[glesica]

> buy deferred annuities from AAA rated insurance companies and build their own "pensions".

Which, in a post-financial crisis world, also obviously involves relying on government-backing of the insurance companies and bailouts when ratings agencies hand out AAA ratings like candy. Ultimately, only the government can guarantee people a retirement. Which is why I personally think we should say "screw it" and just guarantee everyone a reasonable (livable) payout from social security...

[bradleyjg]

I think you may be conflating AAA rating of a security with AAA rating of a company. It is an easy mistake to make because the rating companies have deliberately conflated the two in order to sell more structured products rating services.

In contrast to the structured products ratings, the corporate ratings have held fairly well. For life insurance subsidiaries, which are the units that sell annuities, there is even further protection. The law requires insurance subsidiaries to be bankruptcy remote from their parents, and regulates the types of risks they can take on.

To take a famous example, even if AIG had been allowed to go bankrupt, it's life insurance subsidiary -- American General Life Insurance Company -- would not necessarily have been insolvent, and indeed retrospective analysis seems to indicate it would have been fine.

I should mention that all this safety comes at a cost, implied return rates for annuities aren't terribly impressive. But that's the nature of the beast, return and risk are proportional.