Quote:
Originally Posted by Robyn55
You don't need a CD. Open a 1% high yield savings account - and you can draw $876/month from it. You'll be left with $0 at the end of 10 years. If you absolutely insist on the $900 - you could probably tinker with a 10 year CD ladder. CDs that yield 1.4% or more (easy at the long end - but you can find some at the shorter end of the range with some digging) will get you to the magic $900 number.
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Quote:
Originally Posted by Robyn55
No it isn't. Your rate of return is 1.42%/year. On a 10 year brokered CD - you could easily get 3% until a few months ago - and you can still get about 2.75% today.
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Robyn,
I ran a spreadsheet with the numbers provided by PhxBarb:
Premium: $100K
Monthly payment: $900
Term: 10 years or 120 months.
Start with $100K at beginning of Month 1 and end with $0 after 120th month (10 years)
I got 1.574% interest per year.
So this is not too bad of a deal in comparing with 10 year CD ladder. I did a quick search for best CD rates and found
6 months: 1.05%
1 year : 1.35%
2 year : 1.55%
3 year : 1.7%
5 year : 1.98%
10 years : 2.5%
The longer term CDs pay more but one has to lock-in the principal for the durations.
So if one is diligent in finding the best CDs yield and willing to keep track of withdrawal, maturity dates etc then investing in ladder CDs will definitely yield more than this 10year annuity. However, if one is OK with the 1.574% constant yield and don't want to do any extra work then this is not too bad of a deal.
There are definitely different mindsets and inclinations when it comes to managing money and investing. I like to play with the numbers, research, find the best deals, keeping records etc. My husband absolutely hates to deal with finance and investing. He also does not trust financial advisers either so simple things like annuity is likely to appeal to him (if he has to manage our finance).
Even for myself, I have over 150K parked in money market in the last 6 months earning very little interest. I meant to convert some cash into ladder CDs but have not gotten around to do it. In addition, we are planning to do some major home repairs/upgrades (kitchen, floor) this year in preparation to selling the house. I will have to figure out how much easy access cash to put aside for these projects.
P.S.
I ran the spreadsheet for the SPIA which I plan to take from my pension when I turn 65 for different longevity scenarios. The numbers are quite interesting
Projected pension balance or premium: $171K
Projected annuity payment: $1078/month (hope to be higher if interest rises)
1. Break even point: at 77 years and 11 months (collect 1x of premium)
2. Die at 80: effective interest rate is 1.8% (collect 1.13x of premium)
3. Die at 85: effective interest rate is 4.5% (collect 1.5x of premium)
4. Die at 90: effective interest rate is 5.82% (collect 1.9x of premium)
As I mentioned in the previous post, I am not interested in getting the most money by going with annuity. It simply will give me a peace of mind having an additional fixed income source besides SS.