Are Annuities the New Pension?
I have thought and written extensively about the benefits, costs, and risks of immediate and variable annuities for retirement. Now even the White House is suggesting that more boomers consider using annuities to provide lifetime retirement income.
Obviously, this statement is made in recognition of the decline of the corporate pension. (Not government pensions – those are golden and sacred!) The government also knows that pressure is building to rein in Social Security. Persuading a worried middle class to use annuities to provide retirement income is one way to take the load and expectations off of the Social Security system.
There are several significant obstacles to convincing baby boomers and the middle class in general to transition to using annuities as a pension substitute. We have discussed most of them before: cost, inflation, and insolvency risk. There is also the risk of losing the full benefit of your annuity investment from a premature death. But that risk is present in all forms of insurance I don’t put a lot of weight on that. A related issue is that many so-called “financial advisors” don’t recommend annuities to their “clients” because they don’t sell them. They prefer to make money by managing your investment portfolio. That portfolio – and their income – shrinks if you use a large chunk of it to purchase an immediate annuity.
The annuity industry is trying to capture and exploit the concept that annuities are an acceptable substitute for a corporate pension. One of the newest annuity information and purchase portals even uses the pension name: BuyaPension.com. This new site is worth a look if only because: (a) it has a pleasantly interactive user interface; (b) it has lots of links to annuity information resources; (c) it is very easy to quickly obtain an estimate of how much retirement income you can buy for different investment amounts. Of course, if you want a personalized quote, you can request one of those, which is the whole point of having you visit the site.
As I have written many times, we don’t have a pension to fall back on but have our own failsafe plan for providing guaranteed retirement income. But an immediate lifetime annuity is still on my list of options to consider when the time is right.
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