# Single premium immediate annuities



## Lon (Jun 16, 2014)

Anyone care to discuss this topic?


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## Bullie76 (Jun 16, 2014)

I have not bought one due to the poor interest rates. But I might entertain the idea at some point down the road. Basically you are turning over a portion of your money to an insurance company that will pay you back(usually monthly) for the remainder of your life and spouse too if you opt for that. Some have a cost of living adjustment built in, some do not. You certainly want to pick a company that is financially sound and is rated high. They go belly up.......you lose your money. 

The main thing that worries me is when I get old and senile, I might be prone to making poor decisions with my money. This would at least protect some by paying you back monthly. And it would help put things on a more auto-pilot mode. Plus for the ones with no pension, you are basically buying one. 

Not sure I will ever buy one, but they do make some sense imo.


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## Lon (Jun 16, 2014)

I understand what you are saying about interest rates, however the guaranteed monthly payout from about 10 companies that I have checked out in the last week is between 6 to 7% and that would extend for the life time of two people. Just a few years ago the returns were lower with the same companies. As interest rates head up the payout could be higher. Once the monthly payout begins it is locked and will not change. Timing of when to begin the annuity is essential. I will commit some of my resources to a SPIA within a month.


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## Bullie76 (Jun 16, 2014)

Yes, the older you are the higher the payout. I'm almost 60 and plan to wait until 65 on SS(I think). And will probably commit a small portion of funds to a SPIA at that time. The payout will be greater just by waiting and interest rates may be higher by then too which should give it a bump up too. Anyway my plan is for SS and the annunity to cover my annual expenses.


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## Lon (Jun 16, 2014)

I started taking my Social Security at age 62 and have never been sorry. I am trying to do some planning for the possibility of either me or my wife at some point in the future needing Assisted Living. We are fine now, but who knows about down the road. Dementia and ALzheimers facilities don't come cheap at 4 to 7 thousand a month. I do have long term care but the monthly benefit would not cover potential costs.


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## Colleen (Jun 16, 2014)

I wouldn't mind doing this but we just don't have a chunk of money to plop down for someone else to hand over monthly back to me.


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## mathjak107 (Jul 17, 2016)

the problem with long term care planning and annuity's  is inflation . immediate annuity's become very poor deals once you try to inflation adjust them . the best deal ever in inflation adjusted annuity's is delaying social security . for the amount of money you would give up you could never find an inflation adjusted annuity that paid  anywhere close to what ss does .


in my opinion no one should ever buy a commercial annuity without considering delaying ss first . you will just end up spending more and getting less .

long term care costs take a lot of inflation adjusting and even the linked benefit life insurance policy's end up being bad choices 20 years down the road since they do not inflation adjust .

not having enough to fund long term care is like being a little bit pregnant . either you can fund it or you can't . there really is no middle ground .

https://www.kitces.com/blog/how-del...ong-term-investment-or-annuity-money-can-buy/


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## bodumene (Jul 17, 2016)

In my opinion, you have to be VERY careful with annuities.  First, some have very high fees built in.  Second, if a broker is involved, they take a cut.  Third, the figure of 6% or 7% (I have even heard of 8%) could be misleading; it almost certainly is not an interest rate, but includes the return of your principal.  For example, if you buy a $100,000 annuity at an advanced age, perhaps you get $6,000 (6%) back the first year.  Only a small part of that is interest; most of it is a return of part of the $100,000 you gave them.  They are using actuarial tables to compute how much, on average, they will have to give back, and it always is less than you paid.  You are gambling that you will live enough longer than the average person your age to overcome the fees and profit that the annuity company takes.

Finally, the payments to you are often fixed amounts each month, unless you buy a variable annuity which has other risks, and so there is generally no adjustment for inflation.

All that said, if you go with a company with low fees and a very good reputation and a very strong balance sheet (so that you don't have to worry too much about default), the big advantage of annuities is that you don't outlive them.

Good luck, Lon


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## mathjak107 (Jul 17, 2016)

annuity products are really insurance and have no real roi for years and years . an spia has an implied interest rate but that is an irs thing . they imply an interest rate based on average life expectancy and bill you each year .

the reality is you  buy an spia and at todays draw rates for 16 years they hand you back your own money . your return is zero . you do not actually go on their dime until you got back the money you put in .

in effect you are buying a pension not an investment .   they are giving you  back your own money at a draw rate that is higher then you can draw from yourself using your own investing .  they have something we can never have , dead body's . with spia's those who die pay for those who live .

the annuity works well when combined with your own investing and that is where it shines .  it's a higher cash flow that you can get from the cash and bond portion of  your portfolio . that lets you delay selling equity's longer then you could on your own . 
to duplicate the effectiveness of an spia and your own investing your own investing must have only the most favorable outcomes .


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## Brookswood (Aug 13, 2016)

They have their uses but like others say, at today's interest rates they are a bit on the pricey side. That said, I have been so very wrong for such a long time on my interest rate predictions that nobody should pay them any mind.   

What I do remember about SPIA's is  1.  They are a better deal than inflation adjusted annuities. This is because the inflation adjusted annuities start so far behind the SPIA that most people won't live long enough to catch up. And, 2.  A SPIA/Stock mix supposedly does better in the long run than a Bond/Stock mix.   However, some people don't go along with this idea.    

Like many things in personal finance, one's assumptions about life span, returns, etc. can tilt the playing field in one direction or another.


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## mathjak107 (Aug 13, 2016)

i find spia's to be excellent products when used with your own investing . they are simple , they are cheap and they provide more cash flow than you can draw from yourself using your cash and bonds .

for a 65 year old cash flow is close to 6% .  they have investments that allow that rate that we can never own , dead body's .

those who die pay for those who live .

the higher cash flow provided by them allows you to stall selling equity's longer to refill cash and bonds . that extra  growth time can add a lot of value . success rates are higher with spia's and equity's then equity's /bonds over much more varied scenario's .


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## Floridatennisplayer (Oct 1, 2016)

I just purchased a $400k NYLIFE Clear Income product. At 65 I will have a guaranteed income for the rest of our lives of about $25k annually and the surrender is zero at 7 year but not why I bought it. Read up on it and it got excellent reviews. Fits in well with my total plan. This and SS will more than cover our annual expenses and I will use the rest of money for investing and spending on my grandkids.


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## mathjak107 (Oct 2, 2016)

I hope you understand how that plan works as most folks do not.

For the benefit of those not familiar i will explain what the gotcha is.

The plan has two accounts going on. An actual account balance which is your money and what passes to heirs or you can take after the surrender period.

The other account is a virtual account that gets a guaranteed growth rate, never has the balance reduced for what you draw out and has no fees removed

The virtual account is for annuitizing only. You never can take that value. You can only draw a little piece of that account yearly never really getting to its value.

So lets see an example. 

I am looking at the prudential version so i will use their numbers. They have a 5.50% guaranteed growth rate.

So at age 55 i give them 100k . I can start drawing 4% right away but if i delay my 100k grows by 5.50% a year. For every year i delay my draw rate increases too by 1/10% a year so at 65 i have 189k and will get 5% a year as income.

That is for life. But that money is not mine. What is mine is the actual account . That is the money i gave them less the fees and the amount each time i get a payment. Odds are pretty good without very strong growth in what ever the actual account is in that account will eventually have little in it for heirs.

With almost 3% in fees being taken out and that money from each payment deducted out the balance shrinks and shrinks.

In fact in the virtual account you never actullay see that 5.50% growth rate. The best i see is at 95 you are just coming up on a 5% roi. At 85 your roi is 3.91%.

While you do get the guaranteed growth rate , as you see it is something you can never really get to. 

In this case assuming age 85 you did get almost 4% but compared to the marketing pitch of getting a minimum of 5.50% or the growth rate of your investments which ever is higher it likely is not going to be the 5.50% deal minmum you thought you were getting and passing to heirs.

In fact many of these do not pass to heirs once you annuitize. They will only pass the premiums you pay in to heirs if you die prior to annuitizing and starting to draw that income.

Fidelity fixed income annuity's appear cheaper until you learn they have no death benefits. You have to add a life insurance rider


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## mathjak107 (Oct 2, 2016)

An spia is far simpler and is like buying a cd . They not only pay higher cash flows but there are no complex pitfalls .

The best combo is an spia with your own investing and a permanent life policy for any heirs .that combines guarantees with your own investing.

For the spia i would look in to a single not joint annuity. Then use the tax free life insurance to pass to your spouse.  Nothing beats tax free money and no rmd's on it
We can never duplicate that spia on our own since it is invested in dead body's. Those who die pay for those who live.

Think about this. If 25 of us bought  a bond paying 3%  over 25 years we got 3% a year as a return.

But if one of us died each year and the deal was that money goes back in to the pot for the others at the end of 25 years last man standing would have averaged over 9.50% from that 3% bond.

That is why insurers can pay you so much more than current bonds do and they invest in the same bonds you can


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## mathjak107 (Oct 2, 2016)

According to ny life's website your plan shows at 65 a 5.25% cash flow rate not the more than 6% you stated. In fact if it is a joint annuity they show 4.75%.

If does not show a 6% cash flow rate until age 80. You may want to look at your numbers again if you are planning on drawing at 65.

An spia rate is about 6% at 65 for a single so no way is a fixed annuity with death benefits paying out more.

5% is more in line with age 65 from these products. 25k on 400k is more than 6% . Something does not sound right  based on minimum guarantees here. Especially because that is not what ny life shows on their website


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