Guaranteed Retirement Income: What You Need to Know

For over 20 years, in survey after survey, the number one concern or fear of those reaching or in retirement age is - Do I have enough money to retire/When will I run out of money in retirement?

Why is that? The answer is as simple as one word - Pensions. Since the 1990’s companies, big and small, have moved away from having a traditional pension plan (like our parents and grandparents had) which guaranteed the recipient a monthly check, to the more prevalent 401k type plans which basically guarantees nothing.

Creating a guaranteed retirement income stream(s) is vital as it can help you live a more comfortable and fulfilling life after your retirement. Understanding what you should do to achieve this can help you get started.

If you're like most people, you're probably thinking of a lot of things to do after your retirement. Whether spending time with family, moving to a new city, volunteering or traveling, everyone has their retirement dreams. After years and decades of sacrifice and saving one of the specific retirement goals for most retirees is ensuring they can afford the lifestyle they desire. Is this one of your goals, and how can you achieve it? If so, guaranteed retirement income has got you covered. Read this quick guide for more insights.

Understanding Guaranteed Retirement Income

Guaranteed retirement income refers to systematic retirement payments that can allow you to afford your necessary living expenses. In other words, when you wake up every January 1st, you know that your basic living expenses are covered by the ‘paycheck’ you’ll receive each month. An example of a guaranteed retirement income includes an employer-backed pension or Social Security. Like building a diversified saving plan, you can use this similar strategy for self-payment once you retire.

You can also rely on an annuity(ies). With annuities, you can create your own guaranteed income stream during retirement. Annuities can be purchased using all or part of your assets like 401k, IRA, Roth IRA, savings, etc., You can have lifetime income or for a determined number of years. Annuities can also be laddered, like someone might ladder a bond portfolio to create a variety of payments over a variety of time frames.

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Insurance companies offer a variety of annuities, such as:

Fixed Rate Annuities
Immediate Pay Annuities
Single or Multi Pay Annuities
Deferred Annuities
Investment-linked Annuities
Enhanced Annuities
Fixed Index Annuities
Lifetime Annuities
Or some combination of the above mentioned

The type of annuity that is suitable for you depends on your goals and objectives, your current health, your risk tolerance and whether you have other retirement income.

What Are Annuities?

An annuity is a private contract between you and private 2nd party, the insurance company. No, an annuity is not an insurance policy, but only insurance companies can offer annuities. As mentioned above, there are different types of annuities to choose from, but the basic construct is you give the insurance a lump sum of money (or payments over time) and the insurance companies promises you some type of income stream, either immediate or deferred, or a lump sum payment in the future with some type of interest crediting.

When you receive your annuity payout you can use it in any way that suits your needs. Whether you want to purchase another annuity or use it as a pension drawdown, this is up to you. With a deferred annuity, at the end of the term, you may consider a new better-rate annuity based on factors like interest rates, rider options, health and age. Are you thinking of going for an annuity? You want to shop around and ensure you find the one(s) appropriate for you. You can also consider adding other features, depending on what best suits your needs.

Are Fixed Annuities a Good Investment?

It isn’t about being good or bad. It is about being appropriate or inappropriate for what you are trying to accomplish. If you want to create guaranteed retirement income with annuities, there are several choices. Fixed annuities can be a reliable investment because the investment returns are predictable. The rates for the fixed annuity come from what the life insurance company creates from its investment portfolio. These are invested in government bonds and high-quality corporate shares. Your insurance company is responsible for paying the promised rate according to the annuity contact. This means you can select a plan that suits your needs. Your life insurance company also ensures the money you invest is secure. Insurance companies also offer fixed index annuities and variable annuities, so there is probably something available for almost everyone, depending on what you want your money to do for you.

If you're looking to create guaranteed retirement income, you don't want to navigate this alone because the process can be challenging. Be sure to work with a professional to help you review your options.

Any comments regarding safe and secure products, and guaranteed income streams refer only to fixed insurance products. They do not refer, in any way to securities or investment advisory products. Fixed Insurance and Annuity product guarantees are subject to the claims‐paying ability of the issuing company and are not offered by Brookstone Capital Management.