As we age, there are two issues we fear. One is maintaining good health. The other is running out of money in retirement or outliving our income. We cannot do much about good health other than the usual things we already know with proper diet and exercise. However, we can be of great assistance in overcoming the fear of running out of money. An Annuity promises to provide a guaranteed lifetime payment that cannot be outlived.
Meet Bill. Bill is age 62 and is looking to retire in 3 years at the age of 65. Like most Americans, Bill’s biggest retirement fear is that he will run out of money during retirement. Bill’s employer doesn’t provide a company pension, so Bill will need to supplement his Social Security with the $500,000 he has saved in his 401(k) plan.
After meeting with an agent and reviewing his budget, Bill decides he needs about $4,000 per month during retirement. Bill’s Social Security benefit will provide half of the amount he needs, $2,000 per month, but how can he safely provide for the other half? Bill could rely on the $500,000 he has saved to provide for the other half, but he is concerned it won’t be enough especially if the stock market crashes and his investments don’t do very well for the next several years. The agent confirms Bill’s fears as outliving money is one of two major concerns for people in retirement.
An agent recommends that Bill reviews annuity options. An annuity can provide dependable, reliable “pension-like” income for the rest of Bill’s life. Even though Bill doesn’t have a pension from his employer, he can create a similar benefit using an annuity. Bill is apprehensive, he has heard that the insurance company will keep his money if something happens to him and he is also worried about rising costs during retirement.
The agent explains that Bill has nothing to worry about. There are new options in the Annuity world on the market that can offer all of the benefits that Bill is looking for with none of the drawbacks that concern him. The agent recommends and Bill decides to purchase an annuity called a fixed-index annuity and he adds to it something called an income benefit rider. Bill moves $250,000 of his 401(k) through a tax-free rollover to the new annuity. The annuity will guarantee Bill a minimum income of $1,100 when he retires at age 65. In addition, should something happen to Bill in the next several years, the annuity will pay a death benefit to his family. Finally, the income payments from the annuity can increase every year through a process called “indexing” which will help Bill keep up with rising costs during retirement.
Bill now has three sources of income during his retirement years, with ½ coming from his Social Security, ¼ coming from his retirement savings and ¼ coming from his new annuity. Bill feels a lot more secure knowing that his retirement has more guarantees and that his income during retirement will be a lot more stable because of the annuity he purchased.
From K. Mackey, EliteAdvisoryGroup.com