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Income from Annuity 80% Higher than Fixed Inc
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Allan
11-20-2006, 10:20 PM | Post #187877 |
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Someone shoot down my logic here. I'm 55, looking forward a few short years where I want to take a portion of my assets (approx $500,000), and buy a single premium immediate annuity. I looked at the BKR site and find that I will be able to get an annual income of approx $36,000. Their site says that the "return" is $4.75%. If instead of a SPIA, I invest in bonds or CD's paying the same exact rate (4.75%), the interest only income is approx $23,800 annually.
Additionally, according to the site, about 43% of the annuity cash flow is taxable, (57% is not taxable because it is a return of the principle), leaving me with about $32,300 after tax, whereby with the bond or CD income the net is $17,800 after tax. (We expect to be in the 25% bracket in retirement).
After tax, the income from the annuity is over 80% higher than the fixed income! And even if one can get a safe return higher than 4.75%, it would take an almost 8.5% return to equal (after tax) the annuities income stream, something not possible.
I am looking at this strictly from a cash flow viewpoint. I have considered and am aware of all of aspects and issues of single premium annuities. Again, it's strictly a cash flow issue. I also realize interest rates can go up, making a locked in return on an annuity less attractive, but they can also go down. And yes, I know that with a fixed income investment you still retain your asset, and with annuities you sort of "give it up". But from an after tax cash flow perspective, which is of paramount importance in retirement, is my logic correct?
Allan
Originally posted in thread: 54719
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