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Jonathan Clements on Immediate Annuities
By JLP | April 7, 2006
Just about everyone besides those who make commissions on their sales, hates annuities. However, there is a type of annuity that is considered okay for use by retirees. I’m referring to a fixed immediate annuity. Jonathan Clements’ Getting Going column this week in the Wall Street Journal offers up some great advice regarding fixed annuities (free). Read the entire article.
I like the idea of hedging your bets by buying several smaller fixed immediate annuities over a span of years. Of course the risk with such a strategy is that interest rates could fall, which would mean lower future payments.
Topics: Getting Going, Retirement Planning | 5 Comments »
April 7th, 2006 at 1:10 pm
I don’t understand your first sentence. Can you explain to me where you’ve heard this or how you came to that conclusion?
April 7th, 2006 at 3:10 pm
Okay, maybe “hate” is too strong a word to use. However, for annuities other than fixed annuities, I have noticed that those who usually speak highly of them are those who sell them. That’s been my experience.
April 7th, 2006 at 10:20 pm
I would modify your post title from “fixed annuities” to “immediate annuities” which Clements seems to have quite an affinity for.
The alternative to an immediate annuity that most investors prefer is a variable annuity with a guaranteed lifetime income rider. I can write about this in more detail if you are interested.
Briefly, a variable annuity with an income rider can guarantee the owner a 5% income stream for life off the original investment with upside income and market value potential if the investment return is greater than the 5% withdrawals + costs.
I believe Clements wrote about the AXA variable annuity with this feature a while back.
April 7th, 2006 at 11:12 pm
Rarely,
You are correct (or should I say right). I changed the wording. Thanks.
April 16th, 2006 at 1:41 pm
I work for a variable annuity provider so you are correct, I do believe in them. All things being equal, mutual funds will always outperform similar annuity subaccounts due to the insurance costs. But what about the millions of Americans who, if it weren’t for VA guarantees, would never think of equity exposure? There are PLETNY of, “if it ain’t FDIC, it ain’t for me,” clients. So instead of averaging 10-12% over 20 years (mutual funds), the client will see 8-10% inside a VA….still beats 4% in a fixed annuity doesn’t it? I guess I am drinking the VA Kool Aid, but I do believe we are forgetting that not all clients believe in the market…..