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Comment by kcorbitt | Hacker News Reader

I feel like private annuities should be more popular than they currently are. Like a pension, an annuity pays a defined benefit until the day you die. They can also afford to pay out a slightly higher annual benefit than you could safely take from your own 401(k), because it's a statistical certainty that X% of the risk pool will die early, whereas with your own savings you can never be sure how long you'll have to make it last.

Unlike a pension, an annuity isn't tied to a specific employer, so it doesn't have career-immobilizing vesting requirements or weird payout rules tied to how much money you make in the last N years of your career. And you can select an annuity provider based on its fees and how solid its financials are, factors that aren't necessarily high on the list while selecting an employer.

So, why aren't annuities more popular as a retirement savings vehicle?

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It's too easy to write an annuity as a scam, and there's huge counterparty risk of insolvency over 10-40 years. So we only see annuities where's there's no meaningful choice whether to opt in (Social Security and pensions)

So maybe we just need to invent the Vanguard of annuities? An annuity provider with a governance model designed to work in the interest of its customers that can build trust as a reliable player?

EDIT: it appears that Vanguard itself offers annuities, but they're not particularly transparent so I'm unsure if they're "good enough" for general-purpose retirement savings.

Social security is an annuity, and a damn good one--it's guaranteed by the US Government. What we need is for supplemental annuities (above SS amounts) to be offered by the federal government at cost, or to guarantee annuities sold by insurance companies (a la FDIC).

> What we need is for supplemental annuities (above SS amounts) to be offered by the federal government at cost

The U.S. government already sells 30-year Treasuries and savings bonds [1]. Spinning up a new government program is complicated. Just authorize the issuance of 50, 70 and 90-year Treasuries.

[1] https://www.treasurydirect.gov/indiv/products/prod_eebonds_g...

Bonds work differently from annuities, and are vastly more expensive per desired dollar amount of fixed income (provided you don't care about your children's inheritance).

Social security is fine, but there's no way to over-contribute to intentionally up your benefit. In fact it's sort of the opposite -- the more you contribute, the lower your marginal returns. If the US government allowed voluntary SS contributions that paid out on a fiscally responsible schedule that might be a good solution. But I'm not sure it would be a better one than just letting private companies implement them.

It is much easier to create a mandatory annuity than an optional one because you don't have to worry about people who have a lower than average expected payout opting out. If the annuity is optional you need to have a much more sophisticated way of determining how much people should pay.

Good point.

Vanguard itself offers annuities [https://investor.vanguard.com/annuity].

Compared to Vanguard's other funds, this looks rather opaque; there are no prices.

But maybe that's how it has to be, since it depends on the person? In any case, this will make them harder to sell.

Look closer and you’ll find a listing of their variable annuity funds, minimums are typically $5k:

https://personal.vanguard.com/us/funds/annuities/variable

In many different aspects of life, it takes generations to build up trust, and once it is really ironclad, some smart-alec always comes along and uses that trust to scam people.

Social security is an annuity, and one of the most popular retirement vehicles. I mentioned this in a comment below, but I believe private annuities aren't more popular because a) the industry is rife with high fees, perverse incentives, trickery and b) they're not guaranteed. The insurance companies offering them can fail. If we had something akin to FDIC insurance for annuities, I'm positive they would become far more popular than they are.

>it's a statistical certainty that X% of the risk pool will die early, whereas with your own savings you can never be sure how long you'll have to make it last

This is rather similar to a tontine, which have been considered highly unsavoury for a long time and are illegal to boot.

> This is rather similar to a tontine, which have been considered highly unsavoury for a long time and are illegal to boot.

Sure, they are similar in that a tontine is considered to be a type of annuity, but a typical annuity does not have the unsavory aspect that other members get more money if I die.

If I murder a fellow member of a tontine, I get more money. In a normal annuity, I would get no benefit.

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