EBRI Conclusion: Annuities = Good

EBRI Conclusion: Annuities = Good

September 10, 2015 – Despite ongoing efforts by many in the financial planning community-at-large to downplay the importance of annuities in helping people address their retirement financing challenges, unbiased research keeps surfacing, leading astute retirees and retirees-to-be to the exact opposite conclusion:

Retirement annuities can be very, very good for you!

Today, I’m pleased to share the following article from the August, 2015 issue of EBRI Notes, a publication of the Employee Benefit Research Institute (EBRI):

“How Much Can Qualifying Longevity Annuity Contracts Improve Retirement Security?”

RetireeThe article discusses modeling techniques used to assess the retirement readiness and ultimately security for Baby Boomers and Gen Xers.  In light of the ongoing perception that “interest rates are too low” for annuities, we found this particular finding noteworthy:

“. . . even at today’s historically low interest rates, the transfer of longevity risk provides a significant increase in retirement readiness . . .”

EBRI is a nonprofit, nonpartisan organization which exists to provide “credible, reliable, and objective research, data and analysis” and counts among its members a cross section of some of the most recognizable names in the American financial, investment, employment, education, legal, accounting, insurance and labor organization landscape.

One of the worst things that can happen to a person after a lifetime of working and saving for retirement is to find themselves in a position where they run out of money.

It’s an individual problem, to be sure.

But it’s also a problem for society as a whole hence the interest in the subject by EBRI.

Annuities, especially longevity annuities, help offset the risk of running out of money at an advanced age in one of the most cost-efficient manners possible. The mortality risk transfer that occurs when people buy annuities en masse simply cannot be replicated as effectively by individuals following traditional investing strategies.

Traditional investing and annuity ownership need not be mutually exclusive by the way. For most people, an ideal retirement plan would likely include elements of both with the only variable being a matter of percentage allocation to each discipline.

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