Ways to Increase Retirement Income
As you begin to plan your retirement, you may or may not have a good picture
of how risky income planning can be. The truth is that a frightening
percentage of individuals do not adequately save for retirement and if you
are on the border of not having enough, or even if you think you do have enough,
there is a very real chance you could come up short later in your retirement
years. A retirement annuity could close the gap between what you have and what
you need.
The scary truth
According to the US Census, the poverty rate for seniors between 65 and 74
is 23 percent. This number rises to 35 percent after age 75. For
women, the numbers are even worse – 42 percent of women 75 or above live
in poverty. A recent US News & World Report article suggests that
bankruptcies among seniors are on the rise. In addition, many who retired
have been forced back to work. A recent study by AARP found that the
employment rate for those 55 or above has actually increased 9 percent over
the past year.
The bull market of the 90’s caused a large number of investors to greatly
overestimate the future value of their portfolio.
Many who retired in the past ten years withdrew far more than they should have. Add
to this, the market decline of the last three years, and the result has been
a great increase in the number of seniors who thought they had adequately saved
for retirement, but are only now realizing that they re at serious risk of
running out of money.
One solution is to convert assets to income and that's where retirement annuities
come in as we shall see.
Why did this happen?
It wasn’t that long ago when people typically worked their entire career
for one employer who provided a pension plan that would give some measure of
security to the retiree. Over the last 20 years, the need to save for
retirement has shifted dramatically from the employer’s responsibility
to the individual. 401(k)
plans are now typically the plan of choice. Unfortunately, these
plans do not provide for the lifetime income stream that pensions did.
While the amount of information on income planning that is available to the
individual has grown, much of such planning is based on static return and life
expectancy assumptions. Reliance on these assumptions could result on
a large number of seniors coming up short in the latter years of their retirement. Those
that try to manage on their own are likely to find themselves having to reduce
their income withdrawals at a time when inflation, and possibly poor health,
are driving their income needs higher.
Even retirees with large asset accumulations may be ill prepared to handle
these risks by on their own. By converting some assets to a monthly income
stream, retirement annuities allow retirees to enjoy income they did not realize
they could have.
Retirement Income annuities offer the solution
While there is no easy fix for the lack of inadequate savings, the only way
to guarantee yourself a lifetime income stream that cannot be outlived is through
a retirement annuity. By taking a portion of your retirement savings
and purchasing an retirement income annuity, you can ensure that you will not
outlive your assets.
A recent study done by MetLife, in cooperation with Rand, found that across
all net worth and total household income levels, guaranteed income streams
(pensions, annuities, etc.) have a positive impact on retirement satisfaction. Those
who fund more of their retirement income with guaranteed pensions versus just
savings are more satisfied.
Deferred annuities are asset accumulation products often sold to younger investors
for the purpose of added tax-deferred wealth accumulation. However, a
study by LIMRA among annuity owners disclosed that only 22 percent of annuity
owners realized they could convert their contract to a lifetime income, ie.
convert their deferred annuity income a retirement income annuity. Only
a very small percentage of contract holders actually do take advantage of the
lifetime income guarantees.
Good news for retirees
Fortunately for the consumer, the insurance industry has realized that as
our society ages and the number of seniors skyrockets over the next 10-20 years,
retirees will be looking for better ways to “decumulate”
their retirement. Future retirees will live longer and will expect a
better lifestyle during their retirement years. The result of this is
that the industry has responded with a whole new generation of products that
provide the necessary lifetime guarantees while including a myriad of options
to provide flexibility to the investor, and overcome the concerns that some
people have to annuitization.
Among the more popular features is a product that offers a withdrawal option,
permitting withdrawals during the first two years. Another option that
is popular is the ability to elect to have full transfer flexibility among
the variable investment and fixed investment options within the contract. This
can be both useful and add peace of mind during volatile markets.
While no single product can offer a panacea for the wave of baby-boomers about
to retire, income annuities can be an important element to true financial security.
To learn more about retirement income annuities, check out these related articles:
Six Ways to
Increase Retirement Income
The Immediate Annuity Solution to
Long Term Care
The
immediate Annuity -Old Investment Revamped for Modern Times
Health-adjusted
SPIAs - Poor Health Can Be a Factor in Producing More Income
An
Old Source of Income With a Modern Twist
Types of Annuities
Immediate
Annuities
Fixed Annuities
Equity
Indexed Annuity
Order our free booklet, “Six Ways Retirees Can Cut Taxes” for
more secrets to make the most of your retirement income.
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