I wanted to touch on this statement a bit more. I carry auto insurance, homeowners insurance (well, renters insurance), an umbrella policy, health insurance, and a term life policy.
Leaving health insurance out of that list for now, those are all, essentially, calamity insurance. I join a large pool and pay a small price in exchange for protecting against an outsize economic hardship. We all pay our money in, some of us will collect much more than we ever put in, many of us will collect much less.
How do you see an annuity in general, or a VA specifically (it seems you favor those, correct me if I'm wrong), fitting into that list (I don't think it's a leap since you mentioned how you pay for lots of insurance you hope to not need). Do you view it as portfolio insurance? Wealth building vehicle? Some sort of hybrid?
Who would benefit most from an annuity? I'm sure the answer isn't "everyone". Maybe high NW people that might want to annuitize part of their portfolio to ensure a base income stream. High-salary professionals that can afford to take less risky investments to get to where they need to be. Professionals that can benefit from shielding wealth from lawsuits (a doctor funding a VA for retirement to protect that money from a malpractice claim).
In some of those instances, such as the high NW crowd, what does an annuity gain them over, say, a building a TIPS / LEAP / commodity / etc portfolio on their own? There may be value in buying your way into a large risk pool... do it late enough in life and you can get a higher payout in exchange for betting that you live longer than your mortality table. But, what else?
Good question. An annuity isn't right for everyone. However, with that said, what sustains people through retirement is pension income, most call it Social Security. Consider how many wouldn't be able to retire without it. Consider in the past companies offered you a pension to retire, and how few offer that any longer. Having lump sums in the bank or brokerage acct. is lovely, but the question I always get asked in the long run is, "Do I have enough money to last me the rest of my life?". If this is true, then why wouldn't guaranteed income be a positive?
To answer one of your questions above, the VA was set up as a safety net. They paid an insurance cost for one reason over a mutual fund, and that was/is a guarantee, either of principal return or income, or death benefit. I can't imagine what type of hedging would have had to be in place right now to insure preservation of wealth? I guess you could be buying straddles, but there's a cost to that. You could buy index option puts, but there's a cost to that as well. And for shorting the market also. Any hedge strategy is nothing more than an insurance ploy, and if your option expires worthless, then you just have to go buy more puts in the future. So I guess the answer to your question is yes, in my opinion, a VA is calamity insurance that just happens to have come true.
Of course, the true calamity would be if the insurance companies decided to renege on their part of the deal, which I see as a very real possibility right now by the way.
Also, a VA isn't the only strategy I've used. I have many people in laddered muni zero coupon muni bonds maturing over a twenty or thirty year time span. There have been times the people wished they were instead in the market, this isn't one of those times, but like everything else, the insurance on those bonds is pretty much worthless and left to the quality of the municipality itself.
Or, you can just buy the defensive stocks and hope for the best. Of course, there have been very few of those that have held up currently.
Real Estate,.....bahhhhh! I live in Texas where we haven't been hit with 20% of the pain of California, but it's certainly not a hot market.
Here's my one tip for this economy that got my Grandfather through the Great Depression very well........Diamonds. Forget gold. Diamonds. JMO
