$750,000 Annuity Locks In $4,200 a Month for Life, but Gives Up $610,000 Inheritance

A single premium immediate annuity can provide a fixed monthly payment for life regardless of market performance. The payout rate combines interest, mortality credits, and a return of principal, but the internal rate of return depends on how long the annuitant lives. For a 65-year-old single woman buying a $750,000 SPIA that pays $50,400 per year, the implied nominal IRR is about 2.8% if she lives to 85, about 4.0% if she lives to 90, and about 4.8% if she lives to 95. These outcomes are below a 20-year Treasury around 5% and can be far below historical returns from stocks, bonds, and a 60/40 portfolio. The policy also eliminates liquidity, lacks inflation protection, and provides zero estate value at death.

"Hand an insurance company $750,000 and receive $4,200 a month for life, regardless of what the market does. For a 65-year-old single woman staring down 25 or 30 years of retirement, that promise carries real emotional value. But explore the arithmetic underneath the policy: roughly $610,000 of inheritance value that disappears the day she signs."

"A SPIA paying $50,400 per year for life, a 6.7% payout rate. The cost: Total illiquidity, no inflation rider, and zero estate value at death. What is at stake: Whether her entire nest egg becomes an income stream she cannot reverse."

"The payout rate blends interest, mortality credits, and a return of her own principal. The internal rate of return (IRR) depends entirely on how long she lives. If she lives to age 85, the median life expectancy for a 65-year-old female, the IRR works out to roughly 2.8% nominal. Living to 90 lifts it to about 4.0%. Reaching 95 gets her to roughly 4.8%."

"Every one of those numbers loses to a 20-year Treasury at 5%, and all of them lose badly to a balanced portfolio. The S&P 500 has returned 79.83% over the last five years. Over the last decade, that stock benchmark has returned nearly 15% annualized. The Vanguard Total Bond Market ETF has added a cumulative 18% over a decade. A 60/40 mix has histori"

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