Income is at the core of any retirement strategy. Simply put, your goal in retirement is to generate more income than you spend. That way you can preserve and increase your assets and make your savings last for life. If you can’t generate enough income, you may deplete your assets and face difficult challenges in the later years of retirement.
A number of issues could threaten your retirement income. One is taxes. Another is inflation, or the gradual increase in prices from year to year. If you’re generating income from your retirement savings, you also may face market risk. A downturn in the market may threaten your ability to create income.
One potential strategy is to create a stream of guaranteed* retirement income using a tool called an annuity. Annuities are popular for a wide range of reasons, but one of the biggest is their ability to generate a guaranteed* lifetime income stream. Below are a few ways you can incorporate an annuity into your retirement strategy:
Annuitization is a strategy that allows you to convert a portion of your retirement assets into a guaranteed* income stream. The annuity company calculates a payment amount based on your premium amount and age. Generally, the older you are, the higher your income amount will be. You then receive the payment for the rest of your life.
There are usually other payment durations available besides a lifetime income stream. For example, you could get payments over a set number of years. You could get an income amount for your lifetime and your spouse’s lifetime. Remember, though, that changing the duration will change the payment. The shorter the expected duration, the greater the payment will be.
It’s also important to note that annuitization is usually a permanent decision. Once you convert your assets into income, you can’t reverse your choice. You no longer have access to the lump sum and instead have the regular payments. It’s always wise to maintain liquid assets as an emergency reserve.
There are some deferred annuities that pay regular periodic interest. These annuities are called fixed deferred annuities. You deposit a lump sum of assets and receive a fixed interest rate over a set period of time. After that period, your interest rate may fluctuate, but it will never go below a stated minimum rate.
You can let your interest accumulate and increase your assets on a tax-deferred basis. However, you can also take your interest as income. These annuities have no market exposure, so there’s no risk of loss. A fixed annuity could be an effective way to generate supplemental income.
Guaranteed Income Benefit
Some annuities offer optional benefits called riders. These benefits increase the annuity fee but also provide additional protection. One of the most popular riders is a guaranteed* minimum income benefit.
With this benefit, you’re allowed to withdraw up to a certain percentage of your contract value every year. As long as you stay within the guaranteed* percentage, the withdrawal is guaranteed* for life. That’s true even if your account value declines or is depleted.
These benefits are commonly found on fixed indexed annuities and variable annuities. While each operates differently, both types allow you to increase your assets based on market performance. Variable annuities have market risk exposure, while fixed indexed annuities do not. Your financial professional can help you decide whether this benefit makes sense for you.
Ready to develop your retirement income strategy? Let’s talk about it. Contact us today at Bridgeriver Advisors. We can help you analyze your needs and goals and create a plan. Let’s connect soon and start the conversation.
*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.
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