Annuity: Is it right for me?

The annuity does a couple of things. It can provide you with enough to cover your "needs" expenses, and then you can invest the rest in lower-cost investments to complement that for your "wants." But at least you know that your basic expenses are covered. If, between pension, Social Security, and some type of guaranteed paycheck, my needs are covered, then I can sleep at night, and if I don't get to take a vacation this year because the market was down, I can live with that. If I can't pay my property tax or buy food, that's something that becomes difficult. Sometimes in pursuit of someone's wants, they sacrifice securing their needs. This is where annuities can fit in.

For somebody who has a very low withdrawal rate and can assume the risk of the market or can hedge this in some other way, [an annuity is] not necessary. If your house got destroyed and you have enough resources to rebuild it without having a big impact, maybe you don't need homeowners insurance.

So, it's something that you have to look at: What's the probability of this happening? What's the downside if it happens? And do I have options to be able to absorb that? It's like any other insurance decision.

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