Far too many decide for this option without doing the math. David Marotta had an excellent article in Forbes Magazine examining this very scenario. Careful analysis reveals that the insurance company will be paying you back the money you gave them for the next 16 years and 8 months or until you are nearly 83 years old. Only then will you begin earning anything over and above what you originally handed over to them. If you live to be 100, your return on investment will equal about 4.5%. But remember, at age 66, life expectancy is only to age 85. So the odds are greatly in favor of the insurance company that they will only be paying you back the money you gave them in the first place.
I am not saying that you should not buy an annuity. It may give you great peace of mind to have this type of insurance. But there are alternatives. Working with a professional, trusted advisor that shares your Christian worldview, you could invest the money in low risk instruments and likely have a better overall return on your money as you slowly withdrawal what you need each year.
For example, Mr. Marotta explains, “The maximum safe withdrawal rate for age 66 is 4.43%. This means that you could withdraw 4.43% of your properly invested portfolio, increase that number by real inflation each year, and you have a better than 80% chance of being able to keep that up for the rest of your life. Therefore, with a portfolio of $234,000 at age 66, you should be able to withdraw $10,366 (4.43%) a year or $864 per month for the rest of your life. You should be able to increase this by inflation each year and you should be able to do this, on average, until you turn 101.” Read the full article here.
We’ve got lots of resources available at crown.org to help you with your financial challenges. And if you need extra help tackling overwhelming credit card debt, our partners at Christian Credit Counselors are experts at developing debt management plans.