This article originally appeared on LifeHealthPro.com’s sister publication, AdvisorOne.
I watch in dismay as one insurance company after another continues the slow and torturous process of freezing, limiting and withdrawing the benefits from their guaranteed living withdrawal benefits (GLWBs). A week doesn’t go by without another shoe dropping. A payout percentage here, an equity fund there, a joint-life option over here and before you know it, your variable annuity (VA) has been neutered.
But in all seriousness, only in the 16th century did it become commonplace for retirement annuities to be paid and received exclusively in cash. Until then you purchased the retirement annuity with cash, but the benefit itself was denominated in units of consumption—immune to inflation and the risk of debasing the currency. Perhaps it is time to reconsider the Biblical or Chaucerian annuity.
If this seems farfetched, consider the following. A few years ago, the U.S. Postal Service—an institution that itself might not be around in 2020—started offering what is called a “Forever Stamp.” Although the cost of mailing a first-class letter in the U.S. is currently 44 cents, and the price has been steadily increasing by approximately one cent per year, a Forever Stamp comes with no fixed monetary value. The stamp—effectively a financial derivative—entitles the holder to one unit of service, in perpetuity. The holder can use the stamp to mail one first-class letter somewhere in the U.S, forever. Pay the 44 cents today, and regardless of what it should cost to mail a first-class letter next year or 10 years hence, the cost of the service is locked in.