The Ages of the Investor: A Critical Look at Life-cycle Investing (Investing for Adults Book 1) by William J Bernstein

Author:William J Bernstein [Bernstein, William J]
Language: eng
Format: azw3
Tags: Finance
Publisher: Efficient Frontier Publications
Published: 2012-06-17T16:00:00+00:00

A TIPS ladder protects the retiree from a severe financial crisis in a way that commercial annuities cannot, and it comes fairly close to providing a lifetime income. Table 6 sets out the tradeoff between the risks of a commercial annuity and a TIPS ladder.

Each cell of Table 6 shows two figures: the percentage payout for an inflation-adjusted annuity for joint survival with a 100% spousal payout, a single male life, or a single female life; and a second number, the age at which a TIPS ladder with a 1% yield with the same payout would run out. Consider, for example, a husband and wife, both age 65, shown in the first data column of Table 6. For $1,000,000, the couple can purchase an annuity with income of $3,233 in the first month. (The 3.88% annual payout figure is the product of $3,233 times 12 months, or $38,800 per year.)

Table 6.

Commercial Annuity versus TIPS Ladder

Age Joint Annuity with 100% Survivorship versus TIPS drop-dead at a 1% Yield Single Life-Male Annuity versus TIPS drop-dead at 1% Yield Single Life-Female Annuity versus TIPS drop-dead at 1% Yield

60 3.35%

Age 95.6 4.18%

Age 87.5 3.82%

Age 90.5

65 3.88%

Age 95.0 4.94%

Age 87.7 4.46%

Age 90.5

70 4.44%

Age 95.7 6.08%

Age 88.1 5.43%

Age 90.5

75 5.62%

Age 94.7 7.57%

Age 89.2 6.76%

Age 91.1

80 7.20%

Age 95.0 9.82%

Age 90.8 8.89%

Age 92.0

Source: Online quotes from Income Solutions, Hueler Investment Services Inc. State of Residence is California, average of all quotes.

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