Although some people don’t realize it, Social Security is an annuity. It might be the first annuity that you own or if you delay receiving Social Security in order to reap its full benefits, it many not be. In the Producers Web article “The annuity combo: friends with benefits,” William Meyer said that it might be a good idea to use Social Security as one rung of an annuity ladder when planning out your financial future. You do have choices when it comes to how you annuitize your Social Security contract with the government. You can maximize your retirement savings by delaying Social Security, which will increase your future payout from the government. By waiting to take Social Security, you are essentially buying more income for your future with the price of the savings you will use to cover the time frame that you wait.
If you don’t want to haphazardly use savings to cover your living expenses during the Social Security delay, you can purchase an annuity from an insurance company that will pay you income payments for a certain period of time. That way you know exactly how much income you will receive from your annuity and you know that you won’t overspend your savings while you wait for your Social Security payments to kick in. Mass Mutual found that using an annuity ladder in combination with stocks and bonds is one of the best ways to build your wealth. This strategy gives more guaranteed lifetime income, offers more liquidity and provides one of the strongest retirement planning strategies.
An annuity ladder is the purchase of multiple immediate annuities over a period of time. This allows you to take advantage of potential increasing interest rates, while still guaranteeing your income. Annuity ladders also allow for easy changes to your retirement plan if your needs change for any reason. A combination annuity ladder using Social Security and individual annuities from insurance companies, bought with retirement savings or other money, creates an income floor. You can be certain that your income during retirement will not go below this well built floor and that you will be protected for the rest of your life. When you have this income floor in place, you can take risks with your other savings in stocks and bonds in order to try and continue growing your wealth. Annuities offer a peace of mind that your income will be protected and secure in retirement.