You have no control over market volatility, no matter how much you try to plan for it. Earlier this summer, in a situation now known as Brexit, the United Kingdom left the European Union. This has really effected the markets and put a lot of retirees on edge. The only way that you can account for market volatility without the anxiety of constantly worrying about your money is to have a source, or multiple sources, of guaranteed retirement income. In “Guaranteed income: The antidote to market volatility,” Ralph Grauso says that building up your sources of retirement income will help you ease your worries about the future.
Social Security is typically the largest source of retirement income for most Americans. The amount of income you will receive depends on a few factors, most importantly the age that you choose to start receiving payments. You can start receiving income payments at age 62, but it usually pays to wait longer than that. Payments must be taken by age 70, but they increase with every year you wait between 62 and 70. If you take payments earlier and therefore, reduce your benefit, that will also reduce your spouse’s survivor benefit in the future.
The second source of retirement income that some Americans have is from a company pension. Pension income has been a big source of retirement funds throughout history, but not nearly as many Americans receive company pensions now as they did decades ago. Even if you do have a pension, some recent changes have made these less dependable. Some companies have exposed their pension funds to high risk and others have drastically cut the benefits their retirees receive. A lot of Americans with pensions are starting to save money elsewhere because of the volatility of company pensions.
With the uncertainty of pension funds and even with Social Security benefits, there is a greater need for annuities than ever before. Annuity products are also important for Americans who don’t have any pension income from their employer. An annuity is bought from an insurance company who then pays you monthly retirement income for a certain time frame or over the rest of your lifetime. It is the only way to create your own personal pension and guarantee a future free from the worry of running out of money. The article explains both immediate and deferred annuities. An immediate annuity starts to pay you income soon after making your lump sum payment to the insurance company. One of the main benefits of immediate annuities is that you are guaranteed lifetime income without having to worry at all about market volatility. A deferred annuity has an accumulation phase and a distribution phase. You earn interest during the first phase and then annuitize your account during the second phase when you are receiving income. Any gains are tax-deferred until you start receiving your income payments. Another benefit of buying a deferred annuity is that you don’t always have to purchase it with a lump sum of money. Some insurers allow you to make installment payments over time. Regardless of the type of annuity you purchase, they can pay you guaranteed lifetime income.
Use the guaranteed lifetime income from annuities, Social Security, or a pension to account for market volatility in retirement and ease your worry about finances in the future.
Written by Rachel Summit