Lifetime Income Annuities
Traditional safety nets of retirement income are changing. Pensions and Social Security may not provide the same level of income your parents received and Medicare is at risk. The economic collapse of 2008 has shaken people’s confidence. The volatility of the markets, the printing of trillions of dollars, and civil unrest around the world due to government austerity measures have all caused people to doubt the viability of retirement.
These are real issues affecting retirees around the world, not just in the U.S. The million dollar question is, “Who is going to sign your monthly retirement check?”
Accumulating money may be the easiest part of retirement - start building your wealth early and save as much as you can. Preserving your wealth is the more difficult part, especially once you retire and are no longer earning the same income.
The key goal of a solid retirement plan is to ensure that you don’t outlive your assets and to mitigate as many risks as possible. Rather than take risks with investments, those transitioning or living in retirement should focus instead on preservation of wealth.
The withdrawal rate risk is the risk of running out of money by taking too much out of your retirement savings each year. A 2% withdrawal rate is considered bulletproof and 3% is safe. Withdrawing 4% or more a year may cause your portfolio to run out of money.
Inflation is another risk that increases over time. With the amount of money the Federal Reserve has printed and injected into the economy, if there is a continued increase in economic activity, we may see significant inflation.
Deflation, on the other hand, may be the biggest risk in the short term. Governments around the world are cutting budgets and benefits. U.S. consumers are reducing their debts. Housing is still a mess. Unemployment and underemployment are too high—all this is deflationary.
When it comes to market risk, it’s key to either manage it, put a floor under it, or eliminate it. To protect against risk, a lifetime annuity may be a viable option for an optimal retirement, helping cover basic expenses with a guaranteed lifetime income.