In "Top Ten Tips for a Financially Safe Retirement," Tim Begany lists "An Immediate Fixed Annuity" as number 1.
This is interesting because it is how you convert today's 401(k)s/IRAs etc. into your father's pension plan. In other words, there is no need to sit around whining that we no longer have pension plans like in the past.
It is interesting also in that most people who use a financial planner will never have had the option presented to them - even by fee-only RIAs who puff themselves up proclaiming their fiduciary status. Why is that? It is simple - if you put the money into an immediate pay fixed annuity, the RIA won't have the funds to invest for you; and investing your money is where they make their money.
Imagine people who retired in 2007, when yields were higher, and before the sharp downturn in the market. Instead of going through that traumatic experience with their retirement on the line, they could have locked in a lifetime income stream of payments greater than that available today. Shouldn't their financial planner have suggested this for at least a portion of their retirement assets?
I've wondered about really low cost annuities as well--versions that I could index to inflation. Of course, I wouldn't buy one until I'm retired, but I have considered splitting my assets into a few of them--just in case one of my insurance companies goes bust. Does that sound paranoid? I thought about splitting my retirement assets, perhaps with 50% in stocks and bonds, and the rest divided among cheap cheap annuities (not the kind my mother-in-law owns). Talk about fees on top of fees for the things she owns. Yikes!
ReplyDeleteAnnuities always scare me away with their fees. I'm sure there are some low fee offers out there somewhere. I see how today's retirees, like my Mom and her brothers and sisters, are struggling in today's low interest rate environment. Ten years ago, no one would have predicted interest rates would be this low for this long.
ReplyDeleteGo to Vanguard or go to AARP etc. and get quotes. They are easy to get. Keep in mind that there is a bit of an interest rate call involved. I personally wouldn't go past the inflation adjustment in terms of add on. If you start tacking on survivor benefits etc. they get expensive.
ReplyDeleteIt also is worth mentioning that you want to feel like you have good genes. After all an annuity or any pension for that matter is a longevity game between you and the insurance company.