Should I Fund my Retirement Needs by Purchasing an Annuity?

Jason and his wife face a crucial decision: whether to purchase an annuity or pursue traditional investments as they prepare for a full-time, slow-travel retirement.

With a diverse array of income sources, including pensions, 401k, property sales, and Social Security, they estimate their monthly expenses at $7,500. James analyzes their situation, emphasizing the balance between annuity stability and investment flexibility.

He highlights the security of annuities and explains their limitations, guiding the couple towards a tailored approach that aligns with their goals and circumstances.

Questions Answered:
What are the pros and cons of annuities?

How can I effectively balance the stability of annuities with the flexibility of traditional investments?
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⏱Timestamps:⏱
0:00 - Jason’s question
3:07 - Pros and cons of annuities
6:32 - Assessing Jason’s situation
9:52 - The role of Jason’s portfolio
11:40 - Annuity alternatives
13:23 - Support your retirement vision
16:54 - Integrate financial plan and portfolio

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Worried about retirement?

[mjmf]

Having annuities as an option depends largely also on the personalities of the retirees. For those who value security over market volatility where earnings can dip, annuities serve to offer the bedrock for daily essentials over which other investment incomes are built on top.

[beerbrewer]

I always *assumed* that someone telling me that an annuity is great is also someone selling me an annuity.

[maxchen]

I like the way you approach the question and get a right answer.

[saminaqamar]

Very informative video. I have been looking in to pros and cons for annuities. Nicely presented, great job.

[Itsaraveeef]

Financial planning is like navigation. If you know where you are and where you want to go, navigation isn't such a great problem. It's when you don't know the two points that it's difficult...

[johngill]

Great job and unbiased look at the situation of the question.

[juliekrause]

I appreciate how you approached this decision. While I like the idea of guaranteed income, I had not fully thought through the limitations that puts on flexibility of total income/taxes in any given year. Thanks for the easy to understand and unbiased perspective.

[alisab]

I've been binge watching retirement planning videos and your channel is one of my favorites. Your explanations are very clear and to-the-point. I'm learning so much. Thank you! I had a consultation today with an advisor who suggested an annuity for me which I'm seriously contemplating. It seems to work very well for my particular situation, but I'll continue to do my research.

[conureron]

I went the path of having the “hybrid”: half my IRA into a fixed annuity and half to stay in the market to cover inflation. I did it for peace of mind and to alleviate the stress of money management.

[Elephantine]

These presentations are excellent--so authoritative and well presented. I have learned more at this channel than anywhere else.

[buyerclub]

As usual, a very clear video, on a topic many are interested in. The biggest problem I see with them, is that they are frequently pushed on people who are NOT good candidates for them. I know of one situation, where the people are even in MUCH better shape this this couple, and still they were seriously thinking of buying one. (Of course give a fat comission to the sales guy).

[Niteuser]

As a saving overachiever, it can be really hard to transition from the accumulation phase to the enjoy it phase of life. An Annuity can be a great crutch to convert savings into freedom. It may not be the best financial decision, but converting a portion of your ample savings into a forced income stream can be a great quality of life decision.

[bgmslaarmo]

Immediate annuity contracts commonly contain a provision for beneficiaries. Any balance of the initial premium remaining upon death can certainly be left to heirs. This does reduce the monthly benefit amount compared to a contract with no such provision.

[CTHou]

Great information! Thank you. I’ve been struggling with whether or not to buy an annuity. I did not consider there was no cost-of-living adjustment with the fixed annuity. Very informative.

[greghouston]

I like the episode but wish you put a list of assets on the screen and tally them up. Then include the results - compare the Annuity with the Portfolio income.

[GmanDenver-gyjk]

I'm looking into annuities as part of my retirement planning. At 5:50 min you mention annuities leave nothing to your heirs. My research has shown otherwise. I'm looking at a fixed income annuity with a lifetime income rider. One of its features is a cash value associated with the annuity contract that leaves the annuities cash value to one's heirs. What am I missing? Thanks!

[rick_vv]

I am retired and have thought about a SPIA but have made no decision. One new consideration is that Section 2.04 of Secure Act 2.0 now allows annuity payments from within an IRA to potentially be used to offset RMDs for the remaining portions of your IRA. Since annuity payments typically pay much higher than the RMD for the cost of the annuity, this can lower RMDs for the remaining IRA balance.

[pensacola]

Much has to do with your age.
I started a SPIA for my wife and I when I turned 72 as part of my RMD. We love the guaranteed income.
But don't start it too young.
As far as inflation, you can buy a new annuity every few years with a lesser amount each time.

BTW, there are certain provisions to leave money to heirs, depending on what you purchase.

[donaldlee]

At 1:54 - I'm curious if any real world retirees are actually able to use a 4% rule. The reason is because most retirees have staggered and uneven income sources, like delaying SS until 70 y/o or one spouse is older so the younger spouse continues working for a couple years. After both spouses collect SS then 4% may be too much income, but before either spouse collects SS then 4% will not cover basic living expenses. Even if both spouses were set on using a 4% rule so planned to synchronize their future retirement work date and begin SS on the same month so their retirement income becomes fixed and even, most (or all?) retired couples have uneven (but still planned) expenses, like a car every 7 years, roof every 20 years, child's wedding every ? years. It doesn't seem reasonable to fund a savings account for these once-a-decade planned expenses. Should most retirees plan to pull an unsustainably high percent from their investments for the first few years of retirement and then drop down drastically once both spouses collect SS?

[pensacola]

Income annuities have become extremely popular with retirees in the last few years. People like guaranteed income.
There are a number of circumstances that need to be studied to make the right decision.
Don't jump right into it, but don't rule it out either.
We love ours.