Ok. Let me start of by saying, I dislike annuities. I don’t get how they work.

I mean, I get the core of how they work. You spend a lot of money to get one and then it periodically pays money to you over time in the future . It works off of the present and future value of money and has an interest rate. But I don’t get fixed vs variable and all the weird permutations out there especially deferred ones.

Kiplinger’s had an article in their August 2008 edition that went over immediate annuities. The article made sense to me since it deals only with one specific type of annuity used as guaranteed retirement income.

Now, I know you’re thinking, why is she thinking about this now? She’s under 50. But my folks are on the cusp of retirement in very sketchy times. My mom thought she was going to be retiring any minute now, but the markets are going insane and she’s unclear again if she’s going to sell the gas station soon. Since she does have a lot of money in bonds right now, a laddered annuity strategy might make sense for her and my dad.

I haven’t checked out all of mom’s accounts recently, but at one point a few years ago, she had about $300K in her retirement accounts and they were mostly in bonds and in a telecommunications stock, which pays a good regular dividend. She might have moved everything into bonds in the past year, if so, I hope she still has $300K today. (Dad says they didn’t lose a whole lot in the market turmoil because they have a lot of bonds. Their financial advisor actually does his job correctly!)

My dad is already receiving monthly Social Security payments that are about $1700, which is just enough to cover the mortgage. My mom is waiting to retire at 67 so she can receive about $1300-$1500 a month. Add to that $800 from a $100K immediate annuity for mom at the age of 70, she could be doing fine. Then in 5 years another $100k annuity paying out $900, that would make about $4700 month. Not too shabby.

We shall see.