He basically said that the annuity is not a good proxy because he would never buy one
I would be shocked if that was the crux of his argument, because him buying one is irrelevant to if it's a good comparison or not. I think you're probably vastly oversimplifying his position.
There are problems with using it, but like I said above, it may make someone feel better about DIYing.
Well, I could complicate it. It's frustrating to be quoted without context.
I don't remember that discussion, but the annuity topic generally comes up two ways.
The first is when someone expresses a desire to have a cushy military pension with all of its benefits. The financial response boils down to getting a quote from an annuity seller like the Thrift Savings Plan or an employer or Berkshire Hathaway or whoever else offers them. (Does Vanguard still do that?) It'd be for a lifetime inflation-adjusted annuity, perhaps with a survivor benefit.
As others have pointed out several times that's also the description of Social Security, which might be enough for any American concerned about the 4% SWR failure rate. SS is not considered in the original 4% SWR Trinity Study or Bengen's analysis, and even someone in their 30s could have a struggling portfolio bailed out in its final years by SS. As others have pointed out, 19 times out of 20 the retiree will live their entire remaining life with "enough", and in a few cases with "way more than enough".
[I'm in the camp of "way more than enough" because anyone with the motivation and persistence to achieve FI before a traditional age-65 retirement will probably also find ways to cut their ER expenses even more, or to earn money having fun with their ER.]The second context is when someone is generally concerned about the 4% SWR failure rate and suffering from the "Just One More Year" syndrome. Again the answer is to buy an annuity to cover the period of vulnerability. Maybe that's a SPIA for a bare-bones budget, or maybe it's a short-term annuity during the early part of financial independence (before SS) to address sequence-of-returns risk. Or maybe it's a deferred annuity as longevity insurance for someone who won't get SS. It wouldn't even have to have an inflation adjustment.
The insurance companies tend to sell the simple annuities more cheaply because they make their profit margin from the mortality credits, not so much from the individual buying the annuity. Unless, of course, you happen to become one of those mortality credits.
I'm not a big fan of indexed annuities or variable annuities because they're too expensive and too heavily weighted in the favor of the insurer (and the sales staff). I'm also not a fan of whole or universal life insurance, but that's a whole 'nother thread.
Three relevant digressions:
Last December I lost a shipmate who had become a good friend. He went into the hospital for complications with pneumonia, he was on social media that night, and suddenly the next day he was dead. He was three years younger than me and he was larger than life. He was happily retired from the military but he also left behind his fourth-grade class. I still miss him every time someone brings up Harley-Davidson motorcycles or when I see vets with goatees & ponytails or hear Metallica. I miss him a lot.
You know those thought experiments like "What if you found out that you only have a month left to live?"
Well, a couple of weeks ago one of my friends passed away in hospice. He was diagnosed a month before he died, and it was too late for anything but palliative care.
He was 76 years old and he was widowed three years ago-- yet he's survived by several siblings and his mother.
Finally, yesterday I spent seven hours in the emergency room helping an acquaintance. I broke a few speed records getting her there because we were both convinced that she was dying of a heart attack. (I even managed to dial 911 along the way and ask them to have the ER crew stand by.) After numerous scans & samples they determined that it wasn't cardiac or bleeding or ulcers, but that her body is breaking down from osteoporosis. She's already healed a cracked pelvis, and for the last five months she's been dealing with two cracked vertebrae. She was going through tremendous pain and nausea that was only eased by a Vicodin with a chaser of 8 mg of morphine. She's 51 years old but looks 10 years older due to lifestyle choices (and perhaps genetics). She's spending the weekend with more Vicodin and anti-nausea meds and muscle relaxants... and hopefully finding the time to decide what she wants to do next.
If you're concerned about the 5% failure rate of the 95% success rate, or if you're suffering from JOMY Syndrome, then maybe you have bigger issues to worry about.
Set a budget, save up 25x, declare financial independence, and live your best life.
