January 4, 2019 • Retirement 101 / Articles and Insights

Is Guaranteed Retirement Income Possible?

Study after study confirms that one of the biggest fears Americans have about retirement is running out of income. And that’s a valid concern. But, what if instead of worrying about it, you faced that fear and helped ensure that you won’t run out of money in retirement? Addressing your fears head on can be the beginning of the retirement you’ve been dreaming about.

And what better way to address the fear of outliving your money than with guaranteed income? Let’s face it, who wouldn’t want a life with guarantees? Guaranteed happiness, health, and the freedom to live as you choose would make life pretty perfect. But, if Benjamin Franklin was right in saying that nothing in life is certain except death and taxes, how do you make your retirement income certain? 

There are a number of financial vehicles that can pay you a certain amount, guaranteed, but when the money runs out or suffers a loss from the market, your payments will end. There are only three sources of guaranteed income that will continue to pay you until you die, no matter how much you may (or may not) have or how long you may live. Let’s review them…

1. Public and Private Pension Plans

Pension plans are provided by private and public employers. They are also referred to as defined-benefit plans, because the benefit (payment amount) is determined (defined) and guaranteed when payments begin.

At one time, most private sector workers had a retirement pension plan. Today, they are much rarer. And even if your company has a plan, staying with them for long enough to fully capitalize on the benefits is unusual. However, for those lucky enough to have a work-sponsored pension plan, they are guaranteed the payment amount and that the payments will continue until they die. Depending on the plan, those payments may even continue to a spouse or designated survivor.

2. Social Security

Your Social Security payments are guaranteed income that will pay you as long as you live, and that’s a promise backed by the United States government. Once you begin your Social Security payments, you are guaranteed to receive them until you die. After you die, your spouse can continue to receive money from your Social Security benefits, if it is greater than their own benefit. They will receive the greater of the two benefit amounts. 

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Unfortunately, many Americans believe their Social Security will be enough to live on. The truth is Social Security was never intended to be a retiree’s sole source of income. Rather, it was meant to supplement other forms of retirement income. When President Roosevelt signed the Social Security Act into law in August 1935, its main provision was “old-age assistance”—emphasis on assistance. 

In addition, because of the reality of a growing and aging population, combined with a shrinking workforce, many are concerned that Social Security payments will need to be dramatically reduced or the retirement age delayed for younger workers. Some even predict future generations won’t have access to Social Security. Because of this uncertainty, most financial professionals recommend a second source of guaranteed income in retirement.

Turning at least a portion of your cash into a sustainable, consistent source of income can be just as important as saving it in the first place.

3. Annuities

That’s where an annuity could help. Annuities are the only other source of guaranteed lifetime income. Unlike employer pensions and Social Security, an annuity can be purchased individually and is the only financial product that can provide guaranteed income for life. In addition, fixed rate and fixed indexed annuities promise you that you won’t lose money due to market loss, no matter what happens to the economy or stock market.

Speaking of money, let’s talk about annuity payments. The amount of the annuity payments you receive and when you receive them depends on the type of annuity you select. How much premium you pay into the annuity, how much interest your annuity earns, and how long you wait until you start taking payments will all influence the amount of your guaranteed income stream. Remember, no matter what happens in the stock market, the economy, or how long you live, the annuity issuer guarantees that your fixed annuity will continue to make the promised payment.

If you’re considering a fixed annuity for additional guaranteed income, it’s important to purchase your annuity from an insurance company that is financially stable. Unlike bank savings accounts and certificates of deposit (CDs), annuities are not insured by the Federal Deposit Insurance Corporation (FDIC). They do have a secondary source of insurance protection from your State Guaranty Association, which are offered in every state to help protect you from potential issues with your insurance company.

There are various ways you can research a company’s financial strength. An easy way is to ask your state insurance department through the National Association of Insurance Commissioners (NAIC) website. Type in the name of the insurance company and you will find their financial information, as well as their complaint history.

Planning for Retirement Income

With all this in mind, it’s normal to think about how long you’ll live and need income in retirement. How long you will live depends on many things, like your gender, your genetics, your lifestyle, and your fitness. Today, on average, men who are 65 will live to be 84.3, according to the Social Security Administration, and women who are 65 will live to be 86.7. Additionally, one in four 65-year-olds will live past 90, and one-in-10 will live past 95.1 However, the fact remains that with all the different factors and influences on longevity, no one knows for sure when their life will end, making retirement planning with guaranteed income even more important.

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Turning at least a portion of your cash into a sustainable, consistent source of income can be just as important as saving it in the first place. For most of us, planning for retirement and generating income to last as long as you do means establishing a few guaranteed income sources. Guaranteed income is one way to help put your mind at ease as you plan for the future. It’s exactly what it sounds like: a consistent payout, regardless of market behavior. Guaranteed income is possible, and with fixed annuities, you can address your fear of outliving your money with a guaranteed income stream that lasts as long as you do.

Annuities are long term financial products designed for retirement income and may not be suitable for everyone. They involve fees, expenses and limitations, including surrender charges for early withdrawals. Some include additional riders and benefits that may come at additional cost. Annuity product and feature availability may vary by state.

Annuity guarantees are backed by the financial strength and claims-paying ability of the issuing company. Withdrawals are subject to ordinary income taxes and if taken before age 59 ½. May be subject to an additional 10 percent federal penalty.

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