Why I Bought an Annuity at Age 29
July 1, 2019 by Sheryl Moore
You read the headline, and you are already screaming at me. “Why would you buy an annuity when retirement is half-a-lifetime away!” Note that those of you who are anti-annuity are probably experiencing seizures already. Someone call some help for them.
No mistake. You read that right. Yes, I purchased my first deferred annuity when I was not yet 30 years old. And yes, the average issue age for deferred annuities is 63 years of age.
So why would someone so young purchase a retirement income product that is targeted toward those that are nearing the end of their working years? Simple.
Guaranteed lifetime income that I cannot outlive.
I recall the employee benefits enrollment folks in my first home office job telling me what a “waste” it was, not to enroll in the company-sponsored retirement plan. This new thing, called a 401(k), was such a gift to employees! My employer pledged to match up to 4.00% of my contributions into the plan… (Sounded like a good deal?) The enrollment folks told me it was “free money,” and that I would be “a fool” to throw away the benefit. I was nervous. I had never heard of this type of retirement plan. My previous retirement savings experience was with an Employee Stock Ownership Program (ESOP), and I had never heard of a 401(k). I asked questions, they told me to read the prospectus. I have to admit- I didn’t. I take responsibility for that. Yet, ignorantly, I enrolled.
When the dot com bubble burst, I learned the hard way that you can lose money in a 401(k). Seems moronic now that I wouldn’t know something that basic, but it is true.
When I lost (what was to me) TONS of money, I panicked. Where to move my money, so I wouldn’t lose anymore? Someone suggested an indexed annuity.
An indexed annuity would ensure I wouldn’t lose any money as a result of market volatility, but I would still have the ability to outpace traditional fixed savings vehicles.
I researched the indexed annuity- PERFECT! What I wish I would have bought rather than that stinky 401(k) deal! I asked around, to see if any of my family or friends were knowledgeable on these products so that I could determine if it was truly the right purchase for me.
It was challenging. Almost no one in my circle had heard of an annuity. And then, a positive affirmation from my grands!
I was largely raised by my grandparents because my parents were teenagers when I arrived. As a result, my grandparents had a tremendous influence on my life. By the time I hit my 20’s, Grandma #2 and Grandpa were already voicing concerns about running- out-of-money in retirement. This concerned me as well. They explained that they owned an annuity and that it had been the best purchase decision they had ever made!
Grandpa’s first wife had died of cancer when I was in grade school. He had used funds in excess of what was necessary for Grandma #1’s final expenses to purchase an income annuity. He lived long enough that the insurance company had made payments to him in excess of his initial purchase payment.
I called an insurance agent I trusted, eyes-wide-open. “Come on over, and bring an annuity application with you,” I said. I initiated the process of rolling my 401(k) into a product that would promise me a paycheck for life. I was ready.
I was young. However, I needed to save for my retirement, and I didn’t want to risk losing a single penny. I was okay with earning no interest in some years, as long as I had the ability to “beat the bank” in the long haul, in terms of gains. So, while many would argue that someone so young shouldn’t be purchasing an annuity, it was the perfect purchase for me. I’ve never regretted it!
Sheryl Moore is President and CEO of the life and annuity market research firm of Wink, Inc. Her company provides competitive intelligence, market research, product development, consulting services and insight to select financial services companies. She may be reached at firstname.lastname@example.org.