The Price of Security – Immediate Annuities

May 6, 2008

Money-Guy 05-05-2008

Safety and securityWith recent stock market ups and downs, immediate annuities are attracting attention from people looking to shelter themselves from volatility. But do they make financial sense? If so, for whom and when?

(An immediate annuity, you might recall, is an investment product that’s purchased with a single payment and begins to pay out a return right away.

In its simplest form, the annuity will pay you a set amount without fail until your death.)

Consumer Reports’ "Money Adviser Newsletter", a favorite resource of mine, recently examined immediate annuities in a research study titled, "Do immediate annuities really pay?". I enjoyed the article immensely because it provided a rare comparison of historical returns from buying an annuity versus investing in a diversified portfolio. It’s fact-based, highly detailed and data rich — qualities my listeners know I love 🙂

Listen to the show and I’ll share my thoughts about both strategies and if/when they might be appropriate for you. As you’ll hear:

  • Variable annuities charge sales commissions that average 6-7 percent
  • Fixed immediate annuities charge sales commissions that average 2-3 percent
  • A retirement account withdrawal rate of 8 percent only has a 41% percent probability of meeting income needs for 25 years (assuming 100 percent stock portfolio). You can increase that probability to 96-97 percent by diversifying and lowering your annual withdrawal rate to 4 percent.

Overall, I’m excited that the immediate annuity market is evolving and becoming more competitive and more transparent. With savvy, low cost providers like Vanguard and Fidelity Investments focusing on this market, consumers should see even lower fees, better service levels, and more innovation going forward.


I bought a rolling duffle from High Sierra Sport Company a while ago and was quite happy with it until two of the zippers recently quit working. With a little bit of research, I found that High Sierra has a lifetime warranty on their products — and that they actually stand behind their products. Even lacking a receipt or original tags, I had a brand new bag within a week. It’s nice when a company truly stands behind their promises.

My long-term listeners already know that I’m a movie fanatic. Can I rave about Iron Man for a moment? I simply loved the movie. In an age when few movies are worth your time — let alone $9.25 for a ticket — this movie was worth every minute and every penny. Check out the movie and let me know if you enjoy it as much as I did.


Thanks for supporting and listening to the show! You’re a big part of our grassroots success. As always, please tell the Apple iTunes world if you’re happy with what you’re hearing each week … and email me personally if I can do something better.

[audio: https://moneyguy.com/podcasts/Money-Guy%2005-05-2008.mp3]



Most Recent Episodes

How to Recover From 4 HORRIBLE Financial Mistakes!

In our nearly four decades of combined experience managing money, we’ve seen some horrible financial mistakes - here are the four worst we’ve seen first-hand and what you can do to avoid making a similar mistake. In this episode, you’ll learn: The worst financial...

Why Americans Are Actually Broke! (2023 Edition)

Americans might be bad with money, but you don’t have to be. In this episode, we discuss the underlying reason why Americans are so bad with money and how you can do it better. In this episode, you’ll learn: Common financial pitfalls you should avoid Practical steps...

Build Wealth With the 3 Bucket Strategy! (By Age) 2023 Edition

We believe there are three distinct taxable buckets you have the option of investing in for retirement. We’ll talk about how to balance those buckets by age and show a case study by age that shows what your buckets may look like! In this episode, you’ll learn: The...

Debt Ceiling Crisis: World’s Financial System at Risk?

Should you be worried about the debt ceiling crisis? Although political leaders have so far been unable to come to an agreement, we'll tell you what history says will happen and what it means for your finances. For more information, check out our free resources...

Financial Advisors React to INSANE Money Advice on TikTok!

Is financial advice on TikTok all bad or is there some good advice out there? Check out our brand new TikTok react show where Brian and Bo give their honest reactions to trending financial advice. Enjoy the Show? Sign up for the Financial Order of Operation (FOO)...

How to Save Thousands of Dollars in Taxes in 2024

Tax season is over for most of us, but that doesn’t mean it’s time to stop thinking about your taxes! Planning out your tax strategy in advance can save you time and money on your taxes. In this Q&A, we’ll discuss the line items on your return to pay attention to...

Average 401(k) Balance by Age (2023 Edition)

Are you doing better than the average American at saving in your 401(k)? We'll talk about basics of a 401(k), including new limits, employer matches, and vesting schedules, how many millionaires are created by 401(k)s, and of course the average 401(k) balance by age....

TikTok Products That Are Actually Worth the Money!

TikTok has become not only a popular social media platform, but a popular place to find trending new products. Are any of them actually worth it? Let’s find out!   For more information on how to make the most out of your financial life, check out our free...

The Dark Side of Being an American Millionaire! (2023 Edition)

Being a millionaire isn't always sunshine and rainbows in 2023. In this episode, we'll discuss some common pitfalls and traps millionaires fall into, shock-and-awe stats, and how you can handle your money even better than a millionaire. In this episode, you’ll learn:...