So much to give, yet so unloved by investors: we’re talking about income annuities, aka longevity annuities.
So much to give, yet so unloved by investors: we’re talking about income annuities, aka longevity annuities. With people living longer and entertaining hopes for a prolonged, comfortable retirement, tools that guarantee a regular income should be welcomed – one would think. So why aren’t these products more popular?
Conceptually, they’re simple enough. It’s wise to consider income annuities as a form of insurance. Deposit money with the annuity provider (think: insurer) and in return, at some future date, the provider will pay you a guaranteed income. There’s plenty of choices available concerning when the payments begin, but commonly, people opt to start at age 80, with the income stream continuing as long as they live.
The downside with income annuities is their illiquidity – once you’ve deposited the funds with the provider, they’re effectively tied up.
Why don’t more people buy into guaranteed annuities? Curiously, in some cases, it’s because they’re so simple: investors think they can do better via more complex financial strategies, often overlooking the attendant risk.
Others fear they won’t live long enough to enjoy the benefits. This overlooks the insurance role of longevity annuities: after all, you could just as well live far beyond what you expect. No one buys auto insurance and then complains about never having a crash. Peace of mind is pretty valuable in itself, and you never know what might happen.
Annuities are effective because the provider has such a long time to invest the money and make it grow. Let’s say you buy a policy at age 55, which is a good time to do so. If you wait until age 80 to receive income payments, that gives the providing company 25 years to invest and compound the gains. Income annuities fit seamlessly into almost any client’s retirement plan and should be considered by all.
For more information, please read:
Income Annuities Take Risk Out of Retirement | Kiplingers