President Obama addressed a crowd at AARP Monday and, apparently with a straight face, made unscrupulous financial advisors out to be the nation’s retirement savings bad guys.
Going off a written version of his remarks provided by the White House, he talked about how some terrible advisor conned a nice Illinois couple into buying a lousy annuity. He said the husband in the couple was in a nursing home and unable to get to the money locked into the annuity.
At least in the written version of his remarks, he never mentioned the possibility of using a suitable annuity or insurance policy to help prepare for retirement income and long-term care (LTC) expense needs.
Another point he didn’t make is that, no matter what challenges private long-term care insurance (LTCI) might face in the future, a couple that bought a good LTCI policy 10 years ago and needed the benefits today might be a lot better off than a couple that had no LTCI.
A third point he failed to make is that the main reason to use an annuity, life insurance policy, 401(k) plan or other relatively complicated, scary arrangement to save for retirement is to make our money illiquid. If we less-than-perfectly-self-disciplined people of the world depended entirely on liquid checking accounts, savings accounts and money market accounts to save for retirement, we’d soon blow the money on lattes and trips to Florida. Maybe all annuities should include provisions that make the cash available when holders enter nursing homes; maybe there are complicated situations in which lack of easy access is helpful.
I have no opinion about the annuity that the couple in the anecdote bought, or the new retirement advice regulations the Obama administration has proposed. Maybe the annuity the couple bought was so unsuitable it gave off poisonous vapors when left in a closet for too long. But, in general, it seems unreasonable to buy an annuity partly for the benefits associated with its lack of liquidity, after signing many forms acknowledging that it’s illiquid, then complain about its lack of liquidity.
Meanwhile, the elephant dancing the Macarena behind President Obama was the reality that one of the main enemies of aging Americans’ financial well-being is low interest rates.