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Variable Annuities Fit Into Retirement Puzzle


In the Chicago Tribune Article “Annuities can be valuable slice of retirement pie,” Humberto Cruz describes he and his wife’s retirement plan using pension, Social Security, and four different annuities.  Both Social Security benefits and pension payments are forms of an immediate annuity, providing lifetime income at a set monthly amount.  The author and his wife also chose to add four annuities from insurance companies to their retirement plan.  They opted for one annuity that will increase 3% yearly for inflation to go along with the inflation adjusted Social Security payments.  With those guaranteed streams of lifetime income, the couple believes that they will have their basic expense needs met over both of their lifetimes.

They believe that investing in an income annuity is more like insurance than an investment because although you will not gain as much as you could from a riskier investment, you know that your payments will always be there.  Take the remainder of your savings and invest in something riskier to grow your funds even further, but make sure you have the annuity to cover basic expenses.  Variable annuities that include guaranteed lifetime withdrawal benefits are also a good way to generate retirement income.  You have the potential for better returns than with an income annuity, but will probably have a lower guaranteed payout rate.  Some other suggestions the author lists are systematic withdrawals, living off interest or dividends only if you can afford it, and using a bucket approach of splitting your money between short-term and long-term needs.

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