SPIA. What am I missing in this quote?

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hsv_climber
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SPIA. What am I missing in this quote?

Post by hsv_climber » Wed Feb 15, 2012 6:11 pm

http://www.annuityquickquote.com/result ... 00&invest=$

I was just playing around with some numbers with the SPIA annuity calculator (click link above, age/state/etc. are just for illustrating purposes).

So, in order to get $2,000 / month:
Single Life Only Without Refund: Level payments are received for the annuitant’s lifetime and cease upon the annuitant’s death :
- 55 year old male, cost $408,163.27
- 55 year old female, cost $419,287.21

Ok, that makes sense, since females have longer life expectancy.

Now, watch this:
Joint & Full Survivor (100%): Level payments are made for as long as either the annuitant or joint annuitant is alive: $389,105.06

In other words, it is cheaper as long as one of the spouses is alive.
It does not make any sense, unless the site lies and the real quotes will be different from the provided estimates.

alanf56
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Re: SPIA. What am I missing in this quote?

Post by alanf56 » Wed Feb 15, 2012 6:19 pm

That is a bit strange. I went in and changed the male age to 56 and then the quote for Joint and Full Survivor (100%) comes out to be $421,940.93. I wonder what's up with that?

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nisiprius
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Re: SPIA. What am I missing in this quote?

Post by nisiprius » Wed Feb 15, 2012 6:20 pm

I agree. Something's wrong. However, despite the apparent precision, that isn't a real binding quote yet, so there could be all sorts of glitches. Stale data? Accidentally quoting different insurance companies? Says it's full benefit to survivor but accidentally quote reduced benefit?

If I try the same thing at BRK EZ-Quote, http://www.brkdirect.com/spia/EZQUOTE.ASP, it is showing me:
$461,330 for male,
$486,964 for female.
$530,846 for joint and survivor
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

yobria
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Re: SPIA. What am I missing in this quote?

Post by yobria » Wed Feb 15, 2012 6:47 pm

Hey that's nothing - I put my GF on my car insurance policy with Geico a few months ago (young, new driver, driving my car). My insurance went up $20/month. Then she got her own, similar car. Geico quote: > $200/month.

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GregLee
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Re: SPIA. What am I missing in this quote?

Post by GregLee » Wed Feb 15, 2012 7:38 pm

nisiprius wrote: $530,846 for joint and survivor
At the 4% safe withdrawal rate for a 30 retirement, this would bring in $1,769/month.
Greg, retired 8/10.

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nisiprius
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Re: SPIA. What am I missing in this quote?

Post by nisiprius » Wed Feb 15, 2012 8:10 pm

GregLee wrote:
nisiprius wrote: $530,846 for joint and survivor
At the 4% safe withdrawal rate for a 30 retirement, this would bring in $1,769/month.
I'm not sure where you're going with this.

I think you missed the fact that is for a 55-year-old annuitant, not 65. So you should be looking at 40 years, not 30 (the usual SWR studies assume you retire at age 65 for 30 years). You have to declare what you think an acceptable "failure rate" is; I'll say it really shouldn't be higher than the chances of rolling snakeeyes, about 3%. If I go to the Vanguard calculator; specify 80% stocks, 20% bonds, because I know you like aggressive portfolios; and fiddle until I get the success rate up to 97%, Vanguard won't let me withdraw even 2.5% of the portfolio. Try it yourself. (And, yes, if I boost it to 100% stocks the success rate goes down).

I'll note in passing that BRK Direct SPIA quotes tend to be distinctly on the high side.

Against that, the SPIAs mentioned are level payouts, while most SWR studies, including Vanguard's calculator, assume inflation-adjusted payouts. I'm too lazy to go to the Vanguard website and get a quotation on an inflation-adjusted annuity. But the idea that systematic withdrawals from a portfolio simply beat an SPIA is just wrong. You have to balance a spectrum of plusses and minuses. A guarantee from an insurance company, backed up by a state consortium, may be far from perfect, but it's a lot more of a guarantee than someone saying they ran a Monte Carlo simulator and it seemed to work most of the time. If you try it and it comes up snakeeyes, you, GregLee, may say "well, I'm OK with that because the odds were in my favor, too bad it didn't work out," and that's fine, but that does not mean it's the appropriate choice for everyone else.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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mephistophles
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Re: SPIA. What am I missing in this quote?

Post by mephistophles » Wed Feb 15, 2012 8:34 pm

hsv climber,
That joint and survivor quote is incorrect. The cost of the joint and survivor would be more than either individual with no refund or beneficiary provision.

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GregLee
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Re: SPIA. What am I missing in this quote?

Post by GregLee » Wed Feb 15, 2012 8:41 pm

nisiprius wrote:Against that, the SPIAs mentioned are level payouts, while most SWR studies, including Vanguard's calculator, assume inflation-adjusted payouts. I'm too lazy to go to the Vanguard website and get a quotation on an inflation-adjusted annuity. But the idea that systematic withdrawals from a portfolio simply beat an SPIA is just wrong.
The logic of this is hard to follow. The SWR for a 4% do-it-yourself annuity, as you point out, assumes inflation-adjusted payouts, and an inflation-adjusted annuity would presumably cost substantially more than the price you quoted (which already seems very high, to me).
Greg, retired 8/10.

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nisiprius
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Re: SPIA. What am I missing in this quote?

Post by nisiprius » Wed Feb 15, 2012 9:39 pm

GregLee wrote:
nisiprius wrote:Against that, the SPIAs mentioned are level payouts, while most SWR studies, including Vanguard's calculator, assume inflation-adjusted payouts. I'm too lazy to go to the Vanguard website and get a quotation on an inflation-adjusted annuity. But the idea that systematic withdrawals from a portfolio simply beat an SPIA is just wrong.
The logic of this is hard to follow. The SWR for a 4% do-it-yourself annuity, as you point out, assumes inflation-adjusted payouts, and an inflation-adjusted annuity would presumably cost substantially more than the price you quoted (which already seems very high, to me).
In this comment, I'm arguing in your favor, but you're sufficiently argumentative you are assuming I'm arguing against you. I repeat, you go to the Vanguard website and get a quotation on an inflation-adjusted annuity for a 55-year old, and then see how it compares with 2.5%-initial-then-inflation-adjusted withdrawal from a portfolio.
Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness; Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

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GregLee
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Re: SPIA. What am I missing in this quote?

Post by GregLee » Wed Feb 15, 2012 11:15 pm

nisiprius wrote:In this comment, I'm arguing in your favor, but you're sufficiently argumentative you are assuming I'm arguing against you.
I was misled by your conclusion in that paragraph: "But the idea that systematic withdrawals from a portfolio simply beat an SPIA is just wrong." That seemed to be an argument against what I had said. But maybe not.
Greg, retired 8/10.

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V572625694
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Re: SPIA. What am I missing in this quote?

Post by V572625694 » Thu Feb 16, 2012 12:11 am

nisiprius wrote:You have to declare what you think an acceptable "failure rate" is; I'll say it really shouldn't be higher than the chances of rolling snakeeyes, about 3%. If I go to the Vanguard calculator
Thanks for this. Very useful!

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