There are a lot of people who do not enjoy managing their own money. A recent interview with Sallie Krawcheck (business owner, named to Forbes list of world’s most powerful women, former financial industry leader) was pretty blunt about the fact that she “hates” financial planning. I cannot count the number of times I have had people tell me that they hate their money! Personal money management for most of us is—quite frankly—uninteresting. It’s also threatening. It requires us to look at possible short falls in our finances, a need to modify our lifestyles and to acknowledge death. Even with an extraordinary career in the financial industry, Krawcheck’s admits to the difficulty of discussing the “death” details about finances:
“…I would never have that awkward conversation with my spouse about what happens when one of us dies. I would live to 457 years old before that would happen.”
A recent posting in Everything Zoomer by Gordon Pape got me thinking again about annuities. His advice to a 67-year-old was to delay buying an annuity for a period of time. This would allow for an increase in interest rates that appears likely to happen and for her to be a bit older at time of purchase and therefore receive a larger payout. Financially, this makes sense to maximize the payout, especially since inflation protection needs to be factored in. All too often it seems that estate planning becomes the deterrent to annuities because the annuitized money dies with you. Although this is true I would prefer to see the protection of the assets and therefore the lifestyle of the aging individual as the priority. Some things to consider when annuitizing:
- The willingness of the individual to manage their money. If they are entirely disinterested it may be safer to place the money in an annuity immediately;
- Changes in health that may affect ability to manage the money. Annuities once set in motion are easy to plan for but the key is to do the analysis of options before health becomes an issue;
- Greedy individuals who may attempt to gain access to the money through various methods including emotional manipulation. This risk increases if the de-facto gate keeper (e.g. the household money manager) is no longer available such as the death of the spouse who made investment decisions;
- If charitable giving is a priority consider charitable annuities as a way to retain income while obtaining both a tax advantage and income protection. Some charities offer annuities, others will require the assistance of a professional wealth manager, but it is achievable for all charities.
Most dollars and cents arguments will determine that annuitizing is not the best alternative for maximizing income. However, the realities of life mean that annuities offer security that is not available through many other income options. Life is not a spread sheet. Unfortunately the obstacles that can arise later in life may increase financial vulnerability. For those without a solid defined-benefit pension plan income, annuities offer a great option as part of a portfolio.
Lee Anne Davies has worked as a consultant for insurance, wealth management, banking and financial education companies. She has a PhD in Aging, Health and Well-being and a Masters of Arts (MA) in Gerontology and Health Studies from the University of Waterloo and an MBA from Athabasca University’s Information Technology Management program. She’s also successfully completed the Canadian Securities Course and the Professional Financial Planning Course. To read more from Davies, visit her blog Agenomics.