On Sat, 25 May 2024 20:58:51 EDT, John Levine wrote:
According to Stan Brown <the_stan_brown@fastmail.fm>:
Next month I plan to purchase a single payment immediate annuity from
an insurance company with funds from my Vanguard IRA. ...
[big snip]
By the way, the conventional wisdom is that unless you have a special
tax angle, which is unlikely in an IRA, the fees mean an anuuity is
usually worse than just selling assets as needed and taking
distributions. Without going into personal stuff, can you tell us what
the plan is here?
Sorry to be so slow in responding -- I've been going
through some stuff in real life that's cut severely
into my computer time. I haven't had time yet to chase
down the references you gave to the regulations. The
quote from 590-B is depressing and I'll certainly take
it up with my agent.
A Single Payment Immediate Annuity (SPIA) is offered by
many insurance companies; ImmediateAnnuities.com will
give you free instant quotes from about a dozen. Unlike
most annuity products, a SPIA is simple: You make one
premium payment to the insurance company, and they pay
you a fixed dollar amount every year for your life.(*)
The payout should be more than you expect to earn in
your investments -- for instance Thrivent's is a bit
over 10% of the annuity premium. The percentage is
higher the older you are when you buy. (That's the
percentage if I receive money at the end of each year;
it's less if I receive money at the start of each
policy year, since over my lifetime I'll receive one
payment less.)
How can the company do that and stay in business? That
10%+ includes not only return on my premium, but also
my share of return on premiums from all the people who
die early. So the 10%+/year for life is what the
underwriters and actuaries think they'll be able to pay
out to the whole group of people my age who buy
approximately now, Some of them will die early without
collecting much, and some of them will live longer and
collect more of their share of the pot.
Jane Bryant Quinn gives a plain-language description of
SPIAs and other types of annuity products in /How to
Make your Money Last/. She recommends SPIAs for certain
categories of people, though not from any particular
company, and recommends against most other types of
annuities for anyone.
Obviously you want to pick a really sound insurance
company.
I don't know about fees; they weren't in the quote I
got. Some money from the pot must be used to fund
operations, but the 10%+ return is the net to me, not
gross before any fees or expenses. And it's a fixed
percentage of my initial premium, not a percentage of
my declining balance.
Inflation is a concern here: there's no COLA as with
Social Security. And there's no provision for any lump-
sum withdrawal or for payment of a death benefit to
anyone. Because of inflation, I think it would be
imprudent to sink all or most of my funds into such an
investment. But inflation protection is what stock
funds are for. I'll be paying for this out of bond
funds (and most bonds are also not indexed for
inflation), not stock funds.
(*) You can also buy a SPIA that pays the fixed annual
amount to you for life, or to you or your beneficiary
for a fixed number of years, whichever period is
longer. Naturally that fixed amount is less than you
get if payments are to you alone.
--
Stan Brown, Tehachapi, California, USA
https://BrownMath.com/
Shikata ga nai...
--
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