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I hate to mention the word annuity around here but is there any historical data as to the payouts of a fixed immediate annuity ?

For example, what was the payout for an annuity bought in 1980? Or 1984? etc. Obviously there are a number of variables. Is there a rule of thumb that for a 60 yr old male the rough estimate of a payout is based on interest rate x ?

Obviously someone who bought one in the early 80s wold have received a rather hefty payout since my prime market cash fund was paying me 16-18%. I only recall that because on graduating high school my grandfather gave me some money (nothing large but enough to put into a fund).

Of course in those days that was due to the high inflation but over the next 20+ years that person would have done well in real terms w/o dealing with the risk of the stock market even if the market would have done much better.

Right now with interest rates dropping like a rock. And people stretching for yield in various risky investments including going with higher allocations in the market, I wonder if someone looking back in 10 or 20 years would have said "geez, that 4% payout turned out to be pretty good". Not saying I would bet on it but the constant inflation worries and speculation on the market in mostly horribly over valued stocks doesn't make me too confident.

More than a few people have constantly believed rates would go up but that hasn't happened. My mortgage is almost paid off and I think I probably should just pay it since it has a rate of 3.75% and I'm not going to get that over the next 12 months unless I'm in the market or maybe in some LT bond fund (of course where my principal is, the difference is negligible).

Just constantly pondering options or anything but the main topic that is going on with the world right now.
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I hate to mention the word annuity around here but is there any historical data as to the payouts of a fixed immediate annuity ?

It depends on what you mean by 'payouts'

The insurance industry tends to rate annuities by the percent of the initial value that is paid to the annuitant each year. So if you pay the insurer $100,000 that will pay $416.67 per month or $5,000 per year, that is often advertised as a 5% annual annuity or 'payout'. If you're convinced you will buy a life annuity, this is a good comparison between insurance companies life annuities, assuming you pick the same exact add-on features for each one you price.

The problem is, this tells you nothing of the internal interest rate on the initial sum given the insurer. In the above example, if your life expectancy is 20 years and you give the insurer $100,000 that then pays out $5,000, you've gained nothing over using a safe deposit box to put the $100,000 in cash in it and withdraw $5,000 at the start of each year. Of course, the life annuity still carries the insurance component of continuing payment if you live past life expectancy or, conversely, keeping any 'unused' amount of the $100,000 if you die before life expectancy.

To calculate the interest rate, you can use the Internal Rate of Return, or IRR, but this assumes investing and compounding of the annuity payments which the annuitant will almost certainly not be doing. A simpler and more accurate method is to calculate the 0% payout based on the insurer's mortality (life expectancy) table, compare this to the actual payment and then calculate the amount of the payout that is interest. So to the above example, if the life expectancy payout of principal only is $416,67/month or $5,000 per year, but the annuity actually pays out 458.33 per month, that would be $550 per year, or $50 over 0%, which means the interest rate would be 50/5,000 = 1%/year. Ignoring the insurance component of this, that means this annuity would be comparable to you putting the initial $100,000 in a money market one year prior to your first withdrawal that will consistently pay 1% annual Simple interest, take the $5,500 out at the beginning of each year, put it in a non-interest bearing checking account and withdraw from it $458.33 per month.

BruceM
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I hate to mention the word annuity around here but is there any historical data as to the payouts of a fixed immediate annuity ?

Here is one data point. We bought an American Legacy variable annuity, I believe in February of 1997. (Don't hold me to that - may have been earlier.) Paid $40,000. As chance would have it, we got our quarterly statement today. We took no cash out initially. By February 2008 we were receiving $389 a month. (I don't remember when payments actually started.) Here is what our new statement says:

current value is $92,772.
current withdrawal: $366.16 per month (Varies with the investments backing the annuity.)
total withdrawals: $60,848.91

Guaranteed income: $3,355 per year until the Countess departs this vale of tears.

We are satisfied.

CNC
... Note that this is not a fixed annuity, nor was it immediate.
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My father used to tell a story. When his father passed away in the ‘30s he let his mother put his life insurance into an annuity that would pay benefits for life.

It sounded good when she bought it, but by the time she died in the ‘60s, it was paying about enough to cover utilities.

No inflation protection can be a major issue depending on the times and how long you live.
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When I think of annuities, I think of a life time pension from a state or local government. Such pensions according to a Coursera series I took such pension payout are from a series of long term US government bonds. So the average payout will be less than a 30 year bond - insurance companies have expenses and profit.
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is there any historical data as to the payouts of a fixed immediate annuity ?

This chart:
https://www.bogleheads.org/w/images/thumb/7/70/Annuity_incom...

comes from this article:
https://www.bogleheads.org/wiki/Immediate_fixed_annuity

I've seen a similar chart that went back to the 1950s, but I can't find it now for some reason.
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Thanks.

I'm unlikely to go that route but all you ever hear from 90%+ of the people is that rates have to rise but they don't.

I found this from an article in 2013
Should I buy an annuity when interest rates are low?

There's no good answer to this question, and it's cavalier to say that interest rates have to go up in the near future. Japan can tell you that rates can remain stagnant for decades, so it's important to prepare the possibility of a flat rate environment for the foreseeable future.


Obviously rates haven't gone up in the last 7 years. I saw a payout rate for a 62 yr old in 2013 was 6.3%. While a 60/40 portfolio did better (9.1%), I doubt anyone that got a 6.3% payout rate starting in 2013, is unhappy with it in 2020. No stock market concerns, no low/near zero fixed income concerns, etc.

In my case I'm probably more concerned about the first 10 years of retirement and not the back end. Partly because if I delay social security even to 67, that would be a chunk of money. It is mostly bridging the first 7-9 years from 60 to 67 or earlier if I quit sooner.

As mentioned elsewhere I'm not optimistic for the financial markets over the next 5-10 years, too many economic issues here and in the world, and that was before the virus situation which the market is temporarily ignoring.

I see too many "how can I get better yields?" posts (around the internet) and the "there is no alternative so put it in the market". Usually both of those questions/comments lead to trouble down the road.

Anyhow, thanks.
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In my case I'm probably more concerned about the first 10 years of retirement and not the back end. Partly because if I delay social security even to 67, that would be a chunk of money. It is mostly bridging the first 7-9 years from 60 to 67 or earlier if I quit sooner.

You're singing a song that's very familiar to me. My plan:
-Retire at age 60, but get a layoff benefit of six to ten months, so the paycheck actually stops at, maybe, age 61.5 or age 62 if I drag my feet*.
-Take SS at age 67, wife takes hers (spousal benefit) the next year at (her age of) 67. Interestingly, my own model done at age 58 and also a financial planner's model, show that neither 67 or 70 is clearly better than the other, but both are significantly better than starting at age 62. (I've written on this board a number of times that I'm more worried about running out of money after an extraordinarily long life rather than maximizing money out of SS...someone who comes from a family where everyone drops dead before age 70 will come up with a different model.)
-Bridge the expenses from age 61 to 67 with cash (equivalent to those years times the amount of SS I'm *not* taking out).
-Then I have a <4% withdrawal rate from a portfolio for the amount I need that isn't covered by the big amount of cash (age 61-67) and SS (age 67 and on).

*With all the recent working from home and periodic furloughs, I have not found work to be distasteful.
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You're singing a song that's very familiar to me. My plan:
-Retire at age 60, but get a layoff benefit of six to ten months, so the paycheck actually stops at, maybe, age 61.5 or age 62 if I drag my feet*.
-Take SS at age 67, wife takes hers (spousal benefit) the next year at (her age of) 67. Interestingly, my own model done at age 58 and also a financial planner's model, show that neither 67 or 70 is clearly better than the other, but both are significantly better than starting at age 62. (I've written on this board a number of times that I'm more worried about running out of money after an extraordinarily long life rather than maximizing money out of SS...someone who comes from a family where everyone drops dead before age 70 will come up with a different model.)
-Bridge the expenses from age 61 to 67 with cash (equivalent to those years times the amount of SS I'm *not* taking out).
-Then I have a <4% withdrawal rate from a portfolio for the amount I need that isn't covered by the big amount of cash (age 61-67) and SS (age 67 and on).

*With all the recent working from home and periodic furloughs, I have not found work to be distasteful.


I'm just pondering all of the various scenarios.

Moving some money in a bucket to cover additional withdrawals for the first 7+ years, then with social security we would be in great shape. Great shape in terms of all of the income would significantly exceed what I currently see going into my bank account now.

It is just concerns such as the future market returns, making sure you have enough to bridge that time frame, etc.

Going back east has the advantage that I'd likely have a job as long as I wanted (barring health issues). Not that I want to work long term.

If I could decide where I really want to retire and if it is cheaper housing wise then I could pocket some serious money from the house (despite all the taxes) and would be even in better shape.

I'm also planning to put away a decent amount away that would only be touched in a major, major, medical event so I don't count on that money.

Being an engineer you always want to consider all of the options and have correct answers but in life things don't work so smoothly (sometimes more unknowns than equations).

Thanks.
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