U.S. workers are concerned that they will run out of money in retirement, and for good reason. The Insured Retirement Institute asked Baby Boomers if they were confident that they would have enough money to carry them through retirement and only 27% answered that they were very confident. This information comes from Money Magazine’s “3 Ways to Boost the Odds Your Savings Will Last a Lifetime,” by Walter Updegrave(1). People are living longer, saving less and dealing with potentially low stock market returns. This article says that there are three easy ways to help improve your retirement income situation.
The first thing that you should consider is to delay beginning Social Security benefits. Despite the fact that we are living longer, the majority of people are still starting their Social Security payments at age 62. You will receive much more in your Social Security paycheck for every year that you wait to start receiving payments. Between ages 62 and 70, your Social Security income will increase 7-8% each year that you wait to receive payments. That percentage doesn’t even include any adjustments that will be made for inflation. There are a lot of different ways to claim Social Security for married couples that can help to maximize their benefits as well. Finding a professional well-versed in the intricacies of the Social Security system will be helpful for retirees getting ready to claim their benefits.§
Secondly, Immediate annuity products
are another way to create retirement income. If you decide to delay Social Security until age 70, you can purchase an immediate annuity to pay you income until Social Security payments start coming in.§ You can also use an immediate annuity as a bridge if you won’t have enough income from Social Security and pensions to pay for your basic living expenses or living the lifestyle you want. After paying a sum of money to an insurance company, they will pay you income for the rest of your life or for a predetermined period of time, regardless of what happens in the markets. Your payments will be based on your age, the amount of premium you pay, current interest rates at time of purchase and whether or not it is a single or joint immediate annuity. You relinquish access to your money when you purchase an immediate annuity, so it is best used with only a portion of your savings, and use it to supplement your other retirement income sources. Keep in mind that you need to commit to the annuity long-term, as you won’t have access to all of your money. The third step you can take to create income in retirement is to buy a “longevity,” or deferred income annuity. These products are used when you don’t need more income during early retirement, but are concerned about running short of money later in life. You purchase a deferred income annuity
with the knowledge that you won’t receive income payments for 5 to 20 years, depending on the contract. The longer you defer payments, the higher your eventual payouts will be. The payments can continue for as long as you live. One downside to these products is that your money could be lost if the base contract does not include a death benefit. If you die early and have not added on death benefits for your heirs, the insurance company would keep the rest of your premium. That is why these annuities are often called longevity insurance; you are insuring against living a long life and running short of money. There are new benefits to purchasing longevity annuities, designed as Qualified Longevity Annuity Contracts (QLACs), within qualified, employer-sponsored retirement plans. As more companies get on board with these products, this type of annuity will be even more accessible for creating retirement income from your retirement plan assets.
Delaying Social Security, purchasing an immediate annuity or using a deferred income annuity are three ways to help create retirement income that will help assure that you do not run short of money during your lifetime.*
Written by Rachel Summit
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§Not affiliated with nor endorsed by any government agency, including the Social Security Administration.
*Guarantees of annuities rely on the financial strength and claims-paying ability of the insurance company that issues them. Lifetime payouts may be a benefit of the base annuity contract, or may be offered through the additional purchase of a lifetime benefit rider.
1. Updegrave, Walter. “3 Ways to Boost the Odds Your Savings Will Last a Lifetime.” Money Magazine, June 3, 2015. http://time.com/money/3902518/retirement-savings-lifetime/?xid=tcoshare
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Document reference: 1500349-1