The most commonly practiced approach by many advisors is to meet the retiree’s essential expenses using annuities. It is reasonable to expect that the retiree should have essential expenses covered by guaranteed sources, but using that as the only argument to justify the proposed annuity purchase diminishes the power of annuities in many ways.
Besides missing the point that income from annuities can also be used for discretionary expenses, such a view ignores a holistic picture of the retiree’s situation. For example, the match essentials approach pulls the annuity away from the most powerful lever to help a retiree: Social Security claim deferral.
The advisor may think that an increase in the Social Security benefit through deferral will provide higher essential expense coverage and thus correspondingly decrease the amount of the annuity sale. In reality, the opposite is true — Social Security claim deferral strongly increases the case for annuity purchase, and a deferral-with-purchase approach dramatically improves the retiree’s situation.*
For these reasons, Anil Vazirani asks: “What is your current plan to maximize your social security benefit?”
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