Lump sum or annuity | lifeunderwriter.net

The Financial Risk of Living a Long Time

People nearing the end of their careers can potentially lose 5% to 10% of their retirement wealth, or the equivalent of 2 to 5 years’ labor, by failing to annuitize their savings or annuitizing too early, according to an estimate by Alessandro Previtero of Ivey Business School in Canada. By providing a guaranteed income for life, an annuity is essentially an insurance policy against outliving one’s retirement savings. In a study, Previtero found that when stocks are rising, people are less likely to purchase annuities offered by their employers.

This excerpt came through my RSS reader this morning. As an insurance guy, naturally I was interested. When I clicked on the link to take me to the original Harvard Business Review blog article I got a 404. So I went to Google and found the article linked below.

CEG_AnnuitiesDeserveAttention

No, I will not speculate on the reasons why HBR took their post down. Read the article and let your imagination roam.

A nice article on the topic.

The Baseline Scenario

By James Kwak

Usually the New York Times gives reasonably good financial advice—or, at least it avoids giving really bad advice. Today, however, Paul Sullivan’s column borders on the latter. The question is whether to take a pension payout as a lump sum or as an annuity (a guaranteed, fixed amount per year until you die).

Sullivan’s column isn’t all bad. He talks about the importance of being able to manage your money and the need to be comfortable with risk if you take the lump sum. He also points out the annuity (in this case, based on what GM workers are being offered) isn’t indexed to inflation, which is an important consideration. And he doesn’t come down on one side or the other, although he says he would take the lump sum because, he says, “I would rather control the money myself.”

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