Yes, Social Security is an income annuity controlled by the government, not an insurance company, but acts essentially the same. If getting an income annuity for lifetime income can help alleviate some of that risk, then how can that be a bad thing? Don’t forget, if you have ever worked a day in your life, you already own an annuity - Social Security income.
Some annuities even come with benefits and riders, such as long-term care.Īsk yourself: What is wrong with that? It’s important to take risk off the table in retirement, with longevity being your prime focus. Your principal is protected from market downturn while still providing some growth. If there are funds left after you both have passed, the remaining balance will go to your beneficiary. In addition to you receiving a lifetime income, your spouse will receive the same. In short, an annuity is an agreement between you and an insurance company in which the insurance company will take your premium and, in return, the insurance company will issue a lifetime payout from your premium, depending on the annuity. There are several types of annuities offered by many companies, but for the purpose of this article, I’ll be discussing income annuities specifically. The good news is the landscape for annuities has changed over the years, which isn’t often spoken about. I know annuities have had a bad name in the past. This might sound too good to be true, but with proper planning and portfolio structuring, this can be achievable through an income annuity. What if there were a way to take out $45,000-$50,000 a year from that portfolio every year for the rest of your life, guaranteed? In our previous example, I mentioned a “Morningstar income” of $26,000 a year from a million-dollar portfolio. Again, the key to planning your retirement is longevity through the rest of your life. Others might include health care, taxes, and long-term care, just to name a few. The value of the dollar is constantly changing, so inflation is a factor to be accounted for. There are several factors that should be taken into consideration when planning for retirement. Do you want to live this way, maybe having to rely on Social Security to guide you through retirement? You are now told only to take out $20,000, in fear of running out of money. Imagine that in eight years, the market goes crazy and has a huge downturn. Is that going to be enough? Will it support your needs and costs? Mind you, the Morningstar theory is just that - a theory. The key word here is “should.” Do you want to live your life on a should or a maybe? It’s wonderful to make money from the market, but at what risk?įor example, imagine you are 62 years old and have saved $1 million for your retirement, and your advisor is guiding you to take out $26,000 a year from your portfolio to live on for your life. If you are not familiar with the Morningstar rule, it is a theory that if you just take out 2.6% of your financial portfolio, you should never run out of money. They might even suggest the Morningstar 4% rule, which is now 2.6%. Many advisors are focused on growth and accumulation of your portfolio assets. This is where having the benefit of an experienced advisor comes into play. Now that you are retired, those risks now shift to worries such as inflation, taxes going up, health care costs, cost of living increases, alongside the biggest risk of them all - longevity. When you were working, you had the risks of losing your job, losing money in your 401(k) and other retirement accounts, or the fear of not being able to cover your day-to-day expenses.
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