What Do Economists Have to Say About Annuities?

December 15, 2022

Every once in a while, I like to bring in some 3rd party literature so it doesn’t seem like I’m always coming at you with a biased opinion.  Most of the information I bring you comes from people a lot smarter than me, but I’m saying it in a way that hopefully makes sense to my readers.

In this week’s newsletter, I’m bringing you a Retirement White Paper authored by the economist, Dr. Michael Finke.  If you haven’t read any of his material, I guarantee you are going to enjoy this!  He also hosts a great podcast called: “Wealth, Managed.”  It can be found on any podcast platform.

In this White Paper, he will walk you through the reality of today’s retirement options.  Here’s a small snippet of what he has to say:

“A consumer (or “retiree”) may hope to simply live off the dividends and interest earned on their assets without spending down their savings. While this may have been a reasonable option in previous decades, stocks and bonds today provide less income than at any period in United States history. The current dividend yield on the S&P 500 is just 1.29%. Since 1926, the S&P 500 dividend yield has been exactly 3% higher (4.29%). An investment of $250,000 in funds that represent the S&P Index historically produced $10,725 of income each year. Today, the same amount produces just $3,225 of annual income.”



“A healthy woman has a 20% chance of living beyond age 96 (and a healthy man has a 20% chance of living past age 94). As a couple, there is a 20% chance that retirement will last beyond 33 years (age 98). These numbers reflect the significant improvement in longevity experienced by healthy Americans in recent decades, which is good news. However, living longer means spreading one’s savings over more years to fund lifestyle expenses. The amount of income that can be taken out of investments may be significantly lower when a retiree must protect against the possibility that retirement could last more than 30 years.”


Here’s a good one:

“Experts in the science of retirement income have long understood the benefit of purchasing an annuity. In fact, most economists (including Nobel Laureate Richard Thaler) consider it a puzzle that more Americans don’t buy an income annuity. Why? Annuities take away the uncertainty of creating a safe income in retirement. They allow retirees to spend more each year without the fear of potentially running out.”

“…Retirees may avoid spending less early in retirement to reduce the risk that they won’t have any money left on, say, their 95th birthday. An annuity may instead allow a retiree to spend more each year, and also reduce the anxiety that by going out to dinner with friends or taking a vacation they risk financial ruin later in life.”


These are all great observations, but there is a lot more to this Retirement White Paper and it is yours to download today!  Click the link below for your free copy of, “Funding Reliable Spending Through Insured Retirement Income.”


Dr. Michael Finke Retirement White Paper


Happy Holidays!



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