When interest rates were 2% it was obvious that the lump was a much better deal than the annuity, but now with interest rates rising I would guess that at some point the annuity might actually become more attractive (this assuming that high interest rates are temporary, which seems a reasonable assumption given the aggressive actions by the Fed). Anyone run numbers to define at what (short term) interest rate the annuity becomes the better bet?
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Very simple. Take the lump sum, turn it over to a good financial advisor, live comfortably with a budget you design, and your children get a nice little (really, large) inheritance. Take the annuity, pray for no inflation the rest of your life, and your children get nothing.
In all the years on this board, not a single post has articulated even one scenario where the lump sum makes any financial sense for a wealthy mature retiree.
FIFY
Most posters on boards like these think the lump sum is good because they all think that they can beat the in the market. That's also a false risk/reward equivalency. As you get closer to retirement and learn a few things you realize that they are about equal and many people choose the annuity. You won't find them bragging with the children on these types of sites, rather they are just enjoying their retirement.
The annuity only makes sense if you can guarantee that you're going to live longer than about 85.
In all the years on this board, not a single post has articulated even one scenario where the annuity makes any financial sense.
The lump sum and annuity are actuarial equivalents only for the assumptions used in the calculation. Everyone with more than an ounce of financial intelligence who looks at the two options chooses the lump sum. I have worked with some of the smartest people in the company who retired over the past several years - not one has chosen the annuity. It would literally take anywhere from 15-25 years of collecting the annuity to just recover the equivalent lump sum with no interest. Thats no return on investment for 15-25 years! Who is d-mb enough to think thats a good choice!
I doubt anyone has fallen for the annuity in the past several years, but if so they would be polishing rather resume at this point as inflation has destroyed their income.
From a financial advisor standpoint, take the lump sum so I can charge you fees on it. For an actuarial standpoint, the lump sum and annuity are equivalent assuming standard life expectancy, and uses the same guaranteed fixed income assumptions that Vanguard and Fidelity use. (Don’t forget to factor risk into your calculations.) You can invest the lump sum in equities and expect a higher return, but as we’ve seen this year, equities are more risky and can go down. (Bonds are down as well this year in a rising interest rate, high inflation environment that has only happened one other time in history and 2022 isn’t over yet.)
The annuity is a disaster for many reasons, not the least being any chance of inflation above 1% at any time during your retirement.
The annuity is never a better bet if you have any clue on basic investing. Dividend yields have increased so it takes less capital to achieve the same cash flow. An annuity is fixed and gets eroded by inflation. A good solid dividend paying company will increase their dividend payout every year.