A Quick History Lesson
The concept of an annuity dates all the way back to ancient Rome. Roman citizens and soldiers would make a one-time payment into contracts called annua. Latin for annual payments, and in return receive a guaranteed income for life. The Roman jurist Domitius Ulpianus was one of the first annuity dealers in recorded history and is credited with creating the first life expectancy table.
In 1759 the concept arrived in America when annuity payments were offered to the widows and orphans of Presbyterian ministers in Pennsylvania.
The core idea, trading a lump sum for a guaranteed stream of income you cannot outlive, has proven useful enough to survive over two thousand years. Your CalSTRS pension operates on the exact same principle. So does Social Security. The concept is fine. It's what gets sold under that concept that sometimes isn't.
The Psychology of Spending
Most people spend their entire working lives being told to save. Then retirement comes and suddenly they're supposed to start spending that money down. For a lot of people that's actually terrifying, a psychological switch you can't just flip.
People who have worked hard and saved diligently get to retirement and cannot bring themselves to touch it. They lived their whole lives around a paycheck and now they are supposed to take distributions from an account and see the balance go down? No, down is bad. It feels completely unnatural.
Academic researchers David Blanchett and Michael Finke found that retirees with guaranteed income sources spend roughly twice as much as retirees with an equal amount of non-guaranteed savings. Their research is summarized in the whitepaper Guaranteed Income: A License to Spend.
An annuity replicates a paycheck. It arrives on a schedule, it is a known amount, and your brain processes it the same way it processed your teaching salary for 30 years. You plan around it. You spend it. You actually enjoy your retirement.
Where Annuities Fit In Your Plan
I think about client portfolios in three buckets: safety, income, and growth. An annuity, when it's the right fit, typically lives in the income bucket alongside your pension and Social Security, both of which are annuities in every way that matters. Guaranteed income you cannot outlive is not a foreign concept. It's already the foundation of your retirement.
See the full bucket strategy, including how the safety and growth buckets work together →
Not sure if an annuity actually belongs in your plan, or if it's just being pitched to you?
Get a Second OpinionWhere Annuities Actually Make Sense
A deferred annuity allows you to put money in now and let it grow for a set period before turning on income. In some cases deferring for ten years can produce a guaranteed payout rate of 8 to 10 percent annually. To put that in context of the often touted 4 percent safe withdrawal rate, that is roughly twice the amount, and it comes with certainty rather than hope.
Roughly double the income rate, and with certainty rather than a withdrawal guideline that depends on market performance holding up over 30 years.
For a teacher who already has a CalSTRS pension covering baseline needs a well structured annuity in the income bucket can mean the difference between a retirement that is comfortable and one that has real flexibility and breathing room.
Curious what a deferred annuity payout would actually look like with your numbers?
Run Your NumbersWhere Annuities Go Wrong
Many annuities lock your money up for years with steep surrender penalties if you need to access it early. Some carry annual fees that quietly eat away at your returns year after year. And because annuities have historically paid high commissions there has never been a shortage of people motivated to sell you one regardless of whether it is right for your situation.
I avoid those products entirely, working only with A-rated carriers, and only using an annuity to solve one specific problem in a client's plan. I never put more into one than makes sense against everything else in the picture.
I'm not anti-annuity. I'm anti bad-annuity-recommendations, which honestly is most of what's out there. If you've already got one and want an honest second opinion, I'm happy to take a look.