Traditional vs charitable annuities
Chip
my spouse an amount per month until my (our) deaths and then they keep
whatever is left over. With a charitable annuity at comparable interest
rates, same thing and it still may be thru an INS company, but I get an
immediate tax write-off (expected amount that's left), I get a
continuing tax write-off each year, and the charity gets to keep the
amount left.
If this is true, why would I ever go with a traditional annuity? I
would be funding it with a 401(k) rollover.
Chip
Ron Peterson
> As I understand it, traditional annuities with INS companies, pay me and
> my spouse an amount per month until my (our) deaths and then they keep
> whatever is left over. �With a charitable annuity at comparable interest
> rates, same thing and it still may be thru an INS company, but I get an
> immediate tax write-off (expected amount that's left), I get a
> continuing tax write-off each year, and the charity gets to keep the
> amount left.
That's not quite how annuities work.
A charitable annuity funded from an IRA would have to pay taxes on the
withdrawal from the IRA.
> If this is true, why would I ever go with a traditional annuity? �I
> would be funding it with a 401(k) rollover.
An immediate annuity for a 70 year old would pay about 8.6%, but a
charitable annuity would be 5.7%.
Don't fund an annuity with non-taxable accounts. Use taxable accounts
and then you can depreciate the cost for tax purposes.
Lifetime annuities have a higher payout when interest rates are high,
so don't buy one.
--
Ron
bo peep
> As I understand it, traditional annuities with INS companies, pay me and
> my spouse an amount per month until my (our) deaths and then they keep
> whatever is left over.
I don't see that exact type listed out of the 11 different types of
immediate annuities described at http://www.immediateannuities.com:
Single Life Income with No Payments to Beneficiaries ("SL")
You receive this income for your lifetime, which means, you can never
outlive this income. After you die there are no payments made to
beneficiaries.
Single Life Income with Up to 5 Years Paid to Beneficiaries ("5CC")
You receive this income for your lifetime, which means, you can never
outlive this income, even after the specified period has ended. If you
should die during the first 5 years your beneficiaries will continue
to receive this income until the end of the 5th policy year.
Single Life Income with Up to 10 Years Paid to Beneficiaries ("10CC")
You receive this income for your lifetime, which means, you can never
outlive this income, even after the specified period has ended. If you
should die during the first 10 years your beneficiaries will continue
to receive this income until the end of the 10th policy year.
Single Life Income with Up to 15 Years Paid to Beneficiaries ("15CC")
You receive this income for your lifetime, which means, you can never
outlive this income, even after the specified period has ended. If you
should die during the first 15 years your beneficiaries will continue
to receive this income until the end of the 15th policy year.
Single Life Income with Up to 20 Years Paid to Beneficiaries ("20CC")
You receive this income for your lifetime, which means, you can never
outlive this income, even after the specified period has ended. If you
should die during the first 20 years your beneficiaries will continue
to receive this income until the end of the 20th policy year.
Single Life Income with Installment Refund Paid to Beneficiaries
("IR")
You receive this income for your lifetime, which means, you can never
outlive this income. If you should die before receiving an amount
equal to the premium, your beneficiaries will continue to receive this
income in installments until the total amount paid to you and your
beneficiaries equals the premium. Payments stop only upon your death
after the total premium has been paid back to you and your
beneficiaries.
Guaranteed Income for a 5-Year Period Certain Only ("5PC")
You receive this income for 5 years only, not for your lifetime. If
you should die during the 5 years your beneficiaries will continue to
receive this income until the end of the 5th year.
Guaranteed Income for a 10-Year Period Certain Only ("10PC")
You receive this income for 10 years only, not for your lifetime. If
you should die during the 10 years your beneficiaries will continue to
receive this income until the end of the 10th year.
Guaranteed Income for a 15-Year Period Certain Only ("15PC")
You receive this income for 15 years only, not for your lifetime. If
you should die during the 15 years your beneficiaries will continue to
receive this income until the end of the 15th year.
Guaranteed Income for a 20-Year Period Certain Only ("20PC")
You receive this income for 20 years only, not for your lifetime. If
you should die during the 20 years your beneficiaries will continue to
receive this income until the end of the 20th year.
Guaranteed Income for a 25-Year Period Certain Only ("25PC")
You receive this income for 25 years only, not for your lifetime. If
you should die during the 25 years your beneficiaries will continue to
receive this income until the end of the 25th year.
Ron Peterson
> Lifetime annuities have a higher payout when interest rates are high,
> so don't buy one.
Should be: Lifetime annuities have a higher payout when interest rates
are high,
so don't buy one now.
--
Ron
Don
I could be wrong, but I understand there is a time lag between the
movement of interest rates and lifetime annuity payouts. So, if
interest rates go up to 8%, say, in a few more years, it may be another
year or so after that before the annuity payouts catch up.
rick++
> An immediate annuity for a 70 year old would pay about 8.6%, but a
> charitable annuity would be 5.7%.
I was considering a piggy-back college endowment
annuity as an option when I dont have earned income.
In the case you get 5% of principal or an age-related
immediate rate. With the exception of 2007, the
endowment investors do better than most investment pools.
So the the piggy-back would catch up to the immediate
in a few years, then exceed it.
Chip
> On Jan 6, 2:32 pm, Chip <chip.a.w...@gmail.com> wrote:
>> As I understand it, traditional annuities with INS companies, pay me and
>> my spouse an amount per month until my (our) deaths and then they keep
>> whatever is left over.
>
> I don't see that exact type listed out of the 11 different types of
> immediate annuities described at http://www.immediateannuities.com:
>
Yep, but none of the 11 stated here (except maybe the Installment
Refund) say what is done or who is to get the "leftover" money, i.e. any
principal left when all payment obligations are fulfilled. I understand
that the INS company keeps it.
Chip
Douglas Johnson
>Yep, but none of the 11 stated here (except maybe the Installment
>Refund) say what is done or who is to get the "leftover" money, i.e. any
>principal left when all payment obligations are fulfilled. I understand
>that the INS company keeps it.
There isn't any leftover money. You are buying an insurance policy against
living too long. Like buying auto insurance, once you've bought it, the money
is gone.
If you live too long, the insurance company pays you more than you paid in with
interest. If you die too soon, the insurance company pays you less than you
paid in with interest.
If the insurance company has done their job, they will get some profit from the
fact that a large population will, on average, die more or less on time.
-- Doug
Ron Peterson
In that case it may pay to wait. Anybody know of a calculator that
will calculate net present value of an immediate annuity based on an
interest rate and a person's sex and age?
--
Ron
Don
> In that case it may pay to wait. Anybody know of a calculator that
> will calculate net present value of an immediate annuity based on an
> interest rate and a person's sex and age?
Yes, that calculator would be useful. Surely, someone familiar with
insurance products should be able to answer the question.
Douglas Johnson
Unless I'm missing something, it isn't rocket science. Find a set of mortality
tables such as: http://www.retirement.gov/OACT/STATS/table4c6.html
Find out how long a person of your desired age and gender is expected to live,
then do an NPV on the annuity's payments for that period using the interest rate
of your choice.
-- Doug
Don
> Unless I'm missing something, it isn't rocket science. Find a set of mortality
> tables such as: http://www.retirement.gov/OACT/STATS/table4c6.html
>
> Find out how long a person of your desired age and gender is expected to live,
> then do an NPV on the annuity's payments for that period using the
> interest rate
> of your choice.
As I understand it, the problem is not just doing a calculation based
on an interest rate, but rather knowing the interest rate the insurance
company uses to do its calculation. Suppose next year interest rates go
to 6% and then stay at 6% for several more years. The annuity you get
next year may still be based on the 4% rate of this year. It may be a
while longer before the company catches up and bases the calculation on
6%
But certainly the general principle holds: Buy annuities when interest
rates are high! But not necessarily as soon as they first reach
whatever you consider to be "high."
Douglas Johnson
>As I understand it, the problem is not just doing a calculation based
>on an interest rate, but rather knowing the interest rate the insurance
>company uses to do its calculation. Suppose next year interest rates go
>to 6% and then stay at 6% for several more years. The annuity you get
>next year may still be based on the 4% rate of this year. It may be a
>while longer before the company catches up and bases the calculation on
>6%
With a simple immediate annuity, you are buying a fixed payment stream for the
rest of your life. Interest rate changes are the insurance company's
risk/reward. There are variable annuities that vary with interest rates, but
you will need to read the particular contract to figure that one out. -- Doug
Don
> With a simple immediate annuity, you are buying a fixed payment stream for the
> rest of your life. Interest rate changes are the insurance company's
> risk/reward. There are variable annuities that vary with interest rates, but
> you will need to read the particular contract to figure that one out. -- Doug
Yes, thanks, I understand that. But, unless I am mistaken, that fixed
payment stream of an immediate annuity is relatively higher if interest
rates are high at the time the annuity is purchased. It was also my
understanding that there is a time lag between a change in interest
rates and the corresponding change in the size of the fixed payment
stream a given amount of money buys.
Ron Peterson
I just tried that using a spreadsheet. Looking at the
immediatiateannuities.com site the annuities for a 70 year old
correspond to an interest rate of between 2 and 3 percent.
--
Ron