When Are Income Annuities Right for You?

[Liz]

Do you think what he is saying about SPIAs vs. managing a portfolio is on point? He also says a person shouldn't consider buying a SPIA until they are over the age of 75.


When are income annuities right for you? - Robert Powell's Retirement Portfolio - MarketWatch

 

[scagnt83]

This is what I posted on that site in response to the article and the study it speaks of:

Almost every major provider of SPIAs offers options for inflation protection and guaranteed death benefit options. The statement in the article claiming otherwise is inaccurate.
One thing the study did not take into account is the fact that we are in a historically low interest rate environment right now.
Just 3 years ago SPIA payout rates were a full 2% higher than they are currently. SPIA payout rates are currently at an all time low!!
This study took data from a broad look of the market. Then compared that to the worst historical year to date for SPIA payouts. Not an accurate comparison to base such a broad recommendation off of.
If you look at historical SPIA rates for a 65 year old female (the study was based on a 65yo female), the historical average will be around 8.5%. But the study used a historically low 6.3% to base assumptions on.
SPIA rates have steadily risen over 2013. And as the Fed raises rates, SPIA rates will only rise with them (since they are directly tied to one another).
In short, over the next few years this study will become absolutely meaningless.
However, I do agree that it often makes the most sense to wait until around age 70 for a SPIA. And of course a solid retirement plan is diversified between multiple means of income. So a SPIA can be a good "piece of the puzzle".


So like almost every other article I have read on annuities; it is based on faulty assumptions and a lack of knowledge about the product.