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
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