• Question
  • Immediate versus deferred annuity calculator anomaly

    Asked on 7/7/2012

    This is really bugging me! As an example, try plugging $200, 000 into the annuity calculator assuming you're 65, and want to draw income immediately (i.e as an immediate annuity starting in 2012) . The answer is $1067 per month (with no inflation adjust). Now say you split the $200,000 into $130,000 and $70,000. You buy a 5-year deferred lifetime annuity with the $130,000 (income to start in 2017) -- the annuity calculator says you will get $1158 per month for life after 5 years (again without inflation adjust) - and you split the remaining $70,000 into 60 equal parts to cover the first 5 years' monthly income - that gives $1166 per month, about the same as the annuity. So this strategy appears to give a significantly better result than spending all the money at once on an immediate annuity with no obvious downside. Is this real or just a calculator anomaly?

  •  
  • Categories: How to Choose, Annuities

Answers

  • Steve 

    Steve 
    NewRetirement

    San Francisco, CA

    Get a FREE phone consultation
    with an advisor. Learn more...
  • Hi,

    That's an interesting observation. Please note that our annuity calculator is just providing an estimate (not a quote) which is based on prevailing interest rates. The return on the deferred annuity from an insurance company may vary, so should get quotes multiple providers to see how their pricing compares.

    You can research annuity providers here: https://www.newretirement.com/annuity-marketplace.aspx

    You may also want to talk with a fee only advisor about your plan to get a second opinion - you can research advisors here:http://www.newretirement.com/financial-advisor-marketplace.aspx

    Hope this is helpful.

  • Login to rate this answer:   Answered on 7/10/2012
**All above answers are provided as general information only. No warranty is made regarding the fitness or accuracy of the information provided in this answer. You should seek advice from a licensed CPA, attorney or CERTIFIED FINANCIAL PLANNER™ as to your unique financial situation.