[Midpack]

Quote:

Originally Posted by chinaco 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.

I am assuming a (relatively) low cost annuity and I am also assuming an inflation adjusted annuity unless I am certain I'm in the final years of my life. And the bequest amount (Fig 5), which doesn't have to be used as a bequest (wouldn't be in my case), avoids putting the 'entire portfolio in an annuity.' But given these assumptions, if you reached the crossover point and did not seriously consider an annuity to sustain your minimum expense needs - would seem to me you're taking on some serious longevity risk. What am I missing, how would you deal with longevity risk if you actually found yourself at the crossover point on the graph (Fig 9, about age 92)? I understand the insurer risk, which is why delaying annuitization as long as possible makes sense to me. At age 92, I'd hope insurer risk would be reduced considerably...