In previous discussions of annuities, the idea of a gift annuity, to an university or charity, as an alternative to an annuity from an insurance company, has come up. We have largely dismissed gift annutiies as likely to pay much less, but without any firm numbers.I'm not sure I'd call these firm numbers, but I am suddenly in possession of some data. My mother-in-law made a small annuity contribution to her alma mater, and named my wife as the joint annuitant at 100% for life. (The amount of money, from out point of view, isn't worth stooping down to pick up, even before inflation, but I think the %s hold.)Anyway, I ran a life single fixed annuity for my wife through Vanguard, which I think would be about the same actuarials, since her mother's life expectancy is much, much less. The gift annuity comes in at exactly 5%. The Vanguard annuity is 6.1%. (I couldn't get the Vanguard calculator to do a joint annuity with 100% survivor benefit.) Now the gift annuity also comes with a tax write-off of about 33%. If you figure a 28% tax bracket (guessing), that's 9.24%, maybe as high as 10%. So, with compounding of the 10%, I'd estimate about 12 years before the Vanguard annuity comes out the better.I was surprised the differences weren't a lot greater. Since most of us prefer to leave money to a favorite charity rather than an insurance company, it is worth knowing that this option seems viable if one reaches a point where an annuity might make sense.
Loki,An excellent option to explore! Thanks for the info.Mom
Mom,It also helps me figure out MOL's finances, since she gets a gift annuity from a gift made by her late husband. My guess was that the amount she said she received was a quarterly, not annual, payment, assuming the amount they gave was what she says (not a good assumption), since it seemed way too low for an annual annuity. But 4x seemd high, if gift annuities were way less than insurance annuities. I'm now pretty confident my guess was correct about quarterly payments, which is reassuring. (To give you an example of what we are dealing with, the gift she just made was in stock (thank, God) and the university immediately sold it (smart folks) and she got upset because she said the stock was about to go up. Not that it means anything, but it has gone down, with the overall market, since the transactions were completed a few days ago.)
Loki:I think you don't have it quite right. You get to take a third of the gift the first year, and the rest is a prorated deduction over the next 16 years, I believe. We have two gift annuities, and that's the way we are told it works. We sold half our PFE holdings in which we had a large capital gains to take advantage of this first-year deduction. I don't know if your mother has anything equivalent to do, but she hasn't much time to make a decision.She may not be able to take advantage of the following 16 year period because the automatic deduction is quite large. If she were to die (perish forbid) during this period, however, you might be able to take some advantage of it as I presume (but don't know for sure) that your wife can assume the annual deductions.Incidentally, the older you are (ie, the less your life expectancy) the greater the interest rate you get. It might have been better for the mother to have taken the gift annuity by herself and give your wife a gift annually if she didn't need the money. My wife and I took ours out when we were 74 and get 6%, for example.braced
We take our annuity quarterly, but you can opt to take it annually or semi-annually also. Alas, we couldn't take it monthly.When you give someone a gift, they can do with it what they want. I'm surprised MIL knows what they did with it. No matter what they do with the gift, you MIL should get her payments.brucedoe
When you give someone a gift, they can do with it what they want. I'm surprised MIL knows what they did with it.They sold it right away, and it turned out it was a few bucks short, so we had the info.Thanks for your heads-up on the prrating of the rest. I need to look more closely at the detail. All I saw was the 33% deductible first year. If you can deduct the rest over time, and still get the annuity, then the gift annuity should work out better than the insurance once, and is also a pretty good scam on the IRS.
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