Perhaps the biggest financial challenge facing us today is how to turn our retirement savings into income. In “Advisors Challenged To Convert Savings To Retirement Income,” Financial Advisor’s Juliette Fairley discussed some of the findings from a recent IRI survey. The Insured Retirement Institute found that 80% of retirees who have at least $50,000 saved get income from an annuity or pension. But pensions will be few and far between in the future, so the focus on annuity products for guaranteed income must increase. Financial advisors face a big challenge helping their clients turn retirement savings into a stream of income.
Currently it appears that people are purchasing annuities for income later in life. Forty percent of 75-80 year olds receive annuity income, compared to 35% of 70-74 year olds and 21% of 65-69 year olds. There is a huge opportunity for growth when it comes to using annuity products to guarantee a retirement income stream. One of the first things that has to be determined is how much money to use towards an annuity purchase. Advisors and clients must determine how much money to keep liquid for an emergency fund, what expenses should be paid down, and how much annuity income is needed to offer peace of mind throughout retirement.
One major factor to consider is how you will pay for long term care costs as you age. Far too many people are unaware of the likelihood that they will have to pay for long term care during their lifetime. The Department of Health and Human Services says that 70% of people who are 65 years old now will pay for long term care at some point in their lives. Unfortunately, when asked whether they thought they’d have long term care costs, 67% of people thought the chance of it was small. They really didn’t comprehend the high risk of long term care costs and how it could effect their entire financial well being during retirement. Sixty percent of those surveyed falsely believed that Medicare would pay all of their long term care expenses.
Retirees in the future will have to make up for the loss of pensions and could need up to $400,000 of extra savings. One financial planner said that an immediate fixed annuity is a good way to create a retirement income stream. She recommends this type of annuity because it is basic, low cost and gets the job done. There are multiple types of fixed annuities that provide an income stream including single premium immediate annuities (SPIA), deferred income annuities (DIA), Qualified Longevity Annuity Contracts (QLAC), and fixed indexed annuities with an income rider (FIA). You can also create an annuity income stream with a variable annuity that has a living benefit rider attached.
The IRI survey found that 29% of people who have been retired from 5-15 years receive income from annuities. Close to 3/4 of those annuities are paying lifetime income rather than income for a fixed period of time. Most of the people who own annuities said that they were satisfied with their annuity products. Annuities are like receiving a paycheck during retirement, something that takes away people’s worries about running out of money. Other investments are volatile and cannot provide peace of mind like annuity products. Variable and fixed annuity products with a guaranteed income stream positively impact people’s retirement experiences.
Written by Rachel Summit