Guaranteeing Your Retirement Income: The Right Way to Plan
If you’re like most investors, you’ve watched the markets take a pretty bad turn since the beginning of the year. If your investment timeline is long enough, it may not concern you. If retirement is just around the corner, you may be concerned as to if your retirement savings will still be enough to generate the income for retirement that you are planning for.
The days of employer sponsored pension plans seem to be fading fast, leaving individual investors with the responsibility to provide their own retirement income. That’s where annuity products enter into the picture, providing guaranteed monthly income. Having that guaranteed income amount, regardless of what the market does has yielded tremendous benefit in retirement. In fact, a 2012 study from Towers Watson found that retirees who received a guaranteed income- either from a pension or annuity- scored much higher retirement satisfaction scores than those without such income.
Now, this doesn’t mean that everyone should go out and purchase an annuity with all of their retirement savings, but it is a tool that can fit into your overall planning, replacing the income that was once provided by pension plans. Fixed or Indexed annuities will always protect your principal, but they are designed as longer term investments, and will typically only allow you to withdrawal 10% of your principal for the first several contract years. There are numerous interest crediting options available, depending on your risk tolerance and diversification goals.
To determine how a guaranteed income product such as an annuity would fit into your portfolio, it is best to first determine how much income you will need in retirement, and how much of that will be provided for through existing income sources- i.e. pensions, social security, etc. The remaining amount would be the guaranteed income payout you would need from an annuity. The rest of your portfolio could be invested in riskier investments such as a traditional stock, bond, or mutual fund portfolio.
Similar to stocks, bonds, mutual funds, hedge funds, real estate, etc., annuities are a tool that can be used to help you achieve your overall financial goals. Each different type of product has its own positives and negatives. It’s important to speak with a qualified financial advisor that can navigate you through each investment option, and how it may fit into your portfolio.
This article is not intended to provide any specific tax, legal, or financial planning advice, and is meant solely for informational purposes only. If you would like more information, please contact Wealth Planning Network to speak with an advisor directly. Annuity guarantees are backed solely by the financial strength and claims-paying ability of the issuing company, and are not FDIC insured.
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