So here is the the scenario from the insurance company point of view.:
How do insurance companies invest the money to give you an annuity stream, over that length of time?
Answer, the invest the remaining money after the commission, into the SP500 and in additionally buy put options to cover any downside risk to the investment. There are tables and financial formulas to determine the amount of money which can be withdrawn assuming a market return of X%, with a protective put option. .
Lets look at a hypothetical example:
$1,000,000 used to purchase an annuity:
5% commission = $50K
$950,000 to be invested
$ 900,000 to go into the market,
$ 50K to be used for protective put options, use for cash flow first year if the market doesn't go up. .
Their investment assumptions:
8% index growth average per year,
2% dividends
10% taken from principal per year equals $7,500 per month income,$90,000 per year in the first year.
Zero loss of principal after 30 years, after the good years and the bad years of the market. .
At 4% inflation after thirty years, its equivalent to $2,312 per month today, or $27,750 per year today.
Social security goes up with inflation, annuities do not. Your investments will go up with inflation,
Assuming that $27,750 won't be enough to live on today, and its your only income, then you might want to invest the money yourself
into the SP500, reinvest dividends and take withdrawals only when you need it. . . and save the commissions and hedging activities
Annuities are sold as comfort and safety, just like insurance is for homes.
Lump sum of 124*$7,500 = $930,000
Invest that and don't touch it for 5 years, and at the same assumptions, 8% growth + 2% dividends you will have $1.5 M, 50% more than the original annuity, and then start taking the $7,500 annuity amount out, and you will much more after 30 years. . with the option to take more when needed
My parent's lived within 1 social security check, and continually reinvested their distributions from their IRA distribution, and never touched their taxable investments in high quality SP500 stocks, and never took an annuity, My mom is 97 and still has enough money to live in assisted living at currently $13K per month, for another 5+ years from the investments they never used, after 3 1/2 years already paid out to assisted living
its all about wealth creation and living within means. and the older you get, the less you spend, as your activity level continues to slowly decline'
Good luck. .
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