A 65-year-old with $500,000 in an IRA is offered a single-premium immediate annuity that pays about $2,950 per month for life with no market risk. The nominal break-even occurs around age 79, when cumulative payments recover the original premium. The implied yield is about 7.1%, which appears high compared with Treasury yields, but it reflects both interest and the return of the retiree’s own principal. If the annuitant dies early, payments stop and heirs receive nothing. The largest long-term cost is inflation because the payment remains fixed, reducing purchasing power for groceries and Medicare supplemental coverage over decades.
"Immediate annuity quotes for a 65-year-old single male are currently running around $590 per month per $100,000 of premium, so a $500,000 purchase generates roughly $2,950 monthly. What the math says It takes roughly 14.1 years, until about age 79, just to recover the principal in nominal dollars. If the annuitant dies at 70, the income stops and heirs receive nothing."
"The annuity's implied yield is roughly 7.1% on the premium. That looks generous next to the 10-year Treasury yield near 4.7% or the 30-year Treasury around 5.1%. It looks even better against a Fed Funds upper bound near 3.8% or a 52-week T-bill near 3.8%. But this is one of the most consequential, and most irreversible, financial decisions a retiree can make."
"But that 7.1% blends interest income with a steady return of the retiree's own principal. The insurance company keeps anything left if the retiree dies early, which is how it can pay more than a Treasury bond. The bigger problem is inflation. The payment never rises."
"Core PCE inflation has continued to grind higher over the past year, sitting near the top of its 12-month range. A fixed $2,950 check in 2026 will buy materially less groceries and Medicare supplemental coverage by 2046. Over a 20-year retirement, that erosion is the silent cost no glossy insurance b"
Read at 24/7 Wall St.
Unable to calculate read time
Collection
[
|
...
]