Annuities (longevity insurance) are not very popular. Insurance companies, economists and financial advisors love them but the retirees (or soon to be retired) shun them.
I’m participating in a MOOC (massive open online course) lead by Josh Rauh a professor at Stanford’s Graduate School of Business called The Financing of Retirements and Pensions and lesson #2 is all about annuities. Well, the lesson is an introduction to annuities because one thing we don’t like about them is that they’re complicated.
Maybe one of their biggest problems is the name. Nobody grew up wanting to own an annuity. Unless you’re an actuary (he was the kid who kept all the stats on the baseball team but never actually played), you don’t even want to know exactly what an annuity is – it sounds like you’ll have to do some math.
Economists wonder why we’re willing to participate in insurance pools to cover our cars, homes and even our lives (or future earnings for our families) but not a secure old age.
Maybe because living to really old age is a fairly new human experience – boomer’s parents, the WW2 folks, are the first to do it as an entire generation. Now, if you make it to 65 (my husband’s mandatory retirement age), you have at least a 50:50 shot at making it into your mid-80s.
To get a more personal estimate, based on your health habits and family history, you can now participate in online quizes like the fairly quick one (if you know your blood pressure and cholesterol numbers) at https://www.livingto100.com/ .
I don’t quite make it to 100, my number is 95 using their formula, but it does tell me I need to have a plan for income during my super old-age! Hey, I’m going to need to give my grandkids wedding presents and go to my great-grandkids’ birthday parties!
Another problem with buying annuities is that we are already overwhelmed with decisions for retirement. Covering the cost of health care looms much larger for many boomers than insuring a minimal income in super old age. Do we keep the big house or downsize, do we need long-term care insurance, did I feed the dog today? The more decisions we have to make, the more confused we become.
Another thought – the way annuities are sold is off-putting. Who wants to invite and insurance agent over to apply for an annuity? The big financial services companies that manage our 401ks and IRAs don’t offer annuities – they want us to keep our money in their system (earning them fees). Again, it’s comfortable and requires fewer decisions.
Pensions, those things that went away with the WW2 generation, were essentially large scale annuities. You were automatically enrolled and your employer contributed for you. Your only decision might of been when to take it – early at a lower rate or a few years later for a higher monthly payout.
Maybe we need to follow the Australians lead and start a Super-Annuity program in the USA. It’s probably too late for the boomers but we’d be doing our kids a huge favor.
Anyways, the consideration to annuitize some assets in exchange for income in old age is being added to my planning process. And, like life expectancy projections, the initial calculations can be done online at places like: http://www.immediateannuities.com/ .
I encourage you to start considering how you plan to live into super old age – as long as I’m healthy and active I want to enjoy this human adventure, hope you do too!
Live Long and Prosper – Leah, the Money Diva