Retirement has never been so insecure. Part of the appeal of annuities has been as a strategy to offset the decline in pensions. Yet, if you dig deeper there is another good utility for annuities that some retirees and pre-retirees are using: as a bridge to getting social security. Many lower income retirees hit a wall where they only have tens of thousands to low hundreds of thousands of dollars when they turn 60. The issue is that if the claim Social Security early, they can grossly lower their income versus waiting a few years. Given that the average 60 year-old male right now is expected to live to 88, the difference of $500 a month really adds up. Accordingly, in this situation an annuity—such as an immediate annuity—can work very well, as it buys time for retirees to defer taking Social Security.
FINSUM: This strategy can make a ton of sense, but it takes some convincing as most retirees don’t want to part with their money even if they know it will give them more security.