The Purpose of Annuities: Securing Financial Stability in Retirement

In yesterday’s lecture, my teacher explained the concept of #annuities. Let’s illustrate it with the following scenario:

Client A: The returns on annuities are so low, why should I buy one?

(For the record: Everyone has different investment and risk management strategies, so there is no absolute good or bad, only what is suitable.)

It’s true that the returns on annuities are very low. However, the purpose of an annuity is not to generate high returns. If you’re looking for profits, there are many other investment tools available in the market. So, what is the significance of an annuity with such low returns? Here are three key points:

1. Stable cash inflow after retirement. (Well. Cash is the King.)

2. Psychological benefits: That's a very challenging perspective to explain. After retirement, not having to go to work can change your world, good or bad, but having a fixed income can help maintain a similar mindset to the status when you were working. This is similar to the concept of utility in economics, where consumers derive satisfaction, strong or week, from consuming a product.

3. Tax deductions in Hong Kong (though this is relatively less important).

What's your take on #Annuities? Feel free to share.