A recent Government Accountability Office (GAO) report gives a big thumbs up to annuities for people looking to “ensure income throughout retirement.” The report came in response to a request from Rep. Herb Kohl (D-Wisconsin) and other members of Congress to study ways for retirees and future retirees to adjust to changing conditions, including a growing likelihood that they could outlive their savings and the large-scale market shift from defined-benefit pension plans to defined-contribution plans.
Experts consulted by the GEO said a typical retiree should convert part of their savings into an annuity to cover expenses or take their pension as an annuity rather than a lump sum. The report states:
"An alternative to self-managing periodic distributions from savings is to use one’s savings to purchase an immediate annuity from an insurance company that guarantees income for life. An immediate annuity can help to protect a retiree against the risk of underperforming investments, the risk of outliving one’s assets (longevity risk) and, when an inflation-adjusted annuity is purchased, the risk of inflation diminishing one’s purchasing power."
Other benefits of annuities for retirees include:
- Providing income at a rate to prevent overspending
- Providing income at a rate to prevent under-spending (in an effort to guard against outliving assests)
- Relieving the burden of managing assets at older ages