Oct 14 2015

Annuity Payout Rates for Life Annuities

Annuity Payout Rates

I read an interesting US technical article on Annuity Pricing Sensitivity and while the scope of the article is very detailed, one chart showing the payout rate versus age got my interest, as shown below.

 

Relationship Between Purchase Age and Annuity Payout Rates, 2.5% Interest Rate

As I get a lot of requests for annuity quotes, I thought Canadians might find the data interesting if the data were applied to citizens in Ontario Canada.

So using Cannex software, I ran quotes and produced a similar chart but included three lines – one for males, females and for a couple showing the payout rate for a life annuity.

Periodically, I will publish updated data for this chart to see if there are changes, namely if interest rates were to rise in Canada. Below is the table I produced and at a quick glance, it looks fairly similar.

Observations

While perhaps obvious,I will review the main observations.

  • All things being equal, an annuity payout is higher if purchased at an older age.  
  • The life expectancy of a male is shorter than a female, therefore, the payout is higher for a male than a female, all else being equal.
  • The payout for a joint life annuity is the lowest, because payments continue until the last survivor passes away.

2015-10-14 Screen Capture of Annuity Payout Rates

I used the following assumptions to generate the data.

  • Assume $100,000 annuity purchased using RRSP assets.
  • Male and female are born on October 14 to correspond to the age in the above table.
  • Annuity assumed for Ontario residents.
  • Annuity purchased on  October 14, 2015. Monthly payment for life with payments beginning one month after purchase.
  • No inflation increase in payments,
  • No guaranteed period

Please note that changing any variable will change the results, so if you are interested in knowing what the annuity payout rate would be for your situation, please click the “ask a question” button.

 

** errors and omissions excepted

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