Jean Chatzky backs annuities as a retirement income tool
The HerMoney founder says annuities can provide retirees with a predictable income stream, while warning that fees, complexity and limited flexibility require scrutiny.
Personal finance expert Jean Chatzky is advocating annuities as a way for retirees to turn part of their savings into a regular income stream. Speaking to Yahoo Finance, Chatzky said a predictable monthly payment could make retirees more comfortable spending their money.
Annuities are contracts with insurers that exchange a lump sum for payments over a fixed period or for life. The amount paid depends on factors including the investment, the buyer’s age and gender, and prevailing interest rates.
Chatzky said retirees should use an annuity for no more than about one-third of their retirement savings, with the remainder invested. She said the approach could reduce the anxiety associated with deciding how much to withdraw and when.
Products include fixed, joint and variable annuities. Fixed annuities provide set payments, while variable annuities can rise or fall with investment performance. Joint annuities can continue paying income until the second spouse dies.
The products can be difficult to unwind and may involve fees, commissions, surrender charges and restrictions on withdrawals. Buyers should also assess beneficiary provisions, inflation protection and the insurer’s solvency before entering a contract.
Chatzky said annuities had become more transparent and easier to understand over the past decade, but the suitability of any product depends on an individual’s tolerance for investment risk and the specific contract terms.
