Approaching retirement soon? If so, you’re probably thinking about income—specifically, where your income will come from in retirement. You’ll probably draw income from multiple sources, including Social Security, retirement account distributions and possibly even a pension.
While Social Security is helpful, it usually isn’t sufficient to fund a comfortable retirement. That’s why many retirees also rely on withdrawals from their savings and investments. Unfortunately, that income usually isn’t guaranteed. A market downturn could impact your income. Or you could deplete your assets if you live longer than expected.
Fortunately, there are tools you can use to create a stream of income that’s guaranteed for life. One such tool is an annuity. Annuities offer a variety of ways to generate guaranteed lifetime income. Below are three different annuity strategies you can use to generate consistent, predictable retirement cash flow:
Fixed deferred annuities offer set interest payments over a predetermined period of time. You can either let the interest accumulate on a tax-deferred basis, or you can take the interest as an income distribution.
Your interest rate is set when you open your contract. The rate is locked for a predetermined period of time, usually over several years. When that period ends, your rate could be adjusted based on the prevailing interest rate environment. However, your contract will have a guaranteed minimum rate, so you’ll always know the least amount of interest you could earn.
These types of annuities usually have no market exposure and come with a principal guarantee. That means your assets and your income aren’t vulnerable to market volatility. A fixed deferred annuity could be a wise choice if you’re looking for supplemental income with little market exposure.
Guaranteed Minimum Income
A second option is to use a variable annuity with an optional rider known as a guaranteed minimum income benefit. These riders allow you to withdraw a certain percentage of your annuity income base each year. As long as you don’t exceed that withdrawal amount, the distribution is guaranteed for life. That’s true even if your account value is depleted.
These benefits are usually offered on variable annuities, which is a type of contract that allows you to choose investment options based on your goals and risk tolerance. Your funds could grow, but they could also decline in value. The income rider gives you a stable source of cash flow despite the exposure to market fluctuation.
Finally, you could choose to annuitize your funds. With annuitization, the annuity provider converts your assets into a stream of income. The income amount is based on your life expectancy, the amount of assets contributed and other factors such as interest rates. You can annuitize your funds as soon as you open the annuity or at some point in the future.
Annuitization can be helpful because it provides certainty to your income strategy. You can count on the payment continuing no matter how long you live. However, it’s important to remember that you don’t have liquidity or growth opportunity with an annuitized policy. Once you annuitize, you only have the income stream. You may want to keep other assets available for emergencies and for growth potential.
Ready to develop your retirement income strategy? Let’s talk about it. Contact us today at J. Harris Financial. We can help you analyze your needs and create a plan. Let’s connect soon and start the conversation.
Licensed Insurance Professional. This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. This information has been provided by a Licensed Insurance Professional and is not sponsored or endorsed by the Social Security Administration or any government agency.
Annuities are insurance products backed by the claims-paying ability of the issuing company; they are not FDIC insured; are not obligations or deposits of, and are not guaranteed or underwritten by any bank, savings and loan or credit union or its affiliates; are unrelated to and not a condition of the provision or term of any banking service or activity
Guaranteed lifetime income available through annuitization or the purchase of an optional lifetime income rider, a benefit for which an annual premium is charged. Annuities are long-term, tax-deferred vehicles designed for retirement and contain some limitations.
17507 - 2018/3/26