Annuities in the New York Times

-->

I’ve been hoping a major publication would again present a discussion of the good and bad of annuity contracts and life insurance. Now, on May 11, 2013, here it is in the New York Times, by Paul Sullivan.

Just now, he says, both products “are being promoted for their tax benefits.”

The tax issue, he adds, “is by no means the full picture…

“Many policies carry high upfront and management fees, have limited investment options, and penalize people for withdrawing their money with a few years of buying the policy or annuity.”

I applaud Paul for a good job, though it does suffer one weakness. His article doesn’t mention inflation. Annuities do pay a fixed amount of money for the rest of one’s life, but inflation knocks back the fixed dollar sum to a lower amount of purchasing power at the store.

Since 1945, Consumer Price Index inflation has averaged a tad more than 4% a year. At that rate, $10,000 in cash buys only half as much in 15 to 20 years.

So, despite the steady income stream, the longer you’d live the poorer you’d be. To match the purchasing power of $10,000 in 1945, your annuity payment would need to be way more than $10,000 in 2013. The Bureau of Labor Statistics’ inflation calculator tells us your annuity would need to pay you $129,318 in 2013.

I wonder if that’s something your insurance agent knows or cares. You do. 

-->

Hmmm.

In 1945, I was a high-school senior working for $10 a week at the Equity Dairy Store in Miamisburg. To equal the buying power of the $10 in 1945, I’d need a weekly wage of $129 in 2013. And:

One year out of high school, I was working in Dayton on an assembly line at the Delco Division of General Motors for $40 a week. The BLS inflation calculator tells me my weekly wage in 2013 would need to be $477 to match the purchasing power of my $40 in 1946.

No wonder I bought, for cash, both a motorcycle and a car in 1946. They weren’t cheaper then: The dollar was worth a lot more than it is today.