Retirees who are surrounded by their family and friends - and who also have a substantial check coming in every month for the rest of their lives - are much happier, according to a study published in The Wall Street Journal several years ago. They also live longer, studies show.
That makes sense because the number-one worry of retirees is of running out of money. Individuals who have a set income for life remove a great deal of stress from their lives.
Retirees used to get enough money from Social Security and a traditional pension. But few employers now provide pensions, putting the onus of saving on the employee. Social Security payments equal only about 40 percent of the average wage earner's pre-retirement income.
How can you get additional guaranteed income?
Annuities provide an often overlooked solution. Most offer an option for guaranteed lifetime income. Many also let you name a joint income recipient so that your spouse can also receive a guaranteed lifetime income.
Research shows that annuities provide both psychic and financial benefits. Retired annuity owners feel more confident they’ll be able to afford their preferred retirement lifestyles – even if they live to age 90 or older – than retirees who do not own an annuity, according to a LIMRA Secure Retirement Institute study.
Some 73 percent of retirees who own an annuity believe they will be able to live the retirement lifestyle they want, compared with just 64 percent of retirees who don’t. Nearly seven in 10 retirees who own an annuity are more confident their savings and investments will not run out if they live to age 90, compared with 57 percent of retirees who don’t own an annuity, the 2016 LIMRA survey found.
An annuity offers a solution for creating long-term income security along with the happiness that goes along with that.
Don’t Invest Unless It’s Right for you
Annuities are powerful, but they’re not for everyone. Don’t invest unless you know it’s the right product for you.
Before buying, ask yourself:
- How much income will I need in addition to Social Security and other sources?
- Will I need supplemental income for anyone else besides myself?
- How long do I plan on leaving money in the annuity?
- When do I expect to need income payments?
- Will I be able to gain access to the funds from the annuity if I should need them?
- Do I have enough cash reserves to meet expected needs?
- Am I using the funds to save for retirement, to generate a retirement income - or both?
Once you’ve decided that an annuity is the right choice, then you can decide which type would be best.
There are many different types of annuities available in the marketplace today, so knowing how you plan to use the product, will help you to make the best choice.
Many annuities offer a guaranteed interest rate and guaranteed principal. Some annuities offer a chance at higher returns but don’t guarantee earnings or principal.
Immediate annuities begin paying out income within one year, while deferred annuities let you make deposits for many years before you start taking out an income stream.
Just like a car, there are lots of models that can get you from Point A to Point B, but the one that's best for your specific needs will depend on its particular features and benefits.
An annuity can be bought with a lump-sum payment using cash or by rolling over funds from an IRA, 401(k), or another retirement account. You may also choose to make a series of regular, smaller deposits over time. Until you make withdrawals, you pay no tax on earnings.
Annuity expert Ken Nuss is the founder and CEO of AnnuityAdvantage, a leading online provider of fixed-rate, fixed-indexed and immediate-income annuities. He launched the AnnuityAdvantage website in 1999 to help people looking for their best options in principal-protected annuities.
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