No. of Recommendations: 3
Advice from my Dad when I was a teenager: "If it's not worth doing, it's not worth doing well."
I agree with the sentiment in general, but an annuity (or something similar) is definitely NOT in the "not worth doing" category.
Anyone trying to handle longevity risk without meaningful participation in a pooled scheme is a doofus. Sorry for the strong language.
Sample pooled schemes include private and public pensions, annuities, tontines, and the TIAA-CREF "traditional" scheme, or (a French example) a viager. You might count your relatives. Basically anything that pays out till you croak, no matter how far in the future that may be. A sample "doofus" approach is using a retirement calculator to figure out your SWR and funding your retirement spending based on that, on the dual false assumptions that (a) you have to fund all spending from your portfolio even if you live to Methuselah age, and (b) that the calculator results will keep you from going broke if that happens. Being old and being broke are both bad, but being both is terrible. Doing it knowing in advance that's the risk you're taking is incomprehensible.
The reason pooling is the only sensible approach is simple: only a tiny fraction of people live to extreme old age, by definition. If everyone tries to fully fund that remote contingency individually, the vast majority of the overall capital is being allocated to a useless goal. With a decent pooled scheme one can generally eliminate the entire tail of longevity risk by allocating perhaps a year of target income, maybe two. Spend the rest or give it away, whatever makes you happiest.
So I'd put it into the category of "absolutely worth doing". And also "worth doing well", provided you're not so rich that mere dividends will cover the lifestyle to which you have become (or would like to become) accustomed.
Well, there are also some people who want to live like misers and leave everything to their ne'er-do-well children, but I have no advice for such folks.
Jim
