An annuity comes in many forms, but a simple definition is that an annuity is a contract that converts a sum of money into a series of periodic payments for an agreed upon period of time. An annuity can be thought of as a financial vehicle that converts a pool of money into a stream of income. Annuities are most useful in addressing the financial planning needs of people in or approaching retirement. Annuities are unique in the financial world because they can provide protection against the risk or outliving one’s assets (longevity risk) by guaranteeing income payments in perpetuity or any other selected amount of time. Annuities can be viewed as a type of personal pension plan. Social Security is similar to an annuity in that money contributed over the course of one’s working years is converted into a series of periodic payments that provide income during retirement.
Submitted by tom on
Wall Street Journal columnist Brett Arends wrote a recent piece (subscription required) titled "How to Salvage Your Retirement."
As is almost always the case with Arends, a very interesting and worthwhile piece.
Submitted by tom on
The term "framing" refers to the manner in which the annuity purchase decision is presented or "framed" for the consumer.
The term is from the field of behavioral economics / behavioral finance and involves natural (how we are hard-wired) psychological hurdles that impede the understanding and adoption of annuities.
There is a ton of material on the issue.
Submitted by tom on
From the Wall Street Journal, so somewhat second-hand.
An annuity success story nonetheless.
