Admittedly, annuities may not be the most gripping subject matter at a cocktail party. Yet, the idea of guaranteed income for life in the face of growing longevity concerns is an important subject, and one that should be considered by most everyone thinking about retirement.
So here is a little quiz pointing up some of the interesting facts from the history of annuities. (Scroll down for answers or use the jump links)
1. Which Founding Father established an annuity in his will for two colonial cities?
2. “I may take risks in life, but I will never risk my money; I use annuities, and I never have to worry about my money.” Who said that?
- Lt. Col. James Doolittle
- Babe Ruth
- Gen. George Patton
- Amelia Earhart
3. Where did annuities first originate?
4. When did annuities first become publicly available in the United States?
5. What famous composer was persuaded to remain in Vienna with the promise of an annuity?
Of course, beyond history, annuities have important and useful functions in today’s world as well. You can find out more about them here.
Benjamin Franklin bequeathed Philadelphia and Boston a total of 2,000 pounds sterling in his will. But, he stipulated that the bulk of the money could not be drawn on for 100 years, and the rest could not be distributed for 200 years. Growing over time, the money added up to several million dollars for each city when finally distributed.
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Babe Ruth is credited with the quote. During his prime playing years, the Sultan of Swat put a substantial amount of his salary into annuities — ones with specific growth and future income guarantees. He apparently did so at the urging of a manager concerned about his hard-charging lifestyle. The annuity purchases became an important source of income for his family once he retired.
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The origin of annuities is generally traced to the Roman Empire, where an annuity system was a standard way of repaying soldiers for years of service. Indeed, the term annuity is derived from the Latin “annua,” which literally meant “annual payment” and generally described the practice of paying an up-front lump sum of some sort — be it money, goods, or service — in exchange for a stream of payments back at a later date. However, some archeological evidence suggests an Egyptian prince may have purchased something like an annuity in 1100–1700 B.C. Still, Rome typically gets the overall credit.
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The correct answer to the specific question is 1812, but all the dates are significant. 1759 is when the Presbyterian Church set up an annuity program to benefit retiring pastors. In 1812, the Pennsylvania Company for Insurances on Lives and Granting Annuities was founded and began offering annuities to the general public. MassMutual was founded in 1851 (and issued its first annuity in 1917). And in 1905, Andrew Carnegie founded the Carnegie Teachers Pension Fund, which would transform in 1918 into the Teacher’s Insurance Annuity Association, now known as TIAA.
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Napoleon’s brother, King Jerome Bonaparte of Westphalia, offered Beethoven an attractive position at his court. The Archduke of Vienna along with two local princes made a counteroffer in the form of a life-long annuity contract, saying that “one needs to be free of worries to fully dedicate oneself to a cause and create grand and outstanding works.” Beethoven accepted the counteroffer.
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