MONE Y
insurance company a big chunk of your money, and they will “guarantee” 1 you an income for the rest of your life. A dependable, lifelong income feels pretty good. For many, it may even be essential. However, I contend that most of those who purchase these income annuities are unaware of the powerful opposing arguments—salespeople rarely share the downside. Let’s start with some assumptions. As of this writing, a $1 million, joint-life, immediate annuity for a 65-year-old couple will pay out about $4,200 per month2 for the life of both people in exchange for the million dollars upfront. After both have died, that’s it—the insurance company has no further obligation to the family. If both die early, the insurance company keeps the remainder of the million dollars. You are betting against the insurance company, believing that you win even if one partner lives a very long time. So, what does it take to win? What if you put that $1 million “under the mattress,” earning nothing and slipped out $4,200 each month for expenses? How long would the money last? You would spend the last of the million bucks a bit before either of you reached your 85th birthday. If both of you die before 85, your heirs receive whatever remained hidden beneath the bedding.
Seeking Immediate (Annuity) Gratification? BY DON MCDONALD
The host of the nationally syndicated Don McDonald Show for more than 20 years, Don McDonald now co-hosts Talking Real Money with Tom Cock on Seattle’s KOMO radio Saturdays at noon (talkingrealmoney. com). He also publishes the investing magazine, real investing journal (realinvestingjournal. com).
The wants of retirement investors are generally quite simple. From decades of experience, I have learned we all want high returns on our money with little or no risk. In other words, we want something we can’t have. These simple desires have cost investors billions, if not trillions, of dollars lost to scams, exaggerations, and insurance products. I include insurance in this list because insurance companies have found a profitable tool: Preying on our fears of the future. I’m not saying that insurance investment products are necessarily bad. However, they are often sold in a slightly deceptive manner. Take immediate annuities. This product was created to appeal to those who crave a reasonably secure, predictable income in retirement. Give the
$1,000,000 $750,000 $500,000 $250,000 $0 65
70
75
80
85 0%
18
3rd Act magazine | spring 2022
90 1%
95 2%
100
105
115
3%
4%
5%
www.3rdActMag.com
