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

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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