Early Retirement & Financial Independence Community - View Single Post

chinaco · 05-19-2008, 03:21 AM

The guarantee is for income (assuming the insurer does not default). One is paying for mitigation of longevity risk and (basic market risk).

The insurer covers their longevity risk by pooling money. They cover their market risk by diversification.

The annuitant still takes on inflation risk. Even if there is an inflation component, the annuitant paid for it and it seems to just be an increasing percent.

I agree that fees are high on an annuity. But if one can catch a decent interest rate at the right age (65 or so)... it can make sense to round out a base income with one. But you still need to have some sort of plan for inflation.

I would never put the entire portfolio in an annuity.

05-19-2008, 03:21 AM	#2
chinaco Thinks s/he gets paid by the post Join Date: Feb 2007 Posts: 3,052	The guarantee is for income (assuming the insurer does not default). One is paying for mitigation of longevity risk and (basic market risk). The insurer covers their longevity risk by pooling money. They cover their market risk by diversification. The annuitant still takes on inflation risk. Even if there is an inflation component, the annuitant paid for it and it seems to just be an increasing percent. I agree that fees are high on an annuity. But if one can catch a decent interest rate at the right age (65 or so)... it can make sense to round out a base income with one. But you still need to have some sort of plan for inflation. I would never put the entire portfolio in an annuity. __________________ Planned FIRE Summer 2011 Disclaimer: I make no warranty or guarantee about the accuracy or completeness of this information. I am not a financial planner, my comments only represent my opinion.