No. of Recommendations: 3
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.
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