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Readers of HD know I’m a big fan of a steady income stream in retirement, obsessed perhaps. You may not agree on how that can be achieved, but as interest rates have risen and likely to go higher, is now the time to consider an immediate annuity to supplement SS income or perhaps just enough to cover some key monthly bills?
With higher rates you get more for your money. MarketWatch just had an article with a chart showing how the monthly payment for a fixed annuity purchase grows with higher rates.
Not trying to debate annuities, but food for thought. To me it seems no more a risk than using savings to delay SS income in the quest for a higher benefit a few years in the future.
My wife has been considering locking in current annuity rates. She’s about to turn 60 and has been quoted 5.5% with a 3% annual increase and a 25-year guarantee period. If she shortens the guarantee to 15 years, the rate rises to 6.1%.
I’m a big believer in fixed income, and half of our current income already comes from ten-year term annuities. Even so, I’m against committing more money at our age, despite the attractive rates. I’d jump at this if we were ten years older and today’s rate environment still existed, since the payouts would be even better then. But I think we’re too young to lock it in now.
The timing of your post is excellent as we’re thinking seriously about it.
For context, we’re not as fixated on the steady stream of income in retirement. We take a total portfolio approach and are willing to sell assets as needed for cash flow.
But as you point out, interest rates are in a very different place now. I liken buying an annuity a bit to buying individual bonds, locking in a fixed return that’s somewhat safer from interest rate and market gyrations (discounting gyrations that are so bad the insurance company can’t meet its commitments).
For a number of reasons, we’re currently investigating a single premium annuity, either immediate or deferred. If we did buy one, it would be from taxable funds, so most of the payments would be either tax free or tax deferred, potentially indefinitely, unlike bond interest.
That’s what I would do, use after tax funds.
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