A crucial component of your retirement income plan is making a plan to turn your savings into a steady stream of income that can last a lifetime. And, after a year of market volatility, you may have concerns about how to protect your hard earned savings so they can last for the rest of your life regardless of how the market performs.
Putting a guaranteed retirement income strategy in place to help navigate the uncertainties of retirement can help put these fears aside. A solid plan with guaranteed income sources to cover your essential expenses can make a powerful impact on your retirement outlook.
What is guaranteed retirement income?
Guaranteed retirement income is made up of various income sources that provide guaranteed payments to retirees, usually on a monthly basis. Common guaranteed income sources include Social Security, annuities, whole life insurance and pensions. Here's a look at each of these income sources in more detail.
Again, you can't—and shouldn't—rely solely on Social Security to cover all your retirement expenses. In fact, many people are concerned about the possibility for
One of the advantages of annuities is they provide a level of certainty about your income in retirement. This offers reassurance if you're worried about outliving your savings.
There are several different
Immediate annuities: These are designed specifically to provide an immediate guaranteed payout that can last for a specific amount of time (i.e., a lifetime). The drawback is that you're trading liquidity for this guaranteed income. Deferred annuities: This type of annuity provides guaranteed income in the form of a lump sum or monthly income payments generally in the future. The annuity can be either variable or fixed in nature. It will be invested in the market and has the potential to experience growth over time. Deferred annuities can be a great option if you prefer to pay taxes when you start taking income payments, and not before. Fixed annuities: This most basic type of annuity guarantees an minimum interest rate, but sacrifices portfolio growth potential due to not having market exposure. Variable annuities: These annuities allow you to get exposure to the market through subaccounts. A variable annuity may provide lifetime income when you retire, provided you annuitize (begin taking payments) before the contract loses all its value.
Annuities can be complicated, so it's a good idea to discuss which annuity is right for you with your financial advisor.
Whole life insurance
There can be tax advantages to using whole life insurance as a source of retirement income because you may not have to pay income taxes on the money withdrawn from the policy, up to the amount you paid.
Keep in mind that any withdrawals reduce the cash value and death benefit of your policy.
A pension is a type of retirement income typically provided by an employer that is paid out to you on a monthly basis. Pension payments are usually based on a formula that takes into account your average salary and length of service. Pensions have been increasingly rare in recent years as more employers move away from them and toward 401(k)s and other investment plans. This shift has been largely driven by the fact that pensions are much more expensive for employers to offer, and they can be difficult to manage administratively.
If you have a pension available to you, be sure to calculate how it factors into your overall retirement income plan.
How multi-year guaranteed annuities work
How do other retirement income sources like 401(k)s factor in?
Most people think about 401(k)s or similar employer-sponsored retirement plans when saving for retirement. These qualify as
When all of your retirement savings are in a defined contribution plan, it's impossible to know how much the account will be worth when you retire and how long the money will last because the investments in the account are influenced by market performance. If your investments perform well, you benefit. But if the value of your investments drops—especially close to or during your retirement—you run the risk of exhausting your account and outliving your retirement savings.
That's why you should consider funding a solution that provides guaranteed income with your retirement savings plan as you get closer to your retirement date. Guaranteed income sources like annuities, specify exactly how much retirement income you'll receive for the rest of your life once you retire, regardless of stock market performance. The longer you live, the more retirement income you'll receive.
Create a guaranteed retirement income plan with professional guidance
Taking these steps to guarantee you'll have the income you need in retirement is essential. Navigating your financial strategy with a partner you have confidence in is just as important.
Connect with a
- Determining how far your money can go based on your current strategy.
- Working to safeguard your finances from potential inflation and market volatility.
- Helping you decide when and how to take withdrawals from retirement accounts.
- Offering tax-smart ways to help your assets stretch further.
- Turning your savings into a steady stream of income that can last a lifetime.