One of the top retirement concerns right now is running out of money during your retirement. Purchasing an annuity product with some of your retirement savings can help ensure that those savings last for as long as you live. Annuities can also protect against another concern, declining cognitive ability in old age. The Motley Fool’s Selena Maranjian recently wrote the article “Don’t Want to Go Broke in Retirement? Annuities Can Help” about the benefits of using annuities in retirement income planning. Annuities pay you a steady stream of lifetime income, simplify your overall finances and help protect money mismanagement as you get older.
An annuity is a contract with an insurance company to pay them a lump sum of money in exchange for payments that last for a fixed term, your lifetime, or you and a spouse’s lifetime. You can start receiving payments immediately or defer them for a period of time. Annuities can pay fixed or variable payouts. This Motley Fool article focuses solely on traditional fixed annuities because they are simpler and often fit more people’s retirement income planning needs. Average social security payments of $16,000 per year are just not enough money for you to live a comfortable retirement. You need other sources of income, which typically should include an annuity if you don’t have a hefty company pension. Your annuity payments are based upon your age, life expectancy, interest rates and other factors. Depending on your original purchase amount, you can get as much yearly additional income as you need from an annuity product.
The lifetime income aspect of annuities is not only beneficial for the actual income, but also because you don’t have to make any more decisions about that money. While some people like managing their money and transferring to different financial accounts, as you age this can become more difficult or even impossible. Finance and math skills are among the first cognitive abilities to decline as we get older. Annuities can help you rest assured that your income will continue flowing in regardless of what happens in the markets or with your mental abilities. Financial decision-making is at its best at age 53, according to the Center for Retirement Research at Boston College. Even though that skill declines, most people are still confident in their financial decision-making ability which can cause big problems. Annuities help protect against declining cognition in old age in addition to providing lifetime income to help ensure a comfortable retirement.
Written by Rachel Summit