Annuities in Retirement

Some retirement experts are concerned that many individuals have overly optimistic expectations about their retirement finances and rely too heavily on a single product such as stock dividends to provide retirement income. Unfortunately, this strategy cannot be defined as providing sustainable and reliable income because it could be here today and gone tomorrow due to the uncertainty of the stock market.

Now, even though annuities can be complicated products to understand and manage over time, and some features may not be suited for everyone’s needs, annuities, if appropriately structured, can provide similar benefits of a company pension payout with some exceptions and advantages though. Some workers approaching retirement say they expect to rely on annuities as a primary source of income, even though relatively few have them. Secure Retirement Institute (SRI) finds 4 in 10 pre-retirees are very concerned about outliving their assets and nearly half of pre-retirees (47%) who do not have a formal retirement plan are very concerned about outliving their assets*.

Annuities as a Personal Pension Strategy

One of the advantages that pensions offer is that income payments are often immediate and will continue until the day that the recipient leaves this earth. Then a portion of that pension payment could continue for their spouse (if married) for the rest of their life. Unfortunately, with traditional pensions, if something catastrophic were to occur to both spouses, then the pension goes away with them. With an annuity, even at death, you would maintain control of whatever remaining value of your annuity assets that remain.

Annuities keep things simple in retirement income planning because they are designed and priced to provide sustainable and reliable sources of income payments that can be structured without any taxes being applied until death and that one can never outlive.

How to Utilize an Annuity

Annuities are one tool in the toolbox that can provide sustainable and reliable retirement income that will be paid for life, even if the retirement years of both spouses were quite long and they lived into their 90’s. Annuities provide retirement income solutions for couples where one person cannot work anymore or has reached retirement age while their spouse is still working. They can also be used strategically to fund more tax-advantaged retirement strategies, which I will discuss in a future article titled “The Optional Tax.” Utilizing annuities to potentially fund tax-free retirement strategies is the essence of retirement income planning and what you should come to expect working with a true holistic fiduciary.

In Conclusion

It is recommended that you consider working with a fiduciary who can give you complete retirement planning solutions that consider your retirement income needs first and foremost. Annuities will remain a critical retirement income planning tool, especially as government regulation shifts and retirement strategies evolve. Retirement planning should not be about any one product or solution, rather the ability to create a true plan. Retirement is often a guessing game for many retirees about how they will make ends meet; it should instead be a GPS for the road to peace of mind retirement.

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Annuity guarantees rely on financial strength and claims-paying ability of issuing insurance company. Annuities are insurance products that may be subject to fees, surrender charges and holding periods which vary by carrier. Annuities are not FDIC insured.