The New York Times article “The Annuity Puzzle,” by Richard Thaler, ponders why more people with control over their retirement income do not choose annuities. The guaranteed lifetime income offered by annuity products seems like a “no-brainer” over other investments where you might run out of money before your death. But even so, many retirees do not opt for annuities when choosing their retirement vehicles.
A few reasons are suggested for why more people are not purchasing 401k annuities when they retire and transfer their 401k plan money into an investment from which to draw down. One is that they’re worried an annuity hurts their heirs. But investors can opt for a death benefit annuity or set aside a portion of their savings for heirs before purchasing their annuity products. There is also the risk without an annuity that you could run out of money and your heirs would not only inherit nothing, but may have to pay for your care and expenses in your later life. With an annuity, your money will last as long as you live and your heirs wouldn’t have to worry about that.
Another reason more people may not look to annuity products is that they appear to be complicated and it can be a frightening purchase. While there are definitely complicated annuities out there, with the help of an expert you can find a product that works for your situation and will ease your financial worries about retirement. It can also be hard psychologically for people to understand the importance of annuities. They think it is a gamble and that you have to live to a certain age to make the purchase worthwhile. Annuities should actually be seen as insurance protecting you should you live past the age where other investments run out. With a fixed monthly income guaranteed over the rest of your lifetime and in some cases, your spouse’s lifetime, annuity products can also help you better determine when you have enough money to retire. Providers of annuities may need to get more people to compare annuities and spread more information on the value they bring in financing your retirement.