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SPIAs Provide Guaranteed Retirement Paychecks


In the Fox Business article, “Should Annuities Provide Your Retirement Paycheck,” Tom Hegna discusses the possibility of annuities financing the new American retirement.  He says that annuity products should definitely be considered as a means for meeting your monthly expenses in retirement.  They are a good option for retirees without a pension and those whose Social Security will not cover their basic expenses, so mostly everyone.  But you definitely need to speak with a financial advisor before making the final decision to buy an annuity.  Here are some of details shared in Mr. Hegna’s article about using annuities for a retirement paycheck.

Annuities give you monthly paychecks after paying your initial premium and also provide what Mr. Hegna calls “playchecks.”  He points out that during your working life, you typically spend the most money on Saturdays whether it be from shopping, golfing, or seeing a movie.  But once you retire, everyday is similar to a Saturday and you have a lot more time in life to play.  You’ll need monthly income coming in to guarantee that you will be able to pay for all of your expenses, whether they are for play or not.  Lifetime income, or single premium immediate annuities offer you guaranteed income either over a certain time frame or for the rest of your life.  By choosing the lifetime income option, you are basically creating your own pension from your retirement savings.

Only 100 years ago, the life expectancy of Americans was around 50 years old.  Can you believe that?  Now couples at age 65 have a 50% chance that at least one of them will live until they are 92 and a 25% chance that one will live until 97.  That means that our retirement savings needs to last way longer than our grandparents and great-grandparents’ retirement savings.  Far and away, the biggest risk in retirement is longevity risk, or outliving our assets.  Not only does this risk increase the longer you live, it also increases the other retirement risks of inflation, the markets, deflation, and long term care needs.  Single premium immediate annuities are one of the only ways to beat longevity risk by guaranteeing your income over as long as you, or both you and your spouse, live.

If you are looking for a safe investment, annuities could be the right product for you.  The retirement red zone, or the five years before and the five years after your retirement date, is the worst time for you to take a hit from the stock markets.  Annuities can help you grow your money without worrying about declining values because of their guarantees.  Some variable and fixed indexed annuities can even offer market upside without the risk of losing any of your original principal.

The article points out some other things that you really need to take into consideration before purchasing an annuity though.  Contracts are usually complex and can hide fees if you aren’t careful about what to look for.  Make sure you know all of the fees ahead of time.  Mr. Hegna recommends not purchasing any annuity where sales commissions over 4%-6% are paid.  Keep in mind that you need to protect yourself from inflation.  Many SPIAs offer yearly increases to help combat inflation, but if you have a fixed annuity without an inflation increase, make sure other investments in your portfolio account for this.  Interest rates are a part of your annuity payment determination, so keep that in mind.  But the older you are, the less they matter when it comes to your annuity payments.

If you think an annuity could be right for your retirement, speak with an expert and do your research.  This Fox Business article believes that annuities are a good way to receive a retirement paycheck that will keep your finances in order.

Written by Rachel Summit

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