Variable annuity products are often maligned in the financial world, but they can serve an important purpose in retirement planning for many Americans. In a recent article for The Woonsocket Call, “Building a sound retirement income plan,” Chris Boules explains how variable annuities can help you account for the biggest risks you face in retirement. Volatile markets and an economy with relatively low interest rates in the recent past have many people worried about their future retirement funds. They are worried about making their savings last for the rest of their life, i.e. longevity risk. Another major risk in retirement is investment risk, or the risk that you won’t receive the returns you thought you would in the markets.
Boules says that variable annuities help you manage your retirement risks and can guarantee you a lifetime stream of income in retirement. Annuities also offer the benefit of tax-deferred growth, they don’t limit your annual contributions, and you aren’t required to make withdrawals until age 70 1/2. QLAC annuities allow you to avoid those required minimum distributions for even longer. You can also add on an optional death benefit so that your beneficiaries will receive your remaining principal after you die.
Recently, the Investment Research Group Ibbotson Associates found that a combination plan with annuities and non-annuity portfolios offers you a fantastic chance of meeting all of your retirement goals. This approach balances your goals of maintaining your income, protecting your principal, and allowing for growth of your money. The researchers found that a variable annuity with a guaranteed minimum withdrawal benefit (GMWB) is an excellent way to increase your retirement income while still avoiding additional market risk. GMWB’s offer downside market protection because you can withdraw a percentage of your benefit base yearly.
Many people look towards retirement as their time in life for relaxation and enjoying the things they didn’t have time for during their younger years. If you are worried about having enough income or what is happening in the markets, you will lose out on some of that potential enjoyment. Adding a variable annuity with a GMWB to your diversified retirement plan can give you a higher lifetime income stream and protect you from the risk of having to cut down your spending during retirement. Variable annuity products are worth consideration as one part of a retirement income strategy.
Written by Rachel Summit