Do Annuities Really Make Retirement More ‘Fun’?

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Cheerful senior couple having fun while riding on rollercoaster at amusement park. Copy space.

Nobody ever called retirement “fun”… except for a happy retiree.

But the fact is, all the planning in the world can’t guarantee a life of leisure if you aren’t ready to accept it.

But a new report from QMA/Prudential has found that having reassurances that they won’t outlive their money makes it easier for retirees to kick back and enjoy their time without worrying about their day-to-day spending. It even makes it easy to cut loose and splurge every now and then. That makes it easier for them to spend on themselves and their families.

Quote: “We find strong evidence that households holding more of their wealth in guaranteed income spend significantly more each year than retirees who hold a greater share of their wealth in investments. Marginal estimates suggest that investment assets generate about half of the amount of additional spending as an equal amount of wealth held in guaranteed income. In other words, retirees will spend twice as much each year in retirement if they shift investment assets into guaranteed income wealth.” — study authors David Blanchett and Michael Finke

By the numbers: The pair studied the investments and behavior of 725 households, focusing on those with more than $100,000 in savings and spending more than $25,000 a year. The approach was intended to compare the savings habits of those with guaranteed income versus those with the savings to pay for an equivalent lifetime annuity.

Their finding?

Middle-class retirees end up “playing too much defense.” On average they spend less than they need to based on their income because they’re worried about running out in their lifetime and they sacrifice their quality of life in the moment as a result. Finding the best annuities for retirement is now become extremely important.

While it is effectively impossible to budget out your savings to the exact date of your death, too many of us err on the side of being too conservative and that costs us in the long run.

Takeaway: Live a little, and that means getting beyond your own psychology.

We’re all hard wired for survival, and in our retirement years that means budgeting carefully and making sure we have enough for whatever life throws at us. But it doesn’t have to be this way. Too often retirees overlook the benefits of annuities by focusing on the here and now problem of accessing their money, forgetting the power that that guaranteed income will have on their lifestyle down the road when they really need it.

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