The New AST Annuity Calculator Exposes Bad Retirement Advice

I’ve been doing this for long enough that the basic numbers just come to me naturally.  Tell me how much you need to spend in retirement and I’ll tell you how much money you need.  Tell me how much money you have and I’ll tell you how much money you can spend.  Both of those require me to assume at least one variable and that is rate of return.  Add the rate of return and I can figure out how long the money will last, if you can leave money to your heirs, or if you can adequately plan for inflation.  Of course I use a calculator and other tools to get exact numbers but on a first call we don’t have the time to get into serious details.  We first need to know if there’s a good reason to have another call.

That was the case with a woman I met a couple of weeks ago.  She had talked to a CFP that gave her some numbers.  Her and her husband wanted to spend $65K per year and they were very risk averse so all the money was in bank accounts and CDs.  The CFP told them that if they stayed with their current strategy and spent the expected amount of money they would have $850K left in savings at age 90.  She is 62 years old right now and that made her a little uneasy.  With current CD rates I figured they had somewhere in the neighborhood of $1.5M, depending on whether inflation was factored into the spending rate.

One common tactic in financial services is to create fear.  It’s no different than what happens in politics.  If you are worried about what is currently happening you are more likely to accept the solution.  If I were to tell these guys that there’s a problem with their plan then they might be open to hearing an alternative.  In this case the CFP was trying to convince them that they need more yield.  That’s a pitch to get the money in a managed account where they will pay a fee.  That advisor is guilty of self-dealing.

When she told me they have $2.4M I knew something was not right.  I mean a simple 4% interest would create $96K per year so the assumed rate of return had to be much lower.  That’s when I had to break out the AST Flex Strategy calculator and reverse engineer the rate of return to find out what expectations the CFP was using.  In order to spend $65K for 28 years and have $850K remaining, they would need a whopping .42% rate of return.  That’s little better than mattress money.  But what about inflation?  If a 3% cost of living adjustment was added to the spending each year then the required yield goes up substantially to 2.07%.  I’m not sure where these numbers originated but he is clearly trying to convince them that they need a higher yield.

For these guys the sky is not falling and I can use my new calculator to show something completely different.  Whether it’s an annuity or not, we can see what asset distribution and compound interest will do over time.  Fixed interest rates are easy because it has nothing to do with variable markets.  Sure, interest rates will change over time but will get immediate satisfaction for a short period of time.  I’m pretty sure this lady called me mostly because CD rates are falling, and it’s a burdensome process to get that kind of money spread out under the umbrella of everyone’s favorite social program, the FDIC.  If there’s an easier path to take that makes more money then it’s worth a look.  

First, let’s look at the current plan, where CDs are paying about 4% per year.  For the past few years people have been getting used to relatively high short-term interest rates.  You don’t get any compounding with a 12 month interest rate so you have to keep paying taxes and rolling it over into new deals.  If rates rise then it’s a smart move but if rates drop then you never make any free money.  Assuming they will always get at least 4% we will see that their spending rate leaves them with nearly $3.4 million dollars.  It’s much more than the other advisor predicted because it uses their current rates instead of an assumption of rates significantly decreasing.  Even if we add a 3% inflation adjustment they still have over $2.7 million dollars left if we use the simple 4% annual return.  It’s the miracle of compound interest.

Well, what happens when we increase the yield to 5% by using a MYGA.  The benefit is that you’ll see a higher interest rate and also be able to guarantee the yield for a longer period of time.  It’s going to produce better numbers and be more realistic because it doesn’t rely on resetting CDs every 6-12 months.  Using 5% yield shows the same scenario producing a remainder value of nearly $4.3 million dollars.  In both scenarios in the calculator it even beats the stock market.  If you factor in the inflation adjusted spending it produces a portfolio value of nearly $3.5 million dollars and it still beats the stock market.  

The purpose of showing this is not to convince everyone to put an entire portfolio into annuities.  At the very least it proves that an annuity isn’t going to kill you and it has been proven time and again that security with consistent retirement distributions will only enhance long-term growth.  You guys have all been saving money for years but the game changes when you start spending money.  The previous advisor had an idea that these guys should put 30% of their money into a managed account in the stock market.  We can use the slider bar at the top of the output page to show what that would do and it doesn’t improve the results.  If anyone tries to scare you into making a financial move then please move quickly in the opposite direction.

Numbers are more simple than most people realize.  As the concerns for retirement build, it’s common to stress about all the variables that need to be factored.  This is an easy lesson on taking down the big numbers first so that you realize you have full control of your situation.  Once you realize you won’t run out of money then nobody can convince you to do something that you’d rather not do in the beginning.  The couple I talked about can forget about running out of money.  Yes it would help to improve yield but they don’t need to rush into anything.  If you want to similarly get your bearings then go ahead and get on my calendar.  We can run some simple numbers to make it all easier for you as well.

Have a great weekend!

Bryan

Watch Episode 219: Annuity Calculator Exposes Bad Retirement Advice

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Last Updated on March 20, 2026 by Bryan Anderson