Annuities are best retirement investment if government regulates them - report

By IVCPOST Staff Reporter

Sep 14, 2013 07:14 AM EDT

Allison Schrager, in her column in Reuters, posed the big question that had so far remained bereft of answers: "What should people do with their money when they actually retire?" Schrager said that individuals were left to decide for themselves as there is almost no guidance from the government and the financial industry. Schrager wrote, "The cost of investment risk is bigger post-retirement because you don't have years of future returns and income ahead of you. It's further complicated by uncertainty."

According to Schrager, one of the solutions would be for the government to encourage people to save some of their money in annuities offered by insurance firms. An annuity is an agreement entered into by an individual and an insurer. The person pays the insurance firm one lump sum or a series of payments. In exchange, the insurer gets regular disbursements at an agreed time. Schrager wrote that the downside of annuities is that individuals won't be able to liquidate or leave money to their heirs in case they pass away before they retire. However, this form of retirement savings has the benefit of predictability. "A real, fixed life-annuity ensures you won't outlive your assets and will get predictable income, just like the defined benefit pension or state benefits do," Schrager wrote.

However, Schrager concluded that the government must do its part to put the public at ease with annuities. She added that the state must put safeguards in place to ensure that transparency and competitiveness in annuity pricing and terms are observed. They should also assure individuals that in the event that an insurance company goes bankrupt, it would see to it that retirees still get their money. This would get more people to put part of their money in annuities, Schrager wrote.

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