However, annuities are sometimes criticized for their alleged high cost and complexity. Insurers, on the other hand, believe that annuities eliminate the risks and worries associated with managing assets in retirement. Annuity owners are unlikely to be the kind of retirees who lose their sleep when the stock market falls.
According to the Retirement Income Institute (RII), retirees with annuities spend twice as much as pensioners with equal savings but without annuities. RII researcher David Blanchette, head of retirement research at PGIM DC Solutions, said: “Annuities with lifetime income protection give retirees the psychological freedom to spend their savings. People who choose investment insurance in old age are forced to stay sharp and monitor the markets.”
His study coworker, professor and chair of economic security Michael Finke of the American College of Financial Services, noted: “Increasing the share of wealth allocated to annuity return not only reduces the risk of uncertainty but also allows retirees to spend their savings without worrying about their net worth gradually eroding.”
Americans often purchase annuities using money from a 401(k) or bank savings and begin receiving return immediately, usually monthly, but quarterly or annual payments are also possible.
Immediate annuity, along with Social Security, helps reliably cover basic expenses such as housing, health care, living expenses, taxes, and insurance. Deferred annuity, as the name suggests, postpones the receipt of income until the moment of the owner’s choosing.
Small businesses often prefer deferred annuities, as they are a simple and effective way to save for retirement.
Photo courtesy of public sources
