May 31, 2015

Period Certain Annuity Payout Rates

A period certain annuity (AKA term certain ) is an annuity that lasts for a fixed number of years.    It does not last your lifetime and really has no relation to your age or health.    This arrangement is pretty simple.  You pay the insurance company \$100,000 today and buy a 10 year period certain annuity and they pay you \$890 a month for 10 years.

I got the rates right out of the Annuity Shopper Buyers Guide April 2015 posted at ImmediateAnnuities.com

I also then used this calculator to estimate the equivalent interest rate you'd have to earn to equal the annuity payments.

Here is the table for a \$100,000 premium :

 Period Monthly Total % rate 5 \$1,680 \$100,800 0.31% 10 \$890 \$106,800 1.32% 15 \$643 \$115,740 1.99% 20 \$524 \$125,760 2.38% 25 \$454 \$136,200 2.61% 30 \$407 \$146,520 2.73%

The rates are the average monthly payments and then I summed up the total that you'd get out.

Given the low rates they're quoting there for the shorter term annuities you should really NOT buy a 5 year annuity.   You'd come out ahead just laddering CDs from Ally bank.    You could spend out about \$1707 a month if you just bought 4 laddered CDs of 1,2,3,4 years.    I didn't do the math but I am guessing you can beat the 10 year annuity with CD ladders too.    This assumes you don't have tax reasons that make the annuity preferable.

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1 comment:

1. JIm, I concur totally. I have been exploring Annuities for decades, and (along with the declining interest rates over the last 30+ years) they are unattractive. Bottom line, Annuities are 'sold'. We should all act accordingly.

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