I haven’t had the time to check but how much have immediate annuities gone up (payout wise) over the last year?
I looked at one site and for a couple, both 60, you would get 6% per year. (Obviously that isn’t a 6% return since you are giving them the lump sum, and once you both pass away the money is gone but just using it for comparison purposes.)
I think a while ago when I checked the amount was more like 4% but does anyone know for sure?
(Partly using this post to check out the new board layout.)
Thanks
You don’t give the numbers, but the 6% you quote is usually the annual payment amount as a percent of the amount you gave the insurer…not the interest.
Here’s an example from Fidelity for a single life annuity with a 10 year period certain for a 65 year old male
Amount to insurance company: $100,000
Life Expectancy (from SS life expectancy table) at 65: 17 years
Monthly payment: $609 Annual: $7,308
Quoted payout: 7.3%
Interest rate: 2.52%
Although interest rates are going up, making the payouts greater, keep in mind these things along with private pensions, are the real victims of inflation. The above annuity that begins with $609/month, over 10 years with an average annual inflation rate of 2% will have the purchasing power of $497.60 in the 10th year. Increase that 10 year average inflation rate to 5% and the purchasing power drops to $364.60. The benefit is you cannot outlive the annuity payments…but is it worth the risk with inflation as it is and likely will be thru next year?
I think the annuity is a contract that calls for the $609 to be paid monthly for the specified 10 yr period. That figure does not change.
They do sell annuities that offer increased payments based on some formula, but those features increase the cost.
Rising interest rates mean the cost of an annuity that pays a specified benefit is reduced. Hence very low interest rates make annuities less attractive. Rising interest rates should make them more affordable.
Yeah, I’m not exactly a big fan of annuities since in 10 or 20 years that payout may seem small with the effects of inflation. I do think that a relative of mine, now in his 80s, was correct in that you have to find streams of income, preferably guaranteed, to cover basics in retirement.
Having 100% in the market, or even stocks and bond funds I don’t think is ideal. It worked, mostly great, during the last few decades but moving forward things are likely to be different.
Right now it seems like everyone is rushing to I-bonds and TIPs due to inflation fears, whether that fear is correct is unknown. I’ve been buying some treasury bonds that mature over the next 1-7 years to provide money in the years prior to us collecting social security. Assuming social security stays as it is (lets avoid that issue for now) we can probably do fine with it and some smaller pensions.
My goal is to fine some income for the 5-10 years between retirement and social security while not spending down my core 401K/retirement savings too much.
While an annuity is nice in terms of no stock market risk, obviously there are other significant risks. One reason I’ve just been buying various treasuries and could buy TIPs to try and mitigate the inflation risk (well, mostly).
We don’t have kids and I’m not concerned with leaving an inheritance other than ensuring my wife has sufficient funds once I’m gone.
Yes, much in line with the increase in bond yields - and there is the problem. The yield curve is inverted (more on this later).
Best way to check is to run a period certain quote, not a lifetime income quote. You should then be able to either view (or if the site is less savvy, calculate) the IRR.
Back to the yield curve, because it is inverted, don’t be surprised if you see shorter period certain yields HIGHER than longer PC. I just ran a quote for a 15 yr and it had an IRR for 3.57 where as the 20 year was 3.32.