Retirement Weekly: The silver lining of this year’s stock and bond bear markets

by | Oct 21, 2022 | Stock Market

Sometimes less can be more. Just take what has happened to annuity rates during this year’s stock and bond bear markets. Though the dollar value of your stock and bondholdings has declined markedly, each of those dollars is now able to purchase a larger annuity payout.

In fact, depending on the specifics of your situation, these two effects will largely offset each other. The net effect is that, despite this year’s bear market, you’re just as well off as you were at the top of the market at the beginning of this year. These countervailing forces should help all of us be more sanguine about the markets’ gyrations. It’s an ill wind that blows no good. The accompanying chart illustrates how annuity payout rates are closely correlated with interest rates on investment grade corporate bonds. When those rates were at their multidecade lows a couple of years ago, a 65-year single male willing to pay a $100,000 premium could have secured an annuity payout of about $450 per month. Today, with interest rates markedly higher, that same $100,000 premium could purchase an annuity payout of about $570 per month—around 27% more.

(These figures are from for a “Life & 10 years certain” annuity. Such an annuity provides guaranteed lifetime income for the annuitant, but if the annuitant dies within the first 10 years, payments continue to the annuitant’s heirs for the remainder of those 10 years. Note also that the payout rates in the chart are based on averages from different insurance companies, so depending on which company you choose your rate might be better or worse. Furthermore, your payout rate also depends on the state in which you live. Though annuity payout rates for females are different than for males, I’d reach the same conclusion if I focused on their payout rates instead.) Kicking yourself for nothing Imagine that you’re a 65-year-old male and that at the bu …

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