The annuity puzzle is the phenomenon where people rarely purchase individual annuity contracts, despite the theoretical benefits of doing so. But how can people get over their reluctance to buying annuities?

Michael Finke, Professor of Wealth Management at the American College of Financial Services, joined Robert 'Bob' Powell on Decoding Retirement to discuss annuities, the 4% rule, other retirement strategies, and much more in this week's episode of Decoding Retirement.

Income annuity (decoded)

An income annuity is an insurance contract that converts a lump sum of money into a guaranteed stream of income payments, typically for the duration of the annuitant's life, providing a fixed amount of money each month in exchange for a single premium paid upfront.

"A great way to think about it is to focus less on your investment portfolio and more on your lifestyle. So, the big problem that I see is that people get to retirement. They've saved a million dollars or $2 million or $500,000, and they just put their arms around that nest egg and they don't want to see it get smaller," Finke says. "We have to become more comfortable with the idea that we need to spend the money down. And when you become comfortable with that idea, then buying something like an income annuity makes a lot more sense. It's a lot easier to take."

Yahoo Finance's Decoding Retirement is hosted by Robert Powell, and produced by Zach Faulds.

Find more episodes of Decoding Retirement at https://www.perfectloveletters.com/videos/series/decoding-retirement.

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Editor's note: This post was written by Zach Faulds.