As a person approaches the retirement years they start to think more and more about establishing secure sources of retirement income. Most retirees who are eligible have social security as one source of retirement income. However, we all know that the future of social security is less than secure, and it’s usually not even close to being enough for most people to live on by itself. In fact, I just got my most recent statement from social security, and right on the front page it has an onerous warning. It says, “In 2016 we will begin paying more in benefits than we collect in taxes. Without changes, by 2037 the Social Security Trust Fund will be exhausted and there will be enough money to pay only about 76 cents for each dollar of scheduled benefits.” I compared this statement to my statement from last year and noticed that on it the years were 2017 and 2041, so the drop dead dates are getting closer.
The instability of the Social Security system makes all of us think a lot harder about other ways that we can provide ourselves with safe, lifetime streams of income. We have to rely less on money that will come from the government, and more on our own planning and savings. Fortunately, there are many investment vehicles available today that allow us to secure a long and stress-free retirement. I recently helped a client do just this with part of his IRA.
The particular vehicle that we used was a fixed index annuity with an income rider issued by a very stable and well rated insurance company. These types of fixed annuities are very different from the traditional pension-type annuity that most people think of. Fixed index annuities are designed to grow and accumulate money on a tax-deferred basis. At some point in the future, determined by the investor, these annuities can be converted into a stream of retirement income. These annuities pay interest each year based on how a stock index performs. However, one of the big benefits of them are that in years when the market goes down, you don’t lose anything. The trade off is in years when the market is up, your returns are capped at a certain level. Here are some of the basic features of this annuity:
- You earn an up-front 8% bonus on your premium
- Any indexed interest is locked in once a year, and can never be lost due to market declines
- Your income account value earns a guaranteed 7.2% compound interest per year for the first 20 years (this means it will double every 10 years!)
- You can start taking lifetime guaranteed income at any time
- You can stop taking the income at any time
- If you become confined to a nursing home, your income amount DOUBLES for the rest of your life
- When you pass away, your beneficiaries would get whatever amount is left in your accumulation account.
This annuity provides a very safe, guaranteed source of income that will last as long as you live. The longer you wait to start taking the income, the higher your withdrawal percentage will be. And the Confinement Income Doubler Benefit offers a great way to protect yourself from the high costs of long-term care, without the hassle of buying traditional long-term care insurance. No matter how long you live, the income will never stop or be reduced. But if you pass away early and there is still money left in the annuity, your beneficiaries would receive it.
In planning for retirement income, diversification is still the key. Just as you would never invest all of your money into one stock or one mutual fund, you don’t want to have all of your retirement income coming from one source. The more you can diversify your retirement income sources, the better. Having income from a pension, social security, dividends, rental properties, annuities, bonds, etc. is a good idea.
Fixed index annuities can have many variations and moving parts, and some are better than others. We can help you evaluate the world of fixed and variable annuities to help you understand all the details and find the best one for your situation. If you would like to find out if an annuity makes sense for part of your retirement income plan, please call us at 1-866-983-4222. We offer free consultations to help investors evaluate their entire situations and find solutions that work.