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By Dan Schulte, Senior Vice President and Manager, Annuities and Insurance

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In addition to the usual financial risks we have such as inflation risk, market risk, and economic risk; there is another risk to confront in retirement: longevity risk, which is the risk of outliving your retirement assets. When planning for retirement, living too long can be a scary proposition, especially for those with a projected long-life expectancy. Taking an inventory of your current and projected expenses can help you and your advisor to develop a product allocation strategy to help ensure essential income will not be outlived in retirement.

Essential vs. Non-essential Expenses
When planning your retirement, it’s important to make sure you have enough income to pay for essential ongoing, non-discretionary expenses such as food, shelter, transportation, health care, clothing, and taxes. These expenses will likely increase with inflation, and because they’re “necessary,” it will be challenging to reduce them when you retire. Non-essential (discretionary) expenses include activities that are important to you but not required, such as eating out, travel, entertainment, charity, hobbies and gifting.

Retirement Funding Vehicles for Essential Expenses
A strategy often used to provide for your essential expenses is to plan for and secure various sources of assured income, and to have non-essential expenses paid from other income sources. Examples of assured income streams include social security, pensions and annuities. Although many of us recognize the value of pensions, unfortunately, fewer and fewer of us have employers that provide them. However, an annuity may be able to fill this gap by providing a pension-like income stream. Using this approach may give you the security of knowing that the most important income needs in retirement will be covered by a reliable income stream.

Lifetime Annuity Income Guarantees*
Annuities are contracts issued by insurance companies and come in various types that can generate a guaranteed income stream. Deferred annuities delay access to income for a certain number of years, while an immediate annuity starts income shortly after a policy is put in force. Regardless of the type of annuity purchased, they can be structured to provide a person a guaranteed income for life — no matter how long they live. Annuity lifetime income guarantees can help alleviate risks (and stress) in retirement by adding a certain monthly income stream in addition to social security and pension income.

There are a variety of investment and annuity options to consider in retirement planning. Contact your financial advisor for help with an analysis of your projected expenses and potential risks in retirement and discuss whether an annuity might be appropriate for your specific situation.

*Annuity guarantees are subject to the claims paying ability of the issuing carrier.

October 15, 2020 |