From 5% to 7%: Annuity Income Has Changed A Lot
This podcast has been going for more than four years and I look back at past episodes for a few reasons. It is nice to see how much information is out there but more importantly some of the content needs to be updated. I ran across Episode 10: Nationwide Offers a Compelling Income Opportunity. We had lots of content ideas back then so it’s very telling that I would highlight an income product when that is something I hadn’t recommended in a long time. We hadn’t seen an income payout that high for a long time so it was kind of a big deal.
It sure looks pretty weak these days so it reinforces a big point for those who are trying to decide if guaranteed income is worthwhile. A lot of the business I’ve done in the past few years came from people who had been looking at annuities for a while. When rates came up they knew just how good a deal the updated products were. Those who are looking for the first time won’t recognize it the same way. That’s not to say the Nationwide deal was really good, it was just better than anything that had hit the market in eight or nine years.
Low rates had plagued this business for a long time. The website went live in 2009 when rates were still solid after the financial crisis in 2008, but it didn’t take long for the good deals to disappear. Many may remember that the NASDAQ didn’t recover its previous value until 2016. Real Estate collapsed and took years to recover also. Rates were persistently low as well and it really sharpened me as an advisor. During the first ten years of my career I dealt with the fallout from two major crises in the financial markets. It’s something that a majority of people in the business can’t say. This pressure on me to make a successful career gave birth to alternate strategies and the ability to adjust recommendations.
Now you have access to all those ideas and I still try not to push anyone in one direction or another. I just want to make sure you understand there are several ways of doing things, with or without annuities. That’s not really the topic of this as I’d like to point out the difference between income payouts and tackle the rest of it at another time. What is the effect of higher rates? Let’s look at what it was four years ago and compare it to the same thing today.
In that podcast it was a big deal that a 65 year old couple could get an immediate payout of 5% on a GLWB. At the time it beat everything else, including single premium immediate annuities (SPIAs). Income would, of course, increase for every year of deferral but that’s not the point. It was more meant to tell people that if they were going to buy guaranteed income then that was an option that shouldn’t be overlooked. I still wasn’t sold but again, that’s not the point.
In the podcast we gave an example of a 65 year old couple. After the bonus was added, they could enjoy lifetime income on a joint basis of $5400 per year. When I was looking for episodes to update it seemed like a good idea to reevaluate that one. I ran the same product on my calculator for the payouts now and the same aged couple can now get $7140 annually. That’s a 27.5% increase in the immediate payout and it’s still competitive with SPIAs as well. Don’t forget to look at all of them now so you can verify the best deal as it can all change depending on your situation. That’s why I have the calculators available free for anyone who wants to see.
One way I’ve always looked at these products is to see how long it takes to get your original principle back. The payment stream from 2021 would take a couple 18.5 years to get the initial $100K back but today it only takes 14 years. I used to recommend a different path in nearly every scenario but today it’s a toss up. More people are finding extreme value in annuity income and it’s a lot harder to disprove that it only enhances a retirement portfolio.
If this still doesn’t seem good to you then look at it from a different perspective. Specific ages for single and joint life can change things considerably and deferral years also increase the payments much more than used to be the case. Back in the days of low rates, it would take ten years of deferral for someone to get an income payout that was 10% of the initial investment. That means it would take another ten years to get all the money out. You would either take immediate payments for 20 years or defer for ten and pay ten before it all came out. It was the same. Now we have much more efficient payment streams with most people getting a 10% payout in six years or less. One person who is currently looking at a GLWB can get that kind of payout in less than four years.
For reasons like this, the investment industry has been converting at a rapid pace. The big guys like Fidelity and Schwab moved first but there are still a lot of individual holdouts. How good can a guy be if he completely ignores an entire asset class meant to serve retirees? Whether it’s just a place to park money or a more sophisticated income planning scenario, I can make the case for nearly everyone to buy an annuity of one type or another. The fact that a 5% payout was good enough at the time to become one of the first pieces of podcast content makes me laugh a bit. It’s only been four years but we’ve all come a long way. If you’re only seeing this perspective for the first time then you’d better give it some serious thought.
Have a great weekend!
Bryan
Watch Podcast Episode 184: From 5% to 7%: Annuity Income Has Changed A Lot
Download Episode 184: From 5% to 7%: Annuity Income Has Changed on Apple Podcast
Last Updated on July 5, 2025 by Bryan Anderson
