How an Income Annuity Guarantees
Income During Retirement

If you’re like the average American, you probably worry about running out of money before you die. In fact, 60% of Americans said they fear outliving their savings more than they fear death. Here in the United States, the average life expectancy is 78.6 years, and at least 70% of people age 65 or older will need some kind of long-term care.

Financial experts suggest having a nest egg of—are you ready for this?—$1 million for every $30,000 you want in dependable annual retirement income, which seems wildly unrealistic any way you look at it, especially considering a third of Baby Boomers have between $0 and $25,000 set aside for retirement. How in the world are retirees supposed to manage?

Don’t panic! An income annuity could guarantee you much-needed income during retirement, at a much higher rate of return. Income annuities are an option not explored by many because it ties up some money, but the resulting payments can make a big difference in how far your money lasts in retirement.

Annuity income is guaranteed to never run out.

Offered through insurance companies in exchange for a lump sum called a premium, an income annuity allows you to convert part of your retirement savings into monthly checks for as long as you or your spouse live.

Often, annuity payouts can start taking place as early as the next day, making it a great investment even if you decide to get one later in life.

If the annuity buyer dies prematurely, the money will then go to their family for the guaranteed period. While it removes any liquidity, having a guaranteed monthly paycheck just like when you were working, that won’t ever stop, can provide tremendous peace of mind.

Income annuities pay higher returns.

One reason income annuities are able to make such a difference in income is because they have a higher return rate than, say, a certified deposit (CD).

In fact, income annuity rates are often double of what bank CDs offer. The average 65-year-old might see a return on their annuity of about 7%. Someone older will receive even higher guaranteed returns.

How are annuities capable of offering high returns?

A lifetime income annuity can provide higher guaranteed income due to three factors: principal, interest, and longevity credits, which are based in part on your age and gender. Also known as mortality credits, longevity credits adjust the guaranteed payout based on your age when you first start taking payments.

This means that the older you are, the higher your return rate will be. The insurance company can pay these higher returns because they know that some people will die earlier, which enables the company to guarantee lifetime payouts to those who live longer.

Questions?

Would you agree that the only person who can really take care of the older person you will someday be is the younger person you are now?

If you have any questions about retirement income planning, you may want to talk to Kevin Conroy, our retirement income planning expert. Ask your Personal Benefits Manager to make an introduction. Kevin can answer some quick questions or help you put together a complete plan.

Take the steps now to secure your finances in the future. You’ll be thankful you took the time.

To your health and wealth,

Wiley P. Long, III
President – MediGap Advisors