No. of Recommendations: 1
This is an important subject for me, because I intend to retire at age 60 at the end of 2012 and was considering putting a portion of retirement savings (approximately 25%) into an immediate, noninflation adjusted annuity to cover basic expenses. Rationales are:

1. I do have the genes to make living another 30 or more years a probability. And if I don’t live that long, being dead I don’t really care that I lost the bet. (My beneficiaries will do okay out of the portion of retirement savings not dedicated to the immediate annuity).
2. The stability is attractive, and would permit me to invest the remainder more aggressively than I likely would otherwise. The additional investments also deal with the issue of inflation in using non-inflation adjusted annuities.
3. I would spread the annuities among 4 or 5 AAA insurance companies to reduce the default risk.

Because I’m shifting risk to a profit-making institution, it doesn’t trouble me that the institution will likely make a profit in accepting that risk (unless I live to be 110 or so). But I don’t want to be a sap either in terms of how much of a risk-shifting premium I’m paying.

The Retire Early article was troubling, but two aspects made me wonder whether it really is a useful guide: (1) the snarky, anti-corporate comments hurt its credibility with me; and (2) the use of only an inflation-adjusted comparison and not including a non-inflation adjusted comparison seemed designed to push the pre-ordained conclusion (clearly, the risk premium is much higher for taking on the inflation question over a 30 or more year period).

So what is the best way to evaluate an immediate annuity? And what alternative is there for ensuring stable income over a 30-year period? (I tried as a test creating a 30-year bond ladder through Fidelity, but it didn’t seem to work. Also, what I’ve seen and read about target funds make them less than attractive to me—high fees without a large reduction in market uncertainty).

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