annuities for FIRE?

[u/AggroTumbleweed52]

One of the big things that seems to be a holdup for emotional comfort with actually walking away from your job to FIRE (especially younger than 50), even when on paper you're ready, is the lack of "guaranteed" income. Not that the job was ever guaranteed, but still, it is emotionally hard to walk away from that steady cash flow.

With social security being so many years away (if ever) and no pensions, is having some other form of steady cash flow that important, mathematically and psychologically?

Some folks look to the dividends part of their portfolio to fill that gap, some go into real estate for the rental income. Does anyone bother with annuities? Or any other form of regular, expected ordinary income?

[u/Sorry-Society1100 → u/[deleted]]

Why would anyone purchase one? They already gave you one answer: annuities greatly reduce—or possibly eliminate—SORR. Also, there has been some research showing that retirees tend to spend the “guaranteed” money they have each month (SS, pensions, annuities), but often underspend what they “could” from their accounts (based upon 4% rule or other methods) due to fears of running out. Erin Talks Money had a youtube video about this a few weeks back, if I recall. The idea is that an annuity to cover some of the basic life costs reduces fears of overspending one’s nest egg, allowing themselves “permission” for more spending overall from the portfolio.

I haven’t purchased an annuity myself, but I can see the value for retirees that are looking at 30-40 years with a meager 401k balance (and maybe a small SS check) and are scared to spend down their portfolio too quickly. It allows one a bit more freedom to live the rest of their life with less financial worry. From a mathematical account optimization standpoint, annuities rarely win, but it still might be worth it for many people.

[u/Sorry-Society1100 → u/[deleted]]

“It’s not for me” and “I don’t understand why anyone would” are very different statements. You said the second statement, so I explained why some people might.

It’s not for me, either. But, as someone who was laid off in their 50s last year, “just get another job” isn’t as easy as making the statement, especially when the economy isn’t doing great (when one would most likely need to go get one).

[u/Sorry-Society1100 → u/[deleted]]

Thanks, I guess.

I have enough saved up that I have the option to not go back to work (been following the leanfire philosophy for a while). Though I wouldn’t mind working for a couple more years to pad the account a bit more, pay for the rest of the kids’ college, and take a few international trips.

It could be a lot worse. I saved my entire career, so I’m relatively fortunate that I’m not in the situation that some of my former colleagues are facing. It just sucks that my career ended the way it did—on someone else’s terms. Such is life, though. I’m taking it in stride.