William,
Perhaps a better question is should one ever annuitize money vs. keeping it in a balanced portfolio of stocks and bonds like Wellesley? There are some links in this
diehards conversation. For most early retirees, I don't think annuitizing much money makes sense because the increase in payout % vs. your SWR is slim. But as you get older, like 65+, it gets tougher and tougher to beat the fixed and inflation adjusted SPIA.
Just for some examples, I did Firecalc with a 35% LV, 60% LT corp, 5% Tbill allocation [like Wellesley], and varied the ages and withdrawal periods [all ending at age 100]. I also got various quotes for inflation adjusted annuities from
Principal through the
ELM Group.
For someone who is 55, withdrawing for 45 years, a 95% chance of portfolio survival is at the 3.62% withdrawal rate. The 100% J&S real annuity pays 3.86%.
For someone who is 60, withdrawing for 40 years, a 95% chance of portfolio survival is at the 3.73% withdrawal rate. The 100% J&S real annuity pays 4.29%.
For someone who is 65, withdrawing for 35 years, a 95% chance of portfolio survival is at the 4.01% withdrawal rate. The 100% J&S real annuity pays 4.86%.
For someone who is 70, withdrawing for 30 years, a 95% chance of portfolio survival is at the 4.21% withdrawal rate. The 100% J&S real annuity pays 5.62%.
So, you can see that the spread b/w what could be termed a safe withdrawal rate and the annuity payout widens as you get older.
Though this does beg the question of why all those military/feds take those inflation adjusted annuities at early ages. Probably for the health bennies, and probably b/c they can't take the annuity as a lump sum.
- Alec