Annuities come in many varieties. The duration varies which I don’t understand because I thought the whole idea was it covered your life. There are various investment options but they are limited compared to what you can do on your own. The commissions are usually in the 5 – 7% range which I think is very high.

If you are someone who worries a lot about the future or are not disciplined enough to only take out a planned amount each year, then there is a place for annuities in your portfolio.

Most financial advisors think you can afford to take out 4% of your portfolio each year and have enough for your life expectancy. That is incredibly conservative because bonds yield 4%. The insurance company is making money on your money.

I think a much better strategy is to use the Stars buy and hold strategy to invest your money. You should be able to get 1% per month or 12% per year by selling part of your portfolio each month. 27 year returns are 21% per year.

What would happen if I started at a market high? I back tested starting in 2000 right before the worst 8 year period. The results are that there are two years when the 12% of the portfolio amount fell to 4% of the initial amount. There were several years when it is 6-8 % of the initial amount. After 25 years the total amount paid out was 4.5 times the initial amount. The portfolio had grown to 4.5 times the initial amount. After 25 years your payments plus portfolio value was 9 times what you started with. With the fixed 4% option you end up with 2 times your initial amount.

At the low point in 2008 the portfolio had fallen to 25% of the initial amount but still recovered to these unbelievable final results.