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Annuities Offer Lifetime Income, May Improve Quality of Life in Retirement

NBC News said that running out of money in retirement is one of the biggest concerns facing many Americans today.1 In the Sharon Epperson article, “Worried About Outliving Retirement Funds? Consider This,” the NBC News contributor says that annuities are worth considering for retirement income. The top three client concerns [according to their interviews] are skyrocketing health care costs, a fluctuating market, and lifestyle expenses. Some financial professionals recommend creating a steady income stream in retirement with annuities to help alleviate these top fears and help ensure that you will not outlive your retirement assets.

As pensions disappear in the U.S., annuities might be the ticket for workers to create their own supplementary income stream. The government appears to believe that annuity products are important, because they have made it easier to use them in 401(k) plans and IRAs through recent legislation. They have also specified that deferred income annuities can be used in target-date funds as the default investments. These target-date fund annuities can start paying income immediately upon retirement or be deferred until later in life. There are many facets to consider when comparing annuities, like fees, death benefit terms, and restrictions. Read any contract and benefit riders carefully before you buy, to fully understand how it will work for your situation.

Helping make sure that you don’t run short of money during retirement is not the only benefit that annuities offer. Since deferred income annuities don’t start paying you income until months or years after purchase, they allow your money to grow tax-deferred. The Treasury Department says that these annuities are a cost-effective way to protect your retirement assets,2 and they can also help increase your quality of living in retirement. When you know that income will be coming in to finance your later years, you don’t have to limit your spending so strictly in early retirement. Many people avoid spending at all costs and don’t enjoy their early retirement years because they are concerned that they won’t have enough money left if they live a long life.

But those who have purchased a deferred income annuity know that they will have income to carry them through the rest of their life,* even if they live a very long time. This type of money management may allow you to add a couple of extra years at the beginning of retirement, when you are likely healthier and more able to do more with your time.

Annuity products can offer guaranteed* retirement income and even the ability to spend less conservatively in early retirement. If you have any questions about how annuities work or if they might be useful in your retirement income planning, speak with someone from Annuity FYI.

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*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 Epperson, Sharon. “Worried About Outliving Retirement Funds? Consider This.” NBC News, May 21, 2015. http://www.nbcnews.com/business/retirement/worried-about-outliving-retirement-funds-consider-n362591

2 Lange, Jason. “Washington tweaks retirement fund policy to encourage annuities.” Reuters, October 24, 2014. http://www.reuters.com/article/2014/10/24/usa-tax-annuities-idUSL2N0SJ13C20141024

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