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Look at a Fixed Annuity Product to Create Your Own Pension


Americans are searching for a guaranteed stream of income similar to the pension plans that many of their parents and grandparents had. In “The Fixed Annuity: It’s Like Buying a Pension,” The Motley Fool’s Serena Maranjian explains how fixed annuity products can be used to create your own personal pension from your retirement savings. With a fixed annuity, you enter into a contract with an insurance company. In exchange for a lump sum payment, they agree to pay you monthly income for a specified period of time or for your entire life if you choose that option. Some annuity products will pay you income over both you and your spouse’s lifetime. While this article’s author believes that indexed and variable annuity products are too complex for people approaching retirement, she says that either immediate or deferred fixed annuities are a good way to create an income stream for your retirement.

Fixed annuity products pay you a fixed income stream that is based off of current interest rates, your age and multiple other factors. An immediate annuity starts payments right away, while a deferred fixed annuity will pay you out at a later date. You won’t know your exact annuity payments until your account is annuitized. The article lists several examples of the amounts that retirees would receive in fixed annuity payments based off of their premium paid, interest rates, and age. Many retirees are worried about running out of money during their retirement. This common concern can be accounted for with the purchase of a fixed annuity product. Receiving income from a fixed annuity eases retirees concerns and helps them enjoy their life without financial worries.

Many people like to say that the income from annuity products is guaranteed. While those guarantees are only as good as the insurance company that is making your payments, history has been kind to annuitants and they have all received their payments. It is important to pick a highly rated insurance company though so that you know your income is safe. Some people choose to purchase annuities from multiple companies to spread out the minimal risks associated with annuity products. The guarantees that you get from these annuity products are much better than the risks associated with stocks, which have no guarantees. It’s also safer than relying on rental income in case your rental is vacant. Another benefit to the fixed income of annuities is that they protect you as you age and your mental capacity starts to decline. If you have an income stream in place, those finances are guaranteed to come in and pay your basic expenses.

Social Security works just like a pension. Although many people plan to rely on Social Security to pay their bills in retirement, the highest Social Security annual payout is $32,000 a year. If you would like more income than that during your retirement and don’t have a pension to rely on, a fixed annuity could be right for you. Consider a fixed annuity product if you are looking to create your own pension income stream during retirement.

Written by Rachel Summit

Follow Rachel, aka Finance Mama, on Twitter and Google+

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