Q: My husband and I have been looking at annuities. Since I don’t have a pension, I’m wondering if an annuity would be a good idea, so I’ve some “guarantee” (I hate to use that word, now!) of income when I retire. But I was told not to “annuitize” (that is, start getting a specific monthly amount). So why should I get an annuity?
A: You’re right to question the word “guarantee,” Jean. In Retire in a Weekend, I discuss the issue that annuities aren’t the guarantee you might think. First, annuities are only as good as the insurance company behind them. Even the biggest insurance company can have financial problems. Look at Bear Stearns – the firm went from Wall Street titan to nothing in a year. Second, if you are using pre-tax money (IRA/401K stuff) to buy an annuity, there is no tax benefit to doing this. You are paying a lot of money to someone to do what you could do yourself – keep the money in the IRA or 401K and take it out when you need it. You will save between $5,000 and $15,000 a year in annuity fees! Of the 50 clients I have right now, only about seven have annuities, and those are small and only for specific situations. None of these people have put their whole portfolio into an annuity.
Tags: annuities, baby boomers, retirement planning
Entries (RSS)