One of the most common fears people share when considering retirement is the very real possibility of outliving the money they’ve worked so hard to save.
Making sure your retirement is properly funded remains an ongoing challenge given the number of risks and concerns you’ll face - risks like market volatility and economic uncertainty. On top of that, we’re living longer than we used to. The steady income for life provided by company pension plans — if you were lucky enough to have one — countered some of those risks, but pensions are disappearing from the American landscape. Today, only 26 percent of American workers have access to a defined-benefit pension plan, according to a Bureau of Labor Statistics survey in 2018.
Even with all the risks and concerns a person has as they face retirement, and even in the absence of a pension, there is some good news: You can get that kind of protected monthly income by investing in an annuity. “Put simply, an annuity is the only financial product that can generate income that will last as long as someone may live, whether that is to age 80, 90, 100 or 110,” explains Frank O’Connor, vice president of research and outreach at the Insured Retirement Institute. Annuities are long-term investments offered by insurance companies that can provide this lifetime guarantee because they’re able to pool the risk among a wide range of individuals.
Allocating a portion of your retirement savings into an annuity also helps avoid a second issue associated with working with lump sum investments, says William G. Gale, the Arjay and Frances Miller Chair in Federal Economic Policy and Director of the Retirement Security Project at the Brookings Institution think tank in Washington, D.C. If you draw down your lump-sum savings too aggressively, and live longer than you expected, you might have to rely on less in your later years, he says. But, conversely, if you draw down your savings too conservatively and pass away earlier than you expected, your thrift will have been unnecessary and you won’t have enjoyed your retirement years as much as you could have. Having some portion of your retirement assets in an annuity reduces these two risks, Gale says.
You can have a standard of living that’s higher than in the conservative draw-down case and be assured that protected lifetime income will last as long as you do. O’Connor believes that the temptation to overspend is greater when you see your savings as a lump sum. “Retirement savings will seem like financial windfall at first,” he says, “but using that ‘pot of gold’ without a plan creates a high probability of exhausting those savings while you still need them.” Annuities can also protect you from outliving your income in retirement by decreasing your need to make financial decisions late in life. “We’re all vulnerable to the challenges of old age,” says Jack Dolan, vice president of the American Council of Life Insurers. Remember — not all annuities are alike. For example, some annuities provide a family benefit, beyond one person’s life, whether a joint benefit or a death benefit.
Whatever your asset mix is, all retirement planning comes down to one thing: being more secure. The protected lifetime income of an annuity can free you to focus less on financial concerns and more on enjoying your golden years to the fullest.
If you are concerned about outliving your income in retirement, or are considering an annuity, we can help talk through these issues with you and help you understand the pros, cons, and details. Feel free to reach out to us at 732-383-2064.
Curtis Krietzberg, David Krietzberg, and Felicia Garland are registered representatives of Lincoln Financial Advisors Corp. Securities and investment advisory services offered through Lincoln Financial Advisors Corp., a broker/dealer (member SIPC) and registered investment advisor. Insurance offered through Lincoln affiliates and other fine companies. It is not our position to offer legal or tax advice. Krietzberg Wealth Management is not an affiliate of Lincoln Financial Advisors.
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There is no guarantee that any investment will achieve its objectives, generate positive returns, or avoid losses. Investments in annuity contracts may not be suitable for all investors. This material has been prepared in conjunction with Milliman Financial Risk Management LLC (Milliman FRM). Milliman FRM retained Northern Lights Distributors, LLC, a FINRA/SIPC member, to facilitate FINRA review of the material in order to meet certain requirements of its business partners. Northern lights Distributors, LLC is not affiliated with Milliman FRM or The Alliance for Lifetime Income.