5 yrs older. Using Blueprint Income and immediate annuities.com I'm getting payout ratios of 7.3-7.8.

It was really tough to find the worksheet for these estimates. I think the 'calcuator' on the TSP web site is not accessible.

Doesn't the TSP annuity include a 3% COLA also? Is it a higher payout if there is no survivor?

 

[jazz4cash]

Doesn't the TSP annuity include a 3% COLA also? Is it a higher payout if there is no survivor?

No, but you can opt for level or increasing payments. As of 2022 the only option for increasing payments is 2%/yr. Not really a COLA since you are paying for it with a lower starting payment. My figures are based on level payments. The increasing payment scheme seems like a zero sum game to me but could be a winner based on longevity. I made an excel spreadsheet for this and will rerun it for increasing payments just for fun.

Edit: Missed your question at the end….yes, the payout for single life is higher. I’ll run that too.

 

[jazz4cash]

TSP Annuity Payout Examples
65 Yr old , spouse 3 yrs older, Joint 100%, No COLA payout is 8.45%
65 Yr old, single life, No Cola payout is 9.59%
65 Yr old, single life, 2% "COLA" payout is 7.25%


Looking at these calculation tables, it seems there are some areas to exploit based on age groupings. Everyone 65-75 uses the same adjustment factors.