I’ve just come across an annuity analogy with which I can really relate. In the Bluefield Daily Telegraph, Don McNay in essence compares annuity use to the difficulties of dieting. His article, “Annuities protect people from the pitfalls of a lump sum,” says that purchasing an annuity with any large sum of money you have is the safest way to protect your money. Not only will an annuity help to ensure that your money lasts for the rest of your life, it also can keep you from blowing through your savings if you have too much access to it.
Believe it or not, 98% of people who win the lottery choose to receive a lump sum payment, most against the advice of financial professionals. Unfortunately, the majority of those lottery winners spend their winnings within five years and it’s almost like they never even won the lottery. It’s similar with retirees hoping that they can manage their 401k’s on their own. Those who take lump sum payments and attempt to draw down their savings by a percentage each year tend to spend too much because of the easy access they have to their money.
This is similar to dieting, something I really never thought of before Mr. McNay’s article. If you are trying to lose weight, but have a fridge filled with food items that you shouldn’t eat, your chances of not eating those things are pretty slim. But if you have to drive to the store to get the bad foods you shouldn’t be eating, you are more likely to avoid those things and eat the healthy foods you have at home. With lifetime savings, a monthly annuity payment allows you to spread your money over your lifetime without worry that you will lose your self-control and spend too much.
Mr. McNay has been in the financial business for over three decades and says that it doesn’t matter how people came about the money or how much money they have. Innately, they tend to spend it faster than they planned or thought. He has seen people with retirement savings, inheritances, and winnings blow through thousands and even millions of dollars without following a plan. He points out that it is much riskier to attempt self-managing your savings than it is to worry that you’ll die before receiving your annuity payments. Lifetime income is the safest bet for retirement, inheritances or any lump sum of money you have. Speak with an expert today.