As an individual who was lucky enough to encounter the concept of an annuity early in her life, understanding what this product is, is essential. In his new blog post, Wade Pfau takes a deeper dive into the types of long-term financial returns annuities offer, how they account for a set amount of spending per year based on the initial investment, how market fluctuations potentially impact them and the types of protections that are allowed to accompany an annuity.
Key Takeaways:
- Income annuities pool risk, with those who die early essentially subsidizing the payments of those who live longer.
- Another way to look at annuities is as insurance against outliving one’s assets.
- Stocks provide higher potential returns than annuities, but they are more volatile and a few poor returns could derail one’s plan.
“For someone wishing to spend at a rate beyond what the bond yield curve can support, bond investments will essentially ensure that the plan will fail.”
