annuity

5
mpact of artificially low government interest rates With very low Government interest rates - mortgage payments are reduced a lot - but annuity payments to the elderly, too - helping bad people - punishing good people

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Page 1: Annuity

Impact of artificially low government interest rates

With very low Government interest rates

- mortgage payments are reduced a lot

- but annuity payments to the elderly, too

- helping bad people- punishing good people

Page 2: Annuity

US Annuity payout for a single male at age 55, (inflation protected)

2.0%

2.5%

3.0%

3.5%

4.0%

4.5%

5.0%12

/31/

08

12/3

1/09

12/3

1/10

12/3

1/11

life

insu

ranc

e pa

yout

55

sing

le,

with

infla

tion

ridde

r

55ridder

model

insurance payout = ( 1 / life expectancy (LE) + tip10 ) / ( 1 + 15% profit )

Page 3: Annuity

rates ( % )

0

1

2

3

4

5

6

70

9/3

0/0

51

2/3

0/0

50

3/3

1/0

60

6/3

0/0

60

9/3

0/0

61

2/3

0/0

60

3/3

1/0

70

7/0

1/0

70

9/3

0/0

71

2/3

0/0

70

3/3

1/0

80

6/3

0/0

80

9/2

9/0

81

2/3

0/0

80

3/3

1/0

90

6/3

0/0

90

9/2

9/0

91

2/3

0/0

90

3/3

1/1

00

6/3

0/1

00

9/3

0/1

01

2/3

0/1

00

3/3

1/1

10

7/0

1/1

10

9/3

0/1

11

2/3

0/1

1

yea

rly

[ %

]

fed target

mort15

fed-10yr

mort30

US mortgage rates

Page 4: Annuity

Comments:

- first, understanding the respective business model- looking at from BOTH sides- in general, the formula is not that extremely precise, but gives you the fundamental relation

- in the US, the relation to gov bonds is close to 1:1

- in DE half the insurance corp holdings are to rental properties

Page 5: Annuity

DE annuity payouts vs age

3%

4%

5%

6%

7%

8%

50 55 60 65 70 75 80

age

Rate

of r

etur

n

public

garant

low

mid

high

Staat