Three More Ways to Insure Income for Life During Retirement

Here are some thoughts from the wonderful book The Bogleheads' Guide to Investing (I LOVED the book -- see my rating for details) on three more ways to insure income for life (see The Two Best Ways to Insure Income for Life During Retirement for the two best ways.) Their list:

• Delaying retirement
• Waiting until full retirement age to draw Social Security
• Purchasing an immediate annuity

Here are my thoughts on these:

1. There's no question that extending your working life has many financial (and non-financial) benefits, but it's a retirement strategy that's just not practical in many cases and one you certainly shouldn't count on. What happens if a key part of your retirement plan is to work until you're 70, and your health fails, making you unable to work past age 62? At that point, your retirement plan is shot with little room for you to make up for the (huge) shortfall. Personally, I think I would like to keep working or volunteering after I retire, but I'm not counting on it one bit as part of my retirement savings strategy. 

2. There's a lot of debate on which is a better option -- to take Social Security early or take it later. I haven't jumped into this issue enough to have a firm opinion one way or the other, and since I'm not counting on one penny from Social Security as I save for my retirement, I guess it doesn't really matter. That said, if push came to shove, I'd probably opt for waiting, though that's just a gut reaction at this point. On the other hand, everyone I know (older friends, relatives, etc.) seem to be taking it early.

3. There is one word that pops into my mind when I hear annuity: fees. (And lots of them.) And while the book lists them as a way to insure income, it spends most of its coverage of them to listing times when they don't work. Again, I'm not 100% sold one way or the other, and I'm sure much of the final decision depends on personal goals and circumstances, but for now I'm leaning away from ever purchasing one.

Comments

[Matt]

The best way to "ensure income for life during retirement" is to ensure income for life irrespective of "retirement". The very notion of "retirement" makes several bogus assumptions about the proper relationship between work, money, and life...starting with the idea that the One True Way To Live is to work yourself to the bone, praying that you don't get too sick to keep doing it until the magic age of 62-65 when you quit doing it and start praying that you die before all the money runs out.

Much better, IMHO, to focus (when one is young enough to have time to build up momentum) on ways of earning money that don't require showing up at a job every day, and hence don't require stopping when one is old or ill.

If a person wants to live in the former manner...well hell, it's a free country. But I'm not about to go about reccomending it.

[bill]

Purchasing an immediate annuity may not be the best way to go. Annuities have a much higher expense fee than mutual funds, index funds and eft funds. I would recommend trying to find another alternative than an insurance product.