Babbel and Merrill encourage retirees to look at annuities, where everyone’s risk is pooled together. This provides insurance for an individual, because the pooled money can cover them if theirs runs out. Since Babbel and Merrill have shown that half of all retirees will run out of money, this insurance is important.
Though Babbel and Merrill stress the benefits of annuities, they do not sell them. This means that their research avoids bias. In addition, the Wharton Institute is a prestigious research location, so you can depend on their work. Babbel and Merrill not only like annuities because of the insurance factor mentioned above, but because they let people continue to spend as they always have, for the rest of their life.
An annuity is the only investment vehicle that allows this. They aren’t one choice among many, but one that stands alone.
Many retirees fear that, with annuities, like with so many other investments, the fees they would pay outweigh the benefits. Babbel and Merrill address this question, too. They note that you cannot produce the benefits of an annuity and the protection over a lifetime without spending 25%-40% more money, since you’d need to single-handedly set aside enough to last the rest of your life.
They also note that, even if you did set aside this additional money, you wouldn’t be guaranteed a lifetime income. Interest rates can change, and inflation can rise. Thus, choosing an annuity, even one with fees, can save you this 25%-40%.