Annuities – I admit they sound like a boring topic. But what is not boring us thinking about you might want to do with your relatively short life of earth, and thinking outside the box about the tools available to you. Annuities are one of those tools.
Fixed SPIAs make retirement planning easier in exactly the same way that traditional pensions do: They’re predictable. If you know that you need $X of income each year in retirement, you can go to an online annuity quote provider, put in $X as the payout, check “yes” for inflation adjustments, and you’ll get an answer: “For $Y, you can purchase an annuity that will pay you $X per year, adjusted for inflation, for the rest of your life — no matter how long you might live.”
Pretty easy, right? You now have a specific figure for the minimum amount of savings necessary to retire safely. With a traditional stock and bond portfolio, retirement planning is more of a guessing game.
Fixed SPIAs are also helpful because they allow you to retire on less money than you would need with a typical stock/bond portfolio.
You could work hard and live frugally while you are young, then turn over your savings to an insurance company at some point and continue to live without working hard. People typically do this at retirement age (i.e. when they are old), but you could do it at a younger age and continue to live frugally without working hard, or you could work part time and pursue a passion part time, or you could spend more time with young children than hard working middle aged parents typically do, or you could take the risk of starting a business knowing that failure wouldn’t ruin you. You could turn over part of your savings, continue to work somewhat hard, and pursue some combination of any of the things on my list above. You could make gradual transitions from one mix of activities to another.
Now, do I really practice what I am preaching here? No. I work like a dog to support a family. I’m a conservative person, and I particularly worry about my ability to meet the costs of health care and education in the future. But I also ask myself each day what choices I am making right now that I might regret when I am looking back some day.