NYT article: Deferred-Income Annuities--What are your thoughts?

[NinetyFour]

I read this article, but I'm not informed enough about these sorts of things to know whether these are good deals.  I'm interested to hear thoughts from mustachian experts.

http://www.nytimes.com/2014/06/07/your-money/Annuities-provide-retirement-income-guaranteed.html

Thanks!

[quilter]

Many great discussions here on these investments which come in many flavors

http://www.mrmoneymustache.com/2012/04/14/guest-posting-annuities-a-solution-for-the-cautious-retiree/

Read the comments too. Many great links to follow in the comments.


http://forum.mrmoneymustache.com/investor-alley/equity-indexed-annuity/msg304812/?topicseen#msg304812

I don't know if the specific product you are quoting is a "good deal" but a basic rule of thumb I keep in mind is that a company stays in business by selling products. You can bet they are making a profit above what they are paying out to folks or they would go out of business.  You should first read all you can on these types of policies, and especially the fine print on the specific product you are interested in.   What fees are involved. What happens if you die?  If you change your mind can you get your money out?

[Cyrano]

If the payout begins at an age when you will most likely be alive, you are better off saving for your own old age without contributing to insurance company profit margins.

If the payout begins at an age when half of your birth cohort has already died, and the point is to insure against unusual longevity, do the math, but there are reasonable products in this space. The insurance company has one in house advantage that you can't easily DIY: a large actuarial pool of people you might outlive.

[AmericanEagle]

My thought about annunities is that they are great - for the company and the person selling them.  Not for you.
Perhaps they have their place for the individual with no financial acumen who wants the structure of a guaranteed income for life.  There are actually a lot of people in this category, and if the annuity forces them into the discipline they need not to wind up destitute in retirement, great.

But for me, a good portfolio of income stocks and bonds, or an ETF of the same, preferably in an tax-advantaged account, would provide all the benefits of an annuity plus a whole lot more - like the possibility for capital appreciation and increasing income as dividends increase.

[SnackDog]

The 4% rule means we all have to individually save enough to be 90% confident of having enough even in case we live too long and even in case we retire during the worst market conditions. If everyone retiring has to plan for that level of confidence, then 90% of us will die with way too much money. We will have way,way underspent. By pooling all our savings we no longer have to individually bear this burden. If some guy in the pool gets hit by a bus the day he retires, we get his money.  Everyone saves a lot less, spends a lot more, and the insurance company manages it all for a cut. Social Secutiry works this way, sort of. So do most forms of insurance.  By sharing the risk, we all benefit.

Just make sure the insurer doesn't take too much and that they stay in business at least until you die.