Ok this is really a general question that I am having a hard time figuring out. I am thinking about getting some type of Annuity life option for my mom. It would be a deferred annuity that would start in approx 20 years (once she reaches age 65). How much would I need to invest in a deferred annuity in order to pay her an income of approx 2k a month until death?? Any help would be appreciated. I tried searching for calculators online for this sort of thing but came up empty.
Thanks,
How much would I need to invest in an annuity to get 2k a month income…?
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Celeste
March 1, 2010 at 3:21 am
Check the NASD web site or some reputable insurance company web sites you will find calculators for your situation.
Carl B
March 1, 2010 at 4:01 am
Talk to an insurance agent–they will be able to help you out.
Many companies offer GMIB’s (Guaranteed Minimum Income Benefits). This is where you purchase a deferred annuity and they will guarantee that you can purchase an annuity at age 65 that provides a certain income level. However, note that they will charge you higher fees every year to help hedge (or cover) their risk. In addition, the levels at which the annuity is calculated off of is typically much more conservative.
You may be better off with a deferred annuity that does not have this feature, as it will cost you less up front. Keep in mind that you will bear some of the risk and will not have a guarantee this way.
If you want some (very) rough numbers on what it may cost, I’m guessing $72-86K. This is based on the deferred annuity earning 6% per year for 20 years, and then an average life expectancy of 15-20 years. An assumed rate of 5% would mean 93-113K. (The interest rate to use is going to be more like a bond return as opposed to a stock return, as the insurer must invest in more conservative assets).
You may also want to take the impact of inflation into account. 2K/month may be enough to live off of now, but down the road you may need double that.
If you want to play around on your own in Excel, use this formula “=-PV(InterestRate, AvgLifeExp, 24000)/((1+InterestRate)^20)”, where Interest Rate is the average rate earned and AvgLifeExp is the average life expectancy after turning 65. (24000 is the monthly 2K on an annual basis).
Susan C
March 1, 2010 at 4:53 am
I’m an insurance agent for a company that has been helping folks get ready for retirement for over 125 years. I can run the numbers for your mom. She is 45? A Fixed Annuity is going to be your best safe Deferred Annuity. Go directly through an Agent, not a broker or bank. You’ll get her a higher interest rate by cutting out the middle man. I’ll get you the actual numbers we could offer her. You probably won’t find this calculator online, because every insurance co is different. I’ll get back to you if you message me with the numbers. Hope that helped. Let me know what State she resides in.