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Are annuities ever worth buying—and, if so, which type?

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Mike Zaccardi
Mike Zaccardi
4 months ago

SPIAs are a good choice. QLACs mentioned in the thread are also effective. I think the most important thing is to work with a fiduciary financial planner to ensure you are buying the right product at the right price for your situation.

Annuities are perhaps among the riskiest products, but not for the risks we often talk about. Annuities’ risk lies in buying the wrong type — and that’s easy to do given the complexity of the products.

Ensuring an individual does not outlive their money is very important. That’s where a good annuity can show its mettle. In addition to delaying taking Social Security to age 70, the right annuity can bolster financial security later in life.

Bob Wilmes
Bob Wilmes
5 months ago

Some experts such as Dr Wade Pfau, recently wrote a book about Safety First Retirement Planning. He suggests that in the era of low interest rates, single premium immediate annuities (SIPA) could supply the income normally generated by a bond component of a retirement portfolio. This will allow you to take the risk of overall total market index funds to hedge the inflation component of your retirement portfolio.

He provides some very keen observations on sequence risks and how using a bucket strategy for retirement income disbursements can be tripped up in executing the bucket strategy.

I highly recommend his book for safety conscious retirees who are considering annuities.

https://www.amazon.com/Safety-First-Retirement-Planning-Integrated-Worry-Free/dp/1945640065

Jackie
Jackie
1 month ago
Reply to  Bob Wilmes

Thanks for posting the link to this book!

Regarding retirement savings – after saving and investing diligently for so many years, and now being on the cusp of early retirement, I am very nervous about snatching defeat from the jaws of victory by leaving too much in stocks. Maybe a SIPA is right for us. Hopefully I can learn enough from the book that I can get over my aversion to handing a huge chunk of our savings to an insurance company.

BenefitJack
BenefitJack
5 months ago

If you need additional, guaranteed, inflation-protected monthly income in retirement, I always recommend you consider/evaluate deferring social security benefit commencement – either to full retirement age or to age 70 (be careful, remember to consider spouse’s benefits, GPO, WEP, age/health and life expectancy differences, etc.) You can fill income gap with ad hoc distributions from retirement savings, income from part time employment, income from a second career, a spouse’s income, pension benefits, savings, etc.

Consider:

  • The longer you expect to live, the better to defer commencement,
  • For a married couple:
  1. Deferring commencement by the spouse with the larger benefit will increase the amount the couple will receive per month as long as either lives,
  2. Deferring commencement by the spouse with the smaller benefit aving the spouse with the lower benefit defer commencement will increase the amount the couple will receive per month while both spouses live,
  • The lower the after-inflation rate of return you earn on risk free investments, the better it becomes to delay commencement – the higher the after-inflation rate of return you earn, the better it becomes to take benefits early.

And, of course, today, most of us have near-zero risk free after-inflation rates of return.

For most middle-class Americans, it is a valuable alternative – fairly priced, incorporating a surviving spouse benefit, inflation indexed benefits and guarantees that all but avoid default and insolvency risks.

Rick Connor
Rick Connor
5 months ago

One of my near term goals is to get a better “real world” understanding of annuities. I think I understand them conceptually, but I don’t have real world experience of what is available, what they cost, who to buy one form, and what funds (taxable or pre-tax) to use. I’m thinking of an immediate, short term annuity as a bridge between retirement and Social Security at 70.

James McGlynn CFA RICP®
James McGlynn CFA RICP®
6 months ago

I like longevity annuities- QLAC’s (Qualified Longevity Annuity Contracts). I use IRA money and can postpone RMD’s as I wait to collect income. I also earn higher returns than a bond since I earn “mortality credits”-additional income earned as a survivor from other deceased annuitants who earn nothing. They also give me an incentive to live longer and collect more income. They can be easily compared and are not convoluted like variabl annuities.

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