For most retirees, variable annuities and equity-indexed annuities are poor investments. Because of the poor reputation of these products, retirees have shunned immediate annuities. This can be a big mistake.
Immediate annuities are simple to understand. You give the insurance company a lump sum. They give you monthly, quarterly, or yearly checks for the rest of your life, or longer, if you choose.
One study showed that, over a 30-year period, you could reduce your chance of running out of money from 67 percent to 10 percent if half your portfolio was annuitized.
Retirees should calculate their monthly expenses, deduct their monthly income, including Social Security, and consider an immediate annuity to take up the shortfall.
Fixed annuities are available with and without inflation protection. The industry leaders in low-cost fixed annuities are Vanguard and TIAA-CREF.
See all ten of the biggest money mistakes a retiree can make.
Dan Solin is the author of the newly published book, The Smartest Retirement Book You'll Ever Read (Perigee Books 2009). His prior books include the New York Times bestsellers, The Smartest Investment Book You'll Ever Read and The Smartest 401(k) Book You'll Ever Read. See SmartestInvestmentBook.com. Read more about Dan Solin.
