I’ve been meaning to post something on annuities for a while now since some people like to include them in their income portfolio to receive a regular payout. If you get an “immediate” annuity, the payments can begin quickly; otherwise, you have to wait a certain number of years to start receiving your regular income. The simplicity of the concept is appealing; however, as they are insurance products, annuities are often shunned by many individual investors because of the high fees and commissions that are typically associated with them. You are also basically relying on the promises of an insurance company to make your payments. Investors willing to do a little work on their own can set up their investments to provide equivalent or better returns with, perhaps, less risk. The following video shows how it can be a fairly simple thing to do (the video is followed by a commercial and some other news items, so stop it after viewing unless you want it to go on – sorry, but I don’t think WSJ will just let me embed a single video):
I think the video does a good job in showing why buying a “deferred” type annuity is a bit silly. I personally think an immediate annuity can still be a valid option and make a lot of sense for people depending on their circumstances. Regardless of how enthusiastic we currently are in managing our investments and portfolios, there will surely come a time in our futures when we will no longer have the capability or motivation to do so. When that time comes, an immediate annuity for income can be a smart investment. Getting some random quotes on immediateannuites.com, I’m currently seeing yields of between 5% and 6%, but as interest rates rise in the future, these yields can be expected to rise as well.