Make money last: How to buy a pension


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Jean: One of the concepts that you talk about in the book is this idea of buying a pension. How does this work?

Jane: We’re talking about the simplest kind of annuity, which is just like a pension. You put up a lump sum of money, they say, “Okay, based on this, we will pay you x hundred dollars a month for the rest of your life.”

This is a wonderful instrument for people to use, if they don’t have quite enough money, and they’re very worried about having their money last. But, here’s the thing: They don’t want to do it because they say, “Well, what if I give the insurance company $100,000 and then you have a heart attack in 5 years?”

It’s what I call the sucker factor. I’ll be a sucker if I buy this and then I die too soon. Well, you know you say, “I regret it,” but you know, you’re dead. You’re not regretting anything, but during those 5 years you have had a higher income to live on than if you had if you’d relied on CDs or a bond fund, or some other income investment.