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A 67-year-old considering a $300,000 Single Premium Immediate Annuity (SPIA) generating $1,900 monthly faces a choice between guaranteed lifetime income and portfolio growth; a 60/40 portfolio would compound to roughly $828,000 over 15 years at 7% returns, vastly exceeding the annuity’s $342,000 payout across the same period. SPY and AGG returns over the past decade show equities have dramatically outpaced bonds, with SPY up 247% versus AGG’s 18% gain.
The high SPIA payout of 7.5%-7.8% looks attractive because bond yields are elevated and mortality credits are built in, but the fixed nominal payment erodes 37% of purchasing power in 10 years and 45% in 20 years assuming 3% inflation, making a smaller annuity covering only the gap between Social Security and essential expenses the strategy most retirees should pursue instead.
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A 67-year-old with a $1.2 million nest egg sits across from an insurance agent who pitches a clean trade: hand over $300,000 today, collect $1,900 a month for the rest of his life, no matter what the market does. The math sounds generous because rates are higher than they have been in years. The cost shows up in places the brochure does not advertise.
This scenario appears constantly on Bogleheads and the Dave Ramsey call line: a recently retired man with modest or no pension, Social Security covering some but not all fixed expenses, and a six- or seven-figure rollover IRA. He wants a paycheck. An advisor offers one. The question is whether trading a third of his portfolio for that paycheck is worth it.
It matters because the dollar amounts are large enough that a wrong choice cannot be undone. A Single Premium Immediate Annuity (SPIA) is irrevocable. Once the check clears, the principal belongs to the insurance company.
Age and household: 67-year-old male, single life quote, no period certain
Portfolio: $1.2 million total, with $300,000 earmarked for the annuity
Current SPIA payout rate: roughly 7.5% to 7.8%, translating to $22,800 a year
Core tradeoff: guaranteed lifetime income versus liquidity, inflation protection, and heirs
What is at stake: a quarter of his investable wealth, locked permanently
SPIA quotes track prevailing bond yields, and yields are elevated. The 10-year Treasury sits at about 4.3%, near the upper end of its 12-month range, and the Fed funds target range is 3.5% to 3.75% after three consecutive 25-basis-point cuts in late 2025. That mix of long yields plus a 67-year-old's mortality credit (the actuarial reality that some buyers will die early and subsidize the rest) is what gets the payout into the high 7s.
The tension point is straightforward: a $1,900 monthly check is fixed in nominal dollars while the cost of living is not. Core PCE inflation sits near the top of its 12-month range and has climbed steadily over the past year. At a 3% inflation assumption, that $1,900 buys what $1,410 buys today in year 10 and roughly $1,050 in year 20. The check stays the same. The groceries do not.
Compare the annuity to leaving the same $300,000 in a 60/40 portfolio. A historical 7% blended return compounds the balance to roughly $828,000 over 15 years with no withdrawals, and even a conservative 5% assumption reaches about $624,000. The annuity pays out $342,000 across the same 15 years. Recent returns reinforce the gap: SPY (NYSEARCA:SPY) has delivered roughly a 15% annualized total return, while AGG (NYSEARCA:AGG), the standard bond proxy, has returned about 1.7% annualized over the same span. Live to 90, however, and the annuity pays out $524,400, with the insurer carrying the risk of further years.
Skip the annuity, manage withdrawals from the full $1.2M. This preserves liquidity, inflation upside, and any inheritance. It works best for retirees with another guaranteed income floor (pension plus Social Security covering essentials) and the discipline to ride out a 30% market drawdown without panic selling. The risk is sequence-of-returns: a bad first five years can permanently dent sustainable spending.
Buy a smaller annuity to cover the gap between Social Security and fixed expenses. If essentials are $4,500 a month and Social Security delivers $2,800, a $150,000 SPIA producing roughly $950 a month closes the gap. The other $1.05 million stays invested for growth, inflation, and heirs. This version fits the broadest range of retirees and is usually the right answer.
Go all-in at $300,000. Defensible if longevity runs deep in the family, if the retiree knows he will spiral into stock-checking anxiety without a guaranteed paycheck, or if the remaining $900,000 will then be invested more aggressively because the income floor is set. The cost is real: no inflation adjustment, no liquidity, no legacy on that slice.
Price the annuity against the gap, not the portfolio. Calculate fixed monthly expenses, subtract Social Security and any pension, and only annuitize what closes the shortfall. Most 67-year-olds need far less than $300,000 in guaranteed income to sleep at night.
Get quotes from at least three highly rated insurers (A or better from AM Best) on the same day. SPIA pricing varies by 5% to 10% across carriers for identical contracts, and the difference compounds for life.
A level-payment SPIA at 67 is a bet that inflation stays tame for 25 years. Core PCE has risen every month for the past year. If that worries you, ask for a quote on a CPI-adjusted or graded annuity instead. The starting payout drops noticeably, and that lower number is the honest cost of locking in income for life.
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