Optimism #66 - Supplemental Blurb
Dear clients and friends, we received some brilliant feedback about the annuity question, well worth sharing.Here is one from Greg:
You asked so here goes. I think it comes down largely to her peace of mind. If she is fretting running out of money and this eases that concern then it probably is a good move. Given that we cannot predict the future she needs to be able to make the decision based on what is known now and then be comfortable with the decision ever after. As she is single with no kids if she were to die the day after she bought the annuity would it really matter? Not to her it wouldn’t especially if she is not overly concerned about other legacy giving.
Another factor is whether she is disciplined with her spending. If she has a tendency to overspend then this can provide guaranteed income. I know of an instance where an individual acquired a modest but still significant windfall, was advised to purchase an annuity to provide a secure income stream, didn’t and now that money is long gone when they could really use it.
I think this much more about emotional considerations than technical analysis. You can run scenarios all day long but they are just projections of what could happen.
I suspect she is worried. So the trick might be to write down what she is worried about and then the options she has to address the worry. Once this is done she can pick the option she is most comfortable with to address the worry. Once the course of action is selected she should be able to move forward with confidence and be satisfied with her decision afterwards as it was the best decision for her at the time given the information at hand. “A problem well defined is half solved”.
You noted in this article how our metal capacity diminishes as we age. An annuity would take care of that in this instance. Sequence of return risk would also be addressed.
So as a straight up yes or no, reading between the lines a fair amount, I would say yes she should do it.
Here is another from Susan:
Hi Derek,
One of my neighbours in our old strata here in Victoria was a retired computer person in her mid to late 80’s. (she worked in Norway post ww2 and took data from submarine sounds (cold war) collected by her husband and entered it on big old mainframe (?) computers)…she had skills and education.
She had signed a contract of employment that she would only receive COA if it was over 2%. During her retirement this was a rarity. The cumulative impact of this agreement severely reduced the “living value” of her retirement income.
She wished at the time of signing it she had been sharper financially, because now in her later years she wasn’t getting much. It was a kind of “death of a thousand cuts”. Lots of years of sub 2% COA (imagine 1.89% as you are starting to struggle with your income and hoping for a higher COA). She was not happy at all with the consequences of the deal.
All I have to say! Hope your boredom is relieved as we all give our opinions and experiences!
S.B.
Derek Moran
