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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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