Are Annuities a “License to Spend”? Ep # 211

 Do annuities give retirees a different attitude towards spending in retirement? In this week’s retirement headlines, we’ll examine an article that discusses the psychological benefits that retirees who shift their assets from savings to lifetime income enjoy. This group of retirees has more of a license to spend attitude and ends up gaining more enjoyment from their retirement savings. 

Make sure to stick around until the end of this episode to hear my thoughts on the article. You’ll also hear me compare the advantages and disadvantages of using Cobra instead of the ACA before Medicare. 

Outline of This Episode

• [2:42] 3 need to know bullet points about annuities
• [6:52] What do I think about using annuities?
• [12:12] Cobra or the ACA?

Are you spending less than you should in retirement?

Are you having a hard time loosening the purse strings in retirement? If so, you are not alone. Many retirees find it challenging to shift from a savings mindset to a spending mindset, so they find it difficult to spend their hard-earned savings even on the things they most enjoy. As a result, many retirees end up spending far less in retirement than they could. David Blanchett and Michael Finke at ThinkAdvisor.com recently wrote an article about the shift in mindset that annuities can provide. 

Why do people purchase annuities?

The biggest question in retirement is how much you can safely spend. Retirees are always at the risk of outliving their savings if they spend too much or they end up living a less enjoyable life if they spend too cautiously. For this reason, many decide to transfer the risk of an unknown lifespan to an insurance company that provides guaranteed income. 

Do annuities provide a shift in the spending mindset?

The authors of the article reference a study that discovered that people don’t spend more simply because they are wealthier, instead they spend more based on the form of wealth that they hold. 

Households that hold more of their wealth in guaranteed income end up spending significantly more each year than those which hold a greater share of their wealth in investments.

Retirees end up spending twice as much each year when they have guaranteed income. Every dollar of assets converted to guaranteed income results in twice the equivalent spending compared to the money that is left invested in an investment portfolio. 

Are annuities the only way to shift your spending mindset?

However, you don’t necessarily need an annuity to change your spending mindset. Behavior management and accountability are the most important aspects of retirement planning. If you can hold yourself accountable and adjust your spending habits when necessary you can come up with a successful retirement plan. 

To achieve that, you need a plan that you can have confidence in. If you can create a financial plan in retirement that you feel confident in then you will be able to spend with confidence. One way to increase your confidence in your retirement income is to defer Social Security for as long as possible. By waiting until age 70 you can increase your benefit amount by 32%.

What are you doing to create a successful retirement plan? Listening to this podcast can help you gain the knowledge and confidence you need to successfully plan your retirement.

Resources & People Mentioned

• Boomer Benefits - Don’t miss out on the FREE 5 Easily Avoidable Medicare Mistakes download
• Boomer Benefits on Facebook
• Boomer Benefits on YouTube
• Think Advisor article on annuities
• Health and Retirement Study
• Guyton and Klinger original article

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