Sure. As I said, it works or makes sense for some people who have not banked enough money to last them for the rest of their days. I like having access to the entire amount and investing it as I see fit, rather than having it doled out to me. At this point, three years into retirement, we haven’t had to touch any of it and don’t foresee doing so in the near term. To be receiving a chunk of unneeded money every year would be pointless and would only increase my tax burden.
I suppose the other question is - is having disposable cash a liability?
Here in Canada, most medical expenses are paid for, so it’s not an issue. But in the USA, if you end up in the hospital, from what I understand, they can take all you worldly possessions to cover whatever medicare does not, then toss you out on skid row with nothing.
Whereas, if you have a locked in annuity, they can only garnishee so much of it and must leave you a living wage (income)?
An opposite situation in Canada -when my wife’s grandmother went into a old-age home, they loved her there. basically, the government pays whatever you can’t, but everyone gets the same care no matter how much money is paid. She had annuities, so the entire amount went to the home. that was about 4 times what the government paid per person. They were really sad to see her go when she died. At least the condo and cottage she could sell and give the money to the kids before the home took it.
So when you are 90 years old and have the IQ of a rutabaga, would you prefer to give your income to the home or unload it on your kids beforehand? In that case, disposable cash is prefereable to an annuity.
Decisions, decisons…
Note there’s another option- if you want to support some large non-profit, you can buy your annuity thru them. Usually less fees, but slightly lower rates. However, the Non-profit usually tosses in a benefit, like Lifetime membership, and there can often be tax benefits- which you may need right now.
Annuities are a great idea for Lottery winners.
Yes, I think it’s a cliché now that a lot of lottery winners go MC Hammer with their winnings and a few years afterward, may not be much better off.
While annuities may be a great financial option for lottery winners, the problem is that lottery winners are lottery players which casts some doubt on their financial sense.
It’s also good for people who aren’t good at managing money. Someone who stays on top of their investments can likely get better returns. But if someone goes through money like water through a sieve, then an annuity means that the money will last years longer.
I have a friend like this. She came into a big inheritance and her family encouraged her to get an annuity. Now the money will trickle to her over 15 years. If she got it all at once, likely it would be gone within a year. Plus, it would all be sitting in her checking account getting whatever minuscule interest the bank pays out. She is much, much better off with the annuity than if she managed the lump sum herself.
I’m talking about an emergency fund, the last $100,000 I ever own to my name, that I don’t need access to for a good long time. After my retirement money runs out, after say 15 years of retirement, I will have purchased this annuity which will supply me with a fixed income as long as I live. For the first fifteen years of my retirement, I plan to live off the remainder of my 401K and Social Security, which should last me about that long but not much longer, and then I’ll live off the annuity and Social Security, neither of which should ever run out. Odds are, I’ll never live long enough to use that last $100,000 but you never know.
You know you can set up an annuity to have the payments start in the future at a certain age, and in fact the benefits are thus higher
That’s what I was trying to say. Take your retirement and subtract a chunk (I’m using $100,000 of it) that is your last chunk. You could save it, and try to manage it down the your final cent, and hope that you’ll have enough to last you the rest of your lifetime, or you could invest in an annuity that you’re not going to touch for a decade or two. If you live forever, that annuiity will keep paying. And if you don’t , then you don’t need it anyway.
Someone suggested this in another thread about investing and retirement savings and it sounds like a good idea. Take part of your retirement fund and buy a deferred annuity that will start to pay enough money to live on, but won’t start to pay out until some time after retirement (say in ten years time). In the meantime, you have your remaining retirement savings to live on and know exactly how long you need the retirement savings to last.