Okay, I want to talk about annuities a little bit. And the great French writer, Voltaire, has a famous quote about annuities, “I advise you to go on living solely to enrage those who are paying your annuities.”
So, annuities have a bad rap. And by the way in the old days, you had to annuitize your TIAA and even CREF balances. Like when my Mom retired, and let’s see, this would be about maybe 35 years ago, they had mandatory retirement at age 70. She didn’t have all those options that I just went through. She had to annuitize. Now she had a few options, and at the time, my Dad had died, and she annuitized. So, she annuitized at age 70, and how much money did they give her? Well, they tried to guess how long she would live. My guess is that they probably figured somewhere around 15 years.
So theoretically, if she had died at 85, it would have been roughly a break even, but she survived until age 95. So annuitizing was great for her, and between her annuity, her Social Security, and I actually bought her house, so she got a house payment from me, she had three guaranteed sources of income. She was one of those people who couldn’t tell you to the dollar how much money she had. I mean, she couldn’t even tell you to the hundred thousand how much money she had.
By the way, do you know what the answer was? One. So, she was income rich, if you will, because she annuitized, she had Social Security, and she had the payment that she was getting from me, but she only had $100,000 of investable assets. But she didn’t have any money worries, and then she died at age 95. So, it worked out really well for her.
So again, I use Dena saying, “Oh, you know, her parents lived to age 100, she’s great.” That might be a good person to annuitize. And the rate that they’re going to give you typically has some relation to the current interest rates.
So, like a couple years ago, it was a lousy time to annuitize because the interest rates were so low. They still haven’t really raised them to what I think is fair. But I’ll also say that usually, and you can record this, that if you have vintage TIAA, they will give you a better rate than say a random insurance company. And by the way, this is called an immediate annuity, and this is a very simple product. Here’s my money, and how much money will you give me every month for the rest of my life?
This is not those tax deferred annuities that have the 8% or the, you know, the very high fees. I’m not a fan of any of that kind of stuff. Sometimes people ask me if I ever sold one, and I say no. I kind of consider that going to the dark side. Now I know it’s worked out for some people, and I’m sure there are advisors who genuinely believe it’s the right thing, but I’m more of a “keep your fees low” type of guy.
Okay, typically you would annuitize for yourself and your spouse, alright? Maybe if one of you who is the contract owner is in really good health and your spouse is not, maybe you might annuitize for one life. But even then, you could die, so, again, I’m always interested in providing for both spouses.
Okay, here is one interesting strategy. Annuitize enough that your annuity and your Social Security covers your shelter, food, and a little money for Saturday night. In other words, no matter what happens with the market, you are always going to be okay. Maybe you can’t afford luxury vacations, but that way, you will always have a safety net so that you don’t have to worry.
If you annuitized before, you could get a “graded” annuity so if inflation went up, your payment went up. I used to like that because that way, you could in effect annuitize in today’s dollars, and they took it away because inflation was soaring. And again, this is not the commercial annuities that I don’t like.