Lifetime income can enhance your financial assurance, recent findings indicate.
For years, studies have shown that the most significant worry for retirees is depleting funds before their time is up. The 2019 Lifetime Income Survey revealed that only 35% of individuals feel secure about maintaining their income throughout retirement.
I've always advocated for converting a portion of your retirement savings into a steady income stream via straightforward, cost-effective annuities. When combined with Social Security, this can sufficiently cover essential expenses like housing, transportation, and healthcare premiums. My father's experience illustrates this; after working as a college professor and later in the private sector, he enjoyed a pension and a solid account balance. Although he passed away 15 years ago, this strategy has ensured my mother’s financial peace. With pensions becoming rarer, I trust that affordable annuities can provide a reliable income source.
There’s been talk about the SECURE Act, which aims to emphasize guaranteed retirement income that lasts a lifetime. If passed, this legislation will simplify how 401(k) plans illustrate potential lifetime income from annuitized balances and may allow annuities as direct plan options. While we await those changes, you can create a strategy that builds confidence in your finances while allowing for some market gains. Here are some steps to consider:
Assess your resources and needs.
Calculate your anticipated retirement expenses and decide what portion should come from guaranteed income sources. Dan Keady, Chief Financial Planning Strategist, recommends estimating that two-thirds of your anticipated retirement expenses should be covered by lifetime income products, including Social Security and annuities. “Many people mistakenly believe they have guaranteed income when they don’t,” Keady states. You can use a calculator to gauge potential annuity income from your retirement savings at TIAA.org/NeverRunOut.
Plan strategically around Social Security.
Delaying Social Security benefits from age 62 to 70 increases monthly payouts by about 8 percent per year. This guaranteed return is challenging to surpass, making it wise to postpone starting benefits if possible. A higher payout will cover more of your fixed costs.
Grow your assets with market exposure.
Given the low-interest rates we've faced recently, it's crucial to keep part of your savings in investments that outpace taxes and inflation. This entails accepting some risk and investing in a diversified portfolio with market exposure.
Think about early annuity inclusion.
If you're still accumulating savings, consider using an annuity to enhance your retirement income rather than converting later. This approach can strengthen your confidence in your retirement strategy. A survey revealed that regular retirement savings significantly boosts confidence, ranking highest among various financial strategies, with expectations of lifetime income following closely.
