Alert
Close

Introducing AARP RealPad: The Wi-Fi Tablet That Makes It Easy to Share, Learn, Connect and Play. Learn more

AARP Bulletin

Financially Speaking

Is an Annuity Right for You?

The challenge: Making your money last for life

Three Types of Annuities: Immediate fixed, Immediate variable and Inflation linked

Weighing benefits and risks

If you can manage payments that change, consider an immediate variable annuity, says annuities expert Moshe Milevsky of York University in Toronto. You choose the percentage of the total portfolio that you'll want paid out, in monthly amounts. Starting with a lower percentage sets you up for higher payments in the future, as long-term stock values grow. "The potential upside seems to compensate for the downside risk," he says.

Milwaukee financial planner Paula Hogan encourages clients to consider inflation-protected annuities, to preserve their lifetime purchasing power. But don't annuitize all your money, she warns. You need ready cash for unexpected expenses, such as health costs. If you're living on Social Security plus modest savings, annuities may not be for you. They're best suited to people who use them as the safe part of their investment mix, with the rest of their money invested for long-term growth.

Financial planner Michael Kitces of Columbia, Md., has a smart idea for people who'd rather keep their cash and take systematic 4 percent withdrawals adjusted for inflation. Split your savings evenly between stock funds and bond funds, and take the withdrawals mostly from bonds for the first 10 years. The value of your equities should more than beat your gains from inflation-adjusted annuities, his research shows. Of course, there's no guarantee. If you live well into your 90s, Kitces says, the annuities will win.

Jane Bryant Quinn is a personal finance expert and the author of Making the Most of Your Money NOW.

Also of Interest

Join AARP Today — Receive access to exclusive information, benefits and discounts

Topic Alerts

You can get weekly email alerts on the topics below. Just click “Follow.”

Manage Alerts

Processing

Please wait...

progress bar, please wait

Tell Us WhatYou Think

Please leave your comment below.

The Cheap Life

Jeff Yeager Cheap Life Ultimate Cheapskate AARP YouTube web series save money

Catch the latest episode of The Cheap Life starring Jeff Yeager, AARP's Ultimate Cheapskate. Watch

Discounts & Benefits

From companies that meet the high standards of service and quality set by AARP.

Life insurance: you are covered rain or shine

Exclusive annuities for members from AARP Lifetime Income Program from New York Life.

AARP Credit card from Chase

Members can get cash back rewards on purchases with the AARP® Credit Card from Chase.

Homeowners Insurance
Member Benefits

Join or renew today! AARP members receive exclusive member benefits & affect social change.