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Immediate Annuity Payout Rates vs. Long-Term Bond Interest Rates

I’m still learning about immediate annuities as a potential future income stream, and came across this ImmediateAnnuities.com article about the relationship between immediate annuity payout rates and interest rates. (Note: I am not talking about indexed or variable annuities. Those I avoid completely.) The chart below shows the close relationship between the payout rate for a common type of immediate annuity (single life, 10-year guaranteed payout) and the interest rate on high-quality long-term corporate bonds.

At the same time, there is much less correlation between the payout rates and short-term interest rates. The “Fed Funds Rate” that you hear about all the time in the financial media is a short-term rate set by the Federal Reserve.

Even though annuities like to tout themselves as “guaranteed”, nominal annuities with a fixed payout are still exposed to inflation risk. For example, your contract might state a fixed payout of $1,000 a month for the rest of your life, but if inflation spikes, that $1,000 won’t go nearly as far. With 3% average inflation, your effective paycheck shrinks to only $640 of equivalent buying power after 15 years. With 4% inflation, it shrinks to $550 of buying power.

Right now, long-term interest rates are near historical low and thus so are payouts. You could argue that your downside potential is much greater than the upside as historically there are many more examples of extended periods of high inflation than extended periods of deflation. I don’t want to buy a 20-year bond paying the current market rate of 3.5%, but I really don’t want to locked in what is essentially a lifetime bond paying 4%.

Now, if you are definitely going to buy an annuity, the article does make a valid point that if you wait a year for rates to increase, that’s one less year of income you earn from a lifetime annuity. You may also opt to hedge your inflation risk elsewhere.

I’m still decades away from the age when I would like to buy an annuity, but I do think now is a very tough time for current retirees trying to create guaranteed income. The income available from “safe” investments are so low, and you do even worse after taxes. However, I simply don’t buy into the theory that inflation has gone away forever, and I personally would have a hard time buying an annuity at current rates.

Navy Federal Membership Open to Veterans and Family Members

Navy Federal Credit Union is the nation’s largest credit union and has recently surpassed $100 billion in assets as reported by DepositAccounts. I can understand their growth, as many of their financial products have very competitive rates, including certificates of deposit specials and mortgage rates. If the recent rate drops have you looking to refinance, I would definitely compare their rates against the major rate quote sites like LendingTree, especially if you are looking for a jumbo loan or other non-standard mortgage type.

You can now join Navy Federal without serving in the military. It is true that until 2017, it was hard to become a member of Navy Federal unless you were active military, Department of Defense worker, or a military retiree. Even honorably discharged veterans couldn’t join! However, the current membership rules are more open. Here is their eligibility tool.

If you have ever served in the military, you are now eligible to join. This includes:

  • Active Duty Army, Marine Corps, Navy, Air Force or Coast Guard
  • Army or Air National Guard
  • Delayed Entry Program
  • Officer Candidate / ROTC
  • Reservist
  • Veteran, Retiree or Annuitant

Beyond that, if one of your immediate family members serves or has EVER served in the military, you are also eligible for membership. Immediate family members include:

  • Parents and grandparents
  • Children and grandchildren
  • Siblings and spouses

This applies even if they are not a NavyFed member themselves. You may need some form of identifying document that shows your family member’s military relationship. Call NavyFed at 1-888-842-6328 and they should be happy to assist you.

This change greatly opens their field of membership, which I am sure has contributed to their impressive growth in assets. We have never served, but we do have both past and current family members in the military.

Chase World of Hyatt Card Review: 50,000 Bonus Points, 10% Back Promotion

(Existing or new World of Hyatt or the Hyatt Credit cardholders: Register for this promotion to get 10% back of any Hyatt points you redeem between July 1st and September 2nd, 2019. You must register before July 15th and finish your stay by … [Read the rest]

Citi Premier Card Review: 60,000 Points = $750 in Airfare Booked at ThankYou.com, $95 Annual Fee

The Citi Premier Card has changed up their sign-up bonus to 60,000 bonus points (worth $750 in airfare booked at ThankYou.com) with a $95 annual fee for the first year (not waived). Here are the highlights: 60,000 bonus ThankYou points after … [Read the rest]

Home Bias Against International Stocks: Lower Past Performance vs. Cheaper Valuations

One the big decisions in portfolio construction is how much to allocate between US stocks and non-US stocks. You won't find universal agreement on a correct answer, but this Morningstar article Investors Have Fewer Reasons Than Ever for Home Bias … [Read the rest]

Top 10 Best Small Business Credit Card Bonus Offers – June 2019

Updated June 2019. Do you have small business income or work as an independent contractor? Uber/Lyft, Amazon, eBay, Etsy, Airbnb? You are eligible to open a small business credit card, which keeps your personal and business expenses separate. … [Read the rest]

qara.info Portfolio Income and Withdrawal Rate – June 2019 (Q2)

One of the biggest problems in retirement planning is making sure a pile of money lasts through your retirement. I have read hundreds of articles about this topic, and still haven't a perfect solution to this problem. Most recently, I looked into … [Read the rest]

Free Websites Reveal Your Address History and Names of Relatives (How to Opt Out)

Updated 2019 with more websites. "People would care more about privacy if they knew how exposed they already are online," says Geoffrey A. Fowler in his WSJ article Your Data Is Way More Exposed Than You Realize. I hear this all the time: “I … [Read the rest]

qara.info Portfolio Asset Allocation Update, June 2019 (Q2)

Here's my portfolio update for the second quarter of 2019. Most of my dividends arrive on a quarterly basis, and this helps me determine where to reinvest them. These are my real-world holdings, including 401k/403b/IRAs, taxable brokerage … [Read the rest]

Rates Drop Under 4% = Refinance Check! 7 Million People Can Lower Mortgage Rate By 0.75%+

A mortgage broker once told me that he didn't care if rates were high or low. He just wanted them to change. As long as interest rates move enough in either direction, more mortgages will be created. He's probably getting a lot of calls right … [Read the rest]

Top 10 Best Credit Card Bonus Offers – June 2019

Updated June 2019. That space in your wallet or purse is more valuable than you think. Credit card companies are fighting it out, offering strong perks and $500+ value for a single card during the first year to encourage you to apply and try it … [Read the rest]

Southwest Credit Card Bonuses (Companion Pass to Hawaii!)

Southwest Airlines offers a unique feature called the Companion Pass, which lets you pick one person to fly with free when you book either paid or award flights. If you either fly 100 qualifying one-way flights or earn 110,000 qualifying points in … [Read the rest]

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