How to Guarantee Your Income in Retirement

Filed under: Retirement

One of the most common worries about retirement is, What if I run out of money? It can be hard to plan for retirement these days, with people often living 20 years or more after they quit working. But what if there was a way to guarantee that your retirement income would last as long as you do?

Actually, there are a few ways to do that!

With an immediate annuity, you make a lump sum payment to an insurance company. In return the insurance company promises you a fixed amount of income, every year, for the rest of your life. Payouts are locked in at today’s interest rates, so some people prefer to wait until rates are higher before purchasing an annuity.

The main drawback, of course, is that payments only continue as long as you’re living. Or, you can add your spouse to the policy and the payments will continue until both of you have passed away. But either way, some people see immediate immediate annuities as a gamble, because it is always possible that you could die before your payouts reach the amount you originally paid for the policy. But for those of us who expect a long life span (for example, your parents lived well into their 90s), an immediate annuity might be the perfect investment choice.

If you’re confident that you might live an unusually long time, you might consider a deferred-income annuity. Under this type of annuity, your payouts don’t start until a later date, but you get a larger payment in return. For example, you might purchase the annuity at age 65, but delay payments until age 80 so that they will be much larger.

Immediate annuities and deferred-income annuities are actually just two of the guaranteed income options available to you. In the annuity market, there are about as many options as you could possibly want. Talk to your financial advisor about annuities to see if there is a policy that suits your needs.