If the rate was 9% at the time, maybe. However, you must still surrender your principal... which I think is still way too expensive.
The total cost of the annuity could be calculated by subtracting the interest paid from the principal balance, and multiplied by life expectancy. The sum left over is what the annuity provider keeps.
As this sum is likely to be much greater than the amount paid out, it explains why insurance companies sell annuities (no matter what the rate), as the numbers are clearly in their favor. Annuities are almost always very expensive "living insurance."
What? Now Ben Stein is endorsing buying annuities to "safeguard" retirement?
(Text from article:
How Not to Ruin Your Life)
http://finance.yahoo.com/expert/article/yourlife/43552
>>>>>
Annuities to the Rescue
That's where annuities come in. There are now variable annuities (VAs, which are basically pools in which your money is invested in securities and compounds free of tax) where you're guaranteed a certain monthly withdrawal amount for life -- no matter what happens in the stock market.
That is, the insurer who sells you the VA assumes the risk that the market will fall sharply. The insurer buys hedges of various kinds, and may also risk their own capital to protect your guaranteed withdrawal amounts.
(Of course, all kinds of annuities have the feature of guaranteeing payments for as long as you live or longer. But the guaranteed-withdrawal-amount VAs give you that benefit plus the possibility of substantial gains from your investments within the VA.)
Needless to say, these VAs come at a price. It's not cheap for the insurers to buy the swaps and other hedges that allow them to guarantee your payments will never fall from a prescribed amount, but that they could rise substantially instead. They pass that cost onto you to the extent that they can.
A Safe Pillow
But as we've seen in the stomach-churning weeks this summer, there's always risk in stocks. If this risk can be insured against at a price that's reasonable, it's a huge weight off the mind of the retiree or pre-retiree. So you should definitely talk to your financial planner about these new VAs. (I do not, however, recommend them for people who are significantly above age 70.)
At least think about some form of fixed annuities in your accounts when you retire. This is suitable for people of almost any age so long as there's a payment built in geared to life-expectancy tables; that way, if you die early, your heirs will continue to get payments for what would've been your full life span.
It's a comfort to be able to count on a stream of money pouring in whether you're tragically sick or startlingly healthy -- to know that no matter how the market fluctuates, you'll get a set return on at least a part of your money that will last for as long as you and your spouse do.
I love following the stock market. In the very long run it's a beautiful thing, at least in the postwar world, and I hope it doesn't turn around and bite my head off the way it did in the tech crash. But to have most investments in fluctuating stocks with a solid amount in VAs and fixed annuities represents a nice pillow on which to lay your head. "Safe" is a happy word.
Ben Stein has no financial interest in the products mentioned in this column. (???)
I don't want her to lose this money!
