Annuities & a Pension
Several years ago, I was invited to speak to a large conference of advisors in Las Vegas.
The topic of my talk was the highly-touted concept of rate of return and why savers are not that concerned with the return ON their money, but rather the return OF their money.
Take my Granddad, for instance. Born in 1914, he worked all his life with the phone company. Upon his retirement in 1978, he got two very important checks: the first one was his social security check. The second one was something called a Pension – Granddad called it “Mailbox Money,” because each month, he was guaranteed a set paycheck sent directly to his mailbox…same amount each month guaranteed to him, for as long as he lived.
Anyway, the topic of my talk was this: considering the fact that Granddad enjoyed Mailbox Money for life, what do you think the rate of return on his pension was? How would that be figured in terms of comparing his Mailbox Money to, say, Granddad putting his money in a stock account and drawing income off of it?
Therein lies the problem. You see, there are really two different worlds out there: the guaranteed world of money that promises the return of your money (that’s Granddad’s world and his Mailbox Money.) Then you have the assumed world…that’s the world of all other investments that may or may not be there for the long haul; especially if you’re planning on drawing income for the rest of your life.