Thoughts on Annuities

A newstudy suggests purchasing annuities may not make economic sense for as manypeople as previously thought.  The study,conducted by Congressional Budget Office economist Felix Reichling and KentSmetters of the University of Pennsylvania’s Wharton School, estimates thatonly about 37% of households should consider converting wealth into annuities. 

Beforehanding all of your retirement savings over to an insurance company, firstfigure out how much annual income your 401(k) and IRAs are likely toproduce.  Be conservative whencalculating this number.

Next, toprotect against outliving your money, wait to claim Social Security retirementbenefits until you’re 70.  By delayingthis claim, you’ll be buying a cheap annuity from Uncle Sam for a lot less thanone from a commercial insurer.

Then,consider foregoing long term insurance for a deferred fixed annuity bought whenyou’re 60 that starts paying at 80.  Withthe market for new long-term care insurance policies shrinking, this strategy willpay off if you’re alive to see it.

Finally,consider professional help and the growing selection of alternatives that comewith it.  The Vanguard Group’s managedpayout mutual funds and Fidelity’s income replacement funds could help manageyour money for your final two or three decades.

See JanetNovack, Why Don’t Retirees Buy Annuities?They Get Something Most Economists Don’t, Forbes, Aug. 13, 2013.