Quick Read – Vanguard Total Bond Market ETF (BND) has returned 18% cumulatively over a decade, outpacing single premium immediate annuities (SPIAs) which deliver IRRs of 2.8% to 4.8% depending on longevity. – Annuity agents frame guaranteed income as safety while obscuring the…
ithmetic: annuitizing an entire nest egg trades reversible capital for a payment stream that cannot adapt to inflation, unexpected expenses, or market performance. – A $750,000 SPIA converts liquid, inheritable capital into a flat $4,200 monthly payment that loses roughly 30% of purchasing power in 15 years at 2.5% inflation. – The pitch sounds clean. 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. This scenario shows up constantly on Bogleheads threads.
A widowed or single retiree, recently rolled over from a 401(k), sits across from an agent who frames the single premium immediate annuity (SPIA) as the responsible choice. The pitch has surface appeal, but the framing is incomplete. A Case Study – Retiree profile: Single woman, age 65, with no dependents she is legally obligated to support but wants to leave money to nieces and a charity – Investable assets: $750,000 rollover IRA, plus Social Security – The offer: 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 Annuity agents lead with the payout rate because 6.7% sounds generous next to a 30-year Treasury yielding about 5%.