Should an annuity be part of your retirement strategy?

Yes, no, maybe. There is your answer.

However, a recent New York Times article does a better, although similar job, answering the question. I urge you to take a look at the article.

There is one thing clear about retirement income though.  You cannot simply have a pool of money and label it for retirement and you can’t even have a steady stream of income and nothing more.

Where are you going to get the money for a new pizza oven? Where are you going to get the money for a new pizza oven?

In many ways living in retirement is no different that before retirement (except your hope of increasing your income is greatly diminished). That is, you have routine bills each month and you have the possibility of life jumping up and slapping you upside the head. Financial emergencies are bad enough while you are working even when you have time to recover, but they can be devastating in retirement with no hope of recovery. Remember, your greatest risk in retirement is longevity. In this case time does not heal all wounds.

Whether you retire with a nice 401k balance, purchase an annuity or are among the fortunate ones with a pension, you need more and you need the ability to replenish an emergency fund after you tap into the balance. In other words, the budget you have in retirement and the income to support it must include something extra to save regularly. Just as when you were working; pay yourself first.

If an emergency does hit you and you have no separate assets beyond those dedicated to lifelong retirement income, what happens? Well, you may tap into your 401k, you may incur credit card debt or otherwise borrow money, or you may be forced to trim costs even cutting into necessities. None of those prospects are appealing and if you use your 401k your future income is adversely affected. If your incur debt, your budget and living standard are over the edge.

In other words, retirement income needs to be more than enough to just pay the bills and keep up with inflation.


  1. Another unintended consequence of low interest rates is how expensive annuities have become from decades earlier. I was willing to consider an annuity as part of a steady stream of retirement income years ago but right now they are off the table unless something changes. You also have to really watch the salesmen or “financial advisers” who want to sell 75 year old widow an annuity. Wisely my mother-in-law opted not to buy.


  2. The best advice I could give anyone is get totally out of debt, before you retire. I did not and although I can pay all my bills, any extra money I have goes to credit card payments. I will be debt free in 18 months and that will be like getting a 30% COLA increase. Even if your retirement income is enough to make the payments, the COLAs do not keep up with inflation and in a few years it hurts the budget and the emergency fund can be wiped out in no time.


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