Absolutely--I say "SPIA' throughout but the analysis applies to any fixed income stream guaranteed for life, aka the traditional pension.Or it could also be titled as "Using a TIPS fund to offset a pension with no COLA"Perhaps the thread ought to have been titled, instead:
Should you hedge your TIPS ladder with an SPIA?
Arguably, the TIPS ladder is the more foundational product, and the life annuity is the more derived and secondary.
-TIPS are guaranteed by the full faith and credit of the US Treasury. Full stop. An SPIA is guaranteed by some financial intermediary whose financial statements, even though available for inspection, are probably beyond the capability of most annuitants to evaluate.
An SPIA is an insurance product, but it could also be considered an income stream - AKA a pension. When I buy an SPIA I consider it as buying a pension (I do not have a pension, so am buying it as needed).
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One tiny quibble with your use of life expectancy. You seem to be using a constant table based on a 74 year old. The reality is the longer you are alive, the longer you should expect to be alive. My life expectancy is about 87. But If I live to 88 I should probably recalculate.
On #2: that's correct. But the analysis thus far assumes everything set into place at age X, with its life expectancy.
A different analysis, with multiple annuitization points, would have to take into account the lengthening of life expectancy as greater and greater age is attained.
After 65, the effect is real but small. Per the IRS tables I'm using:
-a 65-year-old couple has joint life expectancy to 93;
-a 75-year-old couple has joint LE to 93.9;
-an 80-year-old couple to 94.7;
-an 85-year-old couple to 96.
Statistics: Posted by McQ — Sun Jun 09, 2024 9:47 pm — Replies 17 — Views 1744