You Already Own An Annuity. Why Buy Another?

I am going to keep this week’s article on the shorter side. The topic is just like in the description – You already have an annuity, so why buy another one?

The focus here will be on your Social Security benefit. However, if you are not eligible for Social Security, odds are you have another type of guaranteed income stream in retirement such as a public sector pension. You may also have a pension from your private sector employer in addition to Social Security.

Let’s look at some assumptions here. You finished up with med school, residency and maybe a fellowship and started earning real money by the time you were 35. You had a great career and worked for 35 years (studies show most physicians work past age 65). Every year you maxed out your Social Security earnings. For 2024 that max earning number is $168,600. And now you are age 70 and have decided to take your Social Security. What do you get?

Well, because you maxed out and deferred starting Social Security until the benefits also maxed out, you would receive $4,873 a month this year. I will go ahead and do the math for you. That is roughly $58,500 for the year.

This is a guaranteed income where you take no risk and it also has a inflation adjustment with it so the monthly payments will go up every year.

I’m not going to get into the details about funding of Social Security, benefits of delaying starting Social Security past Normal Retirement Age, taxation of benefits, and when you should start Social Security. That is way too deep of a rabbit hole to go down since I am keeping this short.

No, I just wanted to mention this because most people do NOT look at Social Security as an annuity. The key part of the definition of an annuity is it is a steady income stream.

Again, this is what Social Security is. A guaranteed income stream from the Federal government.

Every time I hear one of the radio programs (early weekend mornings on classic rock stations around me) pitching their fear-based high commission products that provide a steady income stream (by companies with less stability than the Federal government), I think about how just about everyone already has an annuity via Social Security.

So, if you are considering buying an annuity to provide that steady income stream, take a step back and review whether you have Social Security coming your way. If you do, you already have that guaranteed income stream. At least in my humble opinion. But, if you still feel the need to buy an annuity hopefully your insurance salesperson will give you a ride in the new car you probably paid for via a sizeable commission.

Official disclaimer – This is a super simple example. There are times annuities do make sense. However, the reasons are almost always outside of buying them due to fear.