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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Best of Blogs for Week of May 29th

Every Friday afternoon I share some of the more interesting or notable posts that I have seen in the personal finance blogs and other sources for the past week

DQYDJ made A Periodic Reinvestment Calculator (With Dividends!) for the S&P 500

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Rental Comp Data for May 2015

I haven't done rental comps since August 2014. 


Here is the data from rentometer.com :

	A	B	C	D	E
	3bed	3bed	1bed	1bed	3bed
	house	house	apt	apt	house
10%	$753	$731	$374	$403	$1,014
20%	$844	$812	$411	$444	$1,100
median	$995	$975	$490	$540	$1,225
80%	$1,192	$1,117	$555	$600	$1,425
90%	$1,284	$1,197	$592	$641	$1,510
# prop	34	35	34	35	35
dist	0.5	1.1	0.9	1.8	0.4

and the trends are below :

 

	A	B	C	D	E
Nov-11	$895	$875	$495	$495	$1,095
Jan-13	$900	$995	$510	$460
Aug-13	$905	$925	$500	$480	$1,095
Feb-14	$985	$900	$485	$478	$1,097
Aug-14	$950	$1,025	$485	$565	$1,195
May-15	$995	$975	$490	$540	$1,225
	4.7%	-4.9%	1.0%	-4.4%	2.5%

and a graphic of the trend :

Lastly, I figured the compound growth over the 3.5 years that I've been tracking :

A	3.1%
B	3.1%
C	-0.3%
D	2.5%
E	3.3%

If I sum the rents and look at the CAGR of the sum then that comes out to 2.7%.

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Is This a Good Deal For Whole LIfe Insurance?

I saw an add in a local news paper offering whole life insurance policies for $10,000 of benefit.   The policy is marketed to people 40-85 years old and talks about paying for your funeral.    The premium rates cited didn't seem too bad to me.  The rates for men and women are listed in the table below for the $10,000 benefit.

This is just the $10,000 benefit.   I've used the best case scenario as far as life expectancy for the age group.  So by that I mean that for the age 45-49 I used the life expectancy for the 45 year old and rounded up.   Life expectancy data is from social security site.

	M	F	M	F	M	F
45-49	$  32.50	$  27.00	34	38	$13,260	$12,312
50-54	$  36.00	$  30.00	29	33	$12,528	$11,880
55-59	$  45.00	$  37.50	25	29	$13,500	$13,050
60-64	$  55.00	$  42.00	21	24	$13,860	$12,096
65-69	$  66.00	$  51.00	18	20	$14,256	$12,240
70-74	$  89.00	$  69.00	14	16	$14,952	$13,248
75-79	$121.00	$  98.00	11	13	$15,972	$15,288
80-85	$166.00	$139.50	8	10	$15,936	$16,740

The first set of columns on the left is the monthly premium.   The middle are the expected life expectancy.   The right hand columns are the total amount you'd pay over the average life expectancy at the given premium cost.

If you simply put the cash into savings the average person would be ahead by $2000 to $6000.

For example then if you're a 58 year old woman you'd pay $37.50 a month and the average life expectancy for your age group is about 29 years and I'm summing it up as a total of $13,050 paid over that term.   $37.50 x 12 months x 29 years = $13,050.  

OK but I figure the net present value (NPV) of that at about -$4500.     That isn't good.   Also if you simply take the $37.50 a month or $450 a year and invest that money at just 4% you'd have a total around $25,200 after 29 years.

You can see the total amounts paid in are lowest when you get coverage at a younger age.

The policy does advertise "no medical exam" and "no health questions".   If your life expectancy is below average then this insurance could work out for you.   If you're in poor health or have a family history of significant illness then you could face a lower life expectancy than average.  

This isn't a bad policy as far as whole life goes.    But the average person will come out way better on average if you simply dump money into a savings account.


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