Fremdon Ferndock wrote: ↑Thu Dec 01, 2022 10:33 am
At retirement at age 65 men have an average life expectancy of 18 years and for women it is 20 years. There's less than a 10% probability that a 65-year old male will live 30 years and just over 10% that a 65-year old female will. For a couple, there's an 18% chance that one of them will live 30 years, but less than a 1% chance that both of them will.
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Fremdon Ferndock, you are the latest target of my ongoing quest to improve the mortality statistics in use at Bogleheads (3rd of nn expected attempts … it is difficult to turn the battleship).
I believe you have used Social Security or CDC data for these numbers, i.e., general population data, which perforce includes many tobacco-using, transfat-consuming, nn hours of daily tv viewing, BMI > 30, <500 steps per day individuals.
That is not the population that insurers consider when pricing life annuities. Insurers ask, “what kind of individual would possibly be willing to hand over a large sum of money for a series of payments that will end precisely at death?” Hmm, probably someone with private knowledge that makes them willing to bet on a long life. Like maybe a healthy-living, well-educated, well-informed, careful, conscientious individual … a Boglehead! We’d better bump up that general population life expectancy when pricing our annuities.
Fortunately, there is an easy source on the web for so-called “annuitant mortality” statistics. The IRS is compelled by statute to find and use this data in setting RMDs. Bogleheads can find it here:
https://www.federalregister.gov/documen ... ng-minimum
Caveat: by law the IRS must use unisex mortality. Insurers are not bound that way.
2nd caveat: Life expectancy is an arithmetic average of a geometric series. For the ages under consideration, about 55% of annuitants will still be alive at LE (i.e., median age of survival > LE).
Redoing your numbers per the IRS tables:
1. A unisex individual age 65 has a life expectancy of 22.9 years
2. A unisex 65-year-old couple has a life expectancy for the second to die of 28 years.
a. There is a 40% probability that one member of such a couple will still be alive in 30 years; 14% after 35 years; 2.35% after 40 years; 0.2% after 45 years.
Returning to this thread: from the IRS tables, it follows that a couple in their mid-60s has a substantial probability of outliving the longest TIPS ladder they can assemble (30 years).
A couple age 70 has a smaller probability of outliving that TIPS ladder—about 14%
A couple age 80 faces a negligible probability that one will still be alive after 30 years (~0.2%)
[but I pity the poor insurance company who bet against Taylor].
Returning to the mid-60s couple, who might need to consider an annuity: post-Depression (post gold-standard), the lowest 30-year inflation rate ever recorded in US history was 2.24% (November 2020). The lowest 40-year rate was 2.74% (September 2021). The first turns one dollar of annuity payments into 51 cents of spending power over the interval; the second turns one dollar into 34 cents. That’s the spending power you can lock in at later ages if a TIPS ladder isn’t good enough for you … in the best case! (the worst 30- and 40- year inflation rates in the US since the gold standard were 5.41% and 4.71% respectively; I’ll let you do the math on spending power).
For grins, and a useful perspective on life annuities not adjusted for inflation: enter
Struldbrugg into your favorite search engine.
You can take the academic out of the classroom by retirement, but you can't ever take the classroom out of his tone, style, and manner of approach.