$750,000 Annuity Locks In $4,200 a Month for Life, but Gives Up $610,000 Inheritance

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Carl Sullivan

Thu, May 28, 2026 astatine 12:12 PM CDT 5 min read

Quick Read

Vanguard Total Bond Market ETF (BND) has returned 18% cumulatively implicit a decade, outpacing azygous premium contiguous annuities (SPIAs) which present IRRs of 2.8% to 4.8% depending connected longevity.
Annuity agents framework guaranteed income arsenic information portion obscuring the arithmetic: annuitizing an full nest ovum trades reversible superior for a outgo watercourse that cannot accommodate to inflation, unexpected expenses, oregon marketplace performance.
A $750,000 SPIA converts liquid, inheritable superior into a level $4,200 monthly outgo that loses astir 30% of purchasing powerfulness successful 15 years astatine 2.5% inflation.
A caller survey identified 1 azygous wont that doubled Americans’ status savings and moved status from dream, to reality. Read much here.

The transportation sounds clean. Hand an security institution $750,000 and person $4,200 a period for life, careless of what the marketplace does. For a 65-year-old azygous pistillate staring down 25 oregon 30 years of retirement, that committedness carries existent affectional value. But research the arithmetic underneath the policy: astir $610,000 of inheritance worth that disappears the time she signs.

This script shows up perpetually connected Bogleheads threads. A widowed oregon azygous retiree, precocious rolled implicit from a 401(k), sits crossed from an cause who frames the azygous premium contiguous annuity (SPIA) arsenic the liable choice. The transportation has aboveground appeal, but the framing is incomplete.

Read: Data Shows One Habit Doubles American’s Savings And Boosts Retirement

Most Americans drastically underestimate however overmuch they request to discontinue and overestimate however prepared they are. But information shows that people with 1 habit person much than treble the savings of those who don’t.

A Case Study

Retiree profile: Single woman, property 65, with nary dependents she is legally obligated to enactment but wants to permission wealth to nieces and a charity
Investable assets: $750,000 rollover IRA, positive Social Security
The offer: A SPIA paying $50,400 per twelvemonth for life, a 6.7% payout rate
The cost: Total illiquidity, nary ostentation rider, and zero property worth astatine death
What is astatine stake: Whether her full nest ovum becomes an income watercourse she cannot reverse

Annuity agents pb with the payout complaint due to the fact that 6.7% sounds generous adjacent to a 30-year Treasury yielding astir 5%. The payout complaint blends interest, mortality credits, and a instrumentality of her ain principal.

The interior complaint of instrumentality (IRR) depends wholly connected however agelong she lives. If she lives to property 85, the median beingness expectancy for a 65-year-old female, the IRR works retired to astir 2.8% nominal. Living to 90 lifts it to astir 4.0%. Reaching 95 gets her to astir 4.8%.

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