In the November 2013 issue of the AARP Bulletin, Jane Bryant Quinn’s article “Is an Annuity Right for You?” focuses on a choice among fixed, variable and indexed immediate annuities. She rightly suggests that immediate annuities represent another important source of lifetime income beyond Social Security and any pension (remember those) an investor might have.
Having priced, designed and even patented some annuity designs, I applaud the article and the AARP objective of educating members about these under-represented financial products. A quote from a paper from the Pension Research Council: “An enduring empirical puzzle in the economics literature is why individuals so rarely purchase annuities to insure against length-of-life uncertainty, despite the substantial value that annuities have been shown to provide in standard life cycle models.” – is the problem that AARP is addressing.
While the issue the article addresses is important, there are other basic decisions about annuities that should be addressed as well, such as:
- Purchase the annuity now or wait?
- Purchase the annuity with a lump sum or gradually make my purchases over time?
- Select an annuity that provides beneficiary protection in case I die early?
- Add my spouse as a second annuitant so income lasts for both of our lives?
- Look for the company with the best rates and top ratings?
As someone experienced in the annuity business and as a Registered Investment Advisor, these are my key questions. Further, through a combination of laddering into annuities from low-cost tax-deferred accounts the plan for retirement income we create is able to provide for increasing annuity payments while maintaining flexibility and liquidity.
Janet Bryant Quinn’s AARP article and the question she poses is a good first step toward educating the public about annuities in an unbiased way.
We believe, however, that education supported by real analysis and not just opinion, is critical to have this attractive retirement option find its appropriate place in retirees’ portfolios.