By Dan Schulte, Vice President and Manager, Annuities and InsurancePrint This Post
There is little argument that equities have produced impressive returns over a long period of time, but retirees and pre-retirees often begin to ask themselves questions such as, “How much risk am I still willing to take?” and/or “How afraid am I that I may run out of money?” Most companies no longer offer a pension, leaving social security as the only form of “guaranteed” income in retirement. For these individuals, balancing income needs, the risks of investing, and increasing life expectancies can be challenging.
If you are in this quandary, you may wish to consider transferring some of your assets (and risk) to an insurance company in the form of an annuity. Annuities are contracts issued by insurance companies that can be structured to provide lifetime income guarantees* for you (and your spouse, if applicable) regardless of how long you live. The amount of the income guaranteed by the contract will vary by company and is based on life expectancy and the types of riders you purchase. The contracts can be structured for income now (immediate annuity) or income later (deferred annuity), and can be funded with a single premium or multiple premiums. The older you are when income begins, and the longer you defer taking income, the higher the guaranteed income stream. Funding an annuity gives assurances that regardless of what happens in the marketplace, the insurance company will provide a lifetime income stream.*
Once you have determined that you want to take some risk off the table, it might be worthwhile to determine how much income is needed to cover basic lifestyle expenses such as food, utilities, heath care and mortgage expenses. Covering these essential expenses with guaranteed income sources (social security, pension, & annuity) can give you piece of mind that you will still be able to pay your bills in retirement, even if your other assets don’t perform as well as you would like.
Annuities are long-term investments and will often have surrender charges, as well as other fees and expenses, so you should be careful not to invest a large portion of your liquid net worth into annuity contracts. Because of the complexity of annuities, you should understand the features, risks and costs prior to making a purchase. Your Benjamin F. Edwards & Co. financial advisor can help you analyze your situation and discuss various option to consider as a complement to your portfolio.
*All annuity guarantees are subject to the claims paying ability of the issuing company.