Annuity Reality

Talking Real Money - Investing Talk

Don McDonald

Investing, Education, Business, How To

4.5 • 810 Ratings

🗓️ 13 November 2025

⏱️ 29 minutes

🔗️ Recording | iTunes | RSS

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Summary

Don and Tom question a surprising Wall Street Journal column arguing that annuities should become the default option in 401(k) plans. They explore why the idea is gaining traction, where the logic breaks down, and how the insurance industry benefits when complexity outpaces understanding. Along the way, they dig into the real shortcomings of annuities—fees, opacity, inflation risk, liquidity traps—and why “guarantees” often mask the true cost. Listener questions follow, covering tax-efficient stock cleanup at Schwab, spouse disagreements over individual stock picking, automatic ETF withdrawals at Vanguard, and building Dimensional portfolios inside Aspire plans. 0:04 Don’s rant: “What the world needs now is… more annuities?” 1:20 WSJ’s argument: make annuities the 401(k) default 2:05 Why income complexity doesn’t justify default annuities 3:01 Do annuities actually solve longevity risk? 3:29 Inflation, joint-life costs, and who really wins 4:20 Insurance industry reputation and the unanswered criticisms 5:15 High fees, opacity, and why mistrust is earned 5:59 Are annuity sales tactics the real barrier? 7:02 Should annuities be in 401(k)s at all? Don vs. Tom 7:36 Why annuities are mostly sold, not bought 9:10 Liquidity traps and major-life-event risks 10:01 Why “plans” matter more than “products” 10:57 Listener questions: why nobody calls anymore 11:14 Q1: Selling a brokerage full of individual stocks at Schwab 12:46 Q1b: How to convince a spouse who loves stock picking 14:21 Indexing vs. anecdotal evidence 16:21 SPIVA data and why active managers lose 17:02 Q2: Can Vanguard automate ETF withdrawals? 19:05 Fractional shares and why purchases are allowed 20:25 Q3: Aspire 403(b) options and DFA overload 23:46 How many DFA funds do you really need? 24:44 Micro-cap risks and portfolio sprawl 25:42 Tom’s pumpkin-patch grandkid cameo Learn more about your ad choices. Visit megaphone.fm/adchoices

Transcript

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0:00.0	reality radio for a really great future we're talking real money the heck with stocks
0:11.8	the heck with bonds quit saving for retirement in those crazy vehicles no ladies and
0:18.5	gentlemen what the world needs now are more annuities.
0:23.5	That's apparently what the Wall Street Journal person believes.
0:27.6	Hopefully it's just one person, a woman by the name of Olivia Mitchell, wrote a piece
0:33.8	in the Wall Street Journal that is entitled, How to Get More People to Buy
0:37.6	Annuities, make them the default option in the 401K. What is she talking about?
0:44.7	Hi, everybody. I'm Don McDonald. Tom Cock is over there. This is the Talking Real Money Podcast.
0:50.2	Tom, what the heck is she talking about? What she's talking about is, in her own words, is that employers
0:55.8	have done a lot of good things in 401K plans in the last couple of decades, automatically
1:02.6	enrolling people, having default options into target date funds. Those are both good things for
1:08.3	most people. Then she starts to often to never, never land saying, unfortunately, few U.S. companies help employees with the payout phase.
1:17.7	That is making it easier for people to turn their retirement savings into retirement income that they won't outlive.
1:24.2	There's a solution for that.
1:25.3	She says, make annuityities a default option, default option
1:29.6	in 401ks and similar retirement savings plans. Now, I get where she's coming from. I do get it
1:38.1	because I think one of the biggest challenges that most people in the country face when they get to retirement is that
1:47.9	it creating that that determination of how to create the income stream necessary from your
1:54.7	portfolio that you've saved and invested in for for decades how do you create that a lot of
2:00.5	people are very challenged by that.
2:03.2	But the answer may not be an annuity.
2:08.2	Yeah.
	...

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