Do fixed annuities make sense for a Gen X'er concerned about financial peace of mind in retirement? One reader asks HerMoney CEO Jean Chatzky.
Twice a week, our CEO and resident money guru Jean Chatzky tackles your burning questions in the HerMoney newsletter. We’ve pulled some of the best to feature on our website — and this one made the cut! Got a question for Jean? Send it her way right here.
Q: Today’s question comes from Michele. She writes: “Who do fixed annuities make sense for? I think one will ease my mind about being prepared and having a steady income flow when I retire. For background, I’m single, have no plans to marry, and am a Gen X’er.”
A: If you’re a Gen X’er approaching retirement, needing extra peace of mind is completely normal (this recent podcast dives into why Gen X often gets the short end of the stick in retirement planning).
One way people find that peace? Annuities. Think of them as a “DIY pension.” Pensions used to be a big part of retirement, but today, few of us have one (aside from Social Security). An annuity guarantees your money lasts as long as you do – a reassurance many retirees crave.
You can buy an annuity in a lump sum or via monthly payments, but once it’s purchased, withdrawing your cash usually comes with penalties. That makes them great for guaranteed income, but not ideal if you want full liquidity. (Which is exactly why we recommend only annuitizing a portion of your savings.)
When it comes to annuities, fixed annuities are the simplest type — you hand the insurance company a sum of money and, in exchange, they provide you with a regular paycheck. Unlike other annuities, fixed annuities offer a guaranteed minimum payout, as well as a fixed interest rate.
As you weigh your options, Jordan Gilberti, CFP and founder of Sage Wealth Group, says there are a couple of key things to consider. “The important question to ask yourself is, ‘Is this the absolute best use of my dollars and are there alternatives I haven’t explored?’” he shares.
Gilberti also says it’s essential to consider the objectives of the agent selling the annuity. “In most cases, they are paid a commission by the insurance company for selling their products,” he adds. “Thus, it may not be in their best interest to offer you alternative investment options.” In other words, it’s up to you to do your homework.
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