Back in 1972 I started an annuity with TIAA, and up until a few months ago kept adding to it (along with some CREF stocks and CREF bonds). I was not aware of the general distaste of some/many to an annuity all these years until recently, and if I had, I probably would have NOT invested that way. I'm beginnng to think it's fortunate I did not read all the negative reviews of annuities, because then I would have never had the "peace of mind" I do now knowing I will receive a lifetime income. Just to play it safe though, I've decided to live off the annuity interest (thereby keeping the principal intact), and will only annuitize as I get closer to 70. Even so, the interest gives my about $2,500/month take-home, which is still alright
I'm single, have no heirs, and am a healthy guy of 62. I still like to work, but prefer not to be concerned with money. My annuity has allowed me to foster my love of animals by working at an animal shelter (at minimum wage) for fun. In August I will go off to the Meditteranean to teach physics, and while the money is alright, i'm doing it for fun. Using the annuity the way I am gives me the freedom to work or not to work and not care about salaries.
Cheers,
Rob
Rob I am glad that the annuity is working out for you
so far.
For the new people I think is important to understand the objections the forum regulars have to annuities.
In general
buying an SPIA makes sense for many people. Especially for folks who don't have heirs, and don't have a regular traditional pension payment. The 3 legs of the retirement stool are retirement savings, pensions, and SS. Annuities can provide a replacement for the pension.
Piece of mind is certainly a significant benefit of an annuity, as is using dead peoples money as others have said.
The issues that many of us have with annuity is not with the concept but with the products and the way they are sold and marketing. Most annuities in this country are sold rather than being bought. Generally, an insurance salesman, or financial "helper", invites you for a free financial consulting. At the end of that session, you are told that your best option is to purchase an annuity. More often than not this annuity isn't a straightforward SPIA, but some fancy product with a name like Variable Annuity, or Equity Indexed annuity.
The salesman who sells you that product collects a hefty commission in the range of 5-8% plus additional money each year. The insurance company takes another 2-3% each year via a bewildering assortment of account fees, expense ratios, morbidity fee etc. You are left with 200+ page document which explains your annuity in deliberately hard legalese.
Time passes and for whatever reason you need the money, you than find out that the only way to get your money is to pay a hefty surrender fee. It has been my experience from reading financial forums and helping friends and relatives that more often than not folks who have bought annuities end up cashing out of their annuities and losing a good chunk of money.
Now I don't know much about TIAA-CREF other than it is one of the largest mutual insurance companies around and it specializes in teachers. I also know that teacher's 403Bs are notorious for having some of the highest expenses. But I don't know if there is a cause and effect.
So yes annuities have a bad reputation on this forum. In particular, EIAs and Variable annuities are almost always considered to be a bad investment. Immediate annuities are generally ok especially if you go out and shop for them like you would a big ticket item like a car rather than buy them from a salesman.
Still there are risks associated with buying any annuity which are generally glossed over by the salesman.
1. It is expensive to change your mind. The surrender penalties are typical several times the cost of withdrawing money early from a CD.
2. Inflation can severely reduce the value of your annuity payment.
3. Insurance companies can and do go broke (e.g. AIG). The good news is that for the most part if your insurance company goes broke you will still get paid. The bad news is state insurance funds that protect your annuity are only sufficient to pay for a few failures a year from medium size firms if a megafirm collapses like AIG, or TIAA-CREF there isn't enough money to pay all the policy holders without government intervention.