As Baby Boomers stream into retirement at a rate of 10,000 per day, many do so with a fear of outliving their retirement savings. According to a recent study by the Employee Benefit Research Institute, 12.2 percent of seniors age 85 and older had no assets left at the time of their death. The same study found that 9.1 percent of single retirees who died at age 85 or older had outstanding debt averaging $6,368, not including a mortgage. —
The danger of outliving one’s money in retirement, or “longevity risk,” has never been more widespread among a generation of seniors. Loss of the standard employer-funded pensions that previous generations of retirees relied on has changed the way Americans plan for their golden years, with a growing number of retirees choosing to buy their own pension, through conservative investments, cash flow management and fixed indexed annuities known as FIA, to secure a guaranteed income for life.
A growing number of retirees are learning to think of FIAs in terms of making them into their “personal pensions.” Like a pension, the FIA can provide lifelong income to cover living expenses throughout one’s retirement years.
FIAs can be very helpful to both retirees of means and retirees with modest savings. As a retirement-income vehicle, annuities are appealing to retirees because of they are much less complicated than other retirement income products, especially to those who are not able to manage their own finance, or who prefer not to.
A lifelong income annuity guarantees that the annuity holder will not outlive their money. Like a pension, it won’t promise that there will be enough money available to live on—that depends on how much the annuity is purchased for, as well as the spending habits of the retiree and inflation.
According to retirement advisor Joseph Donti of Priority Wealth Advisors in Woodland Hills, Calif., a holistic approach to financial planning that includes this annuity-style pension plan is gaining popularity not only among Baby Boomers, but among far-sighted Millennials who are discovering that annuities are the only vehicle that give individuals the opportunity to create their own pension, based on their own needs, without taking on market risks.
“The power of an annuity is in its ability to arm retirees with the opportunity to establish the financial confidence to spend money during retirement without the worry of being able to pay bills next month, while retaining exposure to an upside market without downside risk,” Donti says. “An individual invests in an annuity, which in turn makes payments to the investor on a future date or series of dates.
“The income received from an annuity can be distributed monthly, quarterly, annually or even in a lump sum payment, although most retirees prefer the set monthly income option, he says. “The size of the payments are pre-determined according to a variety of factors established by the purchaser.”
Annuity owners can opt to receive payments for the rest of their life, or for a scheduled number of years.
From a holistic standpoint, annuities, like pensions, can provide retirees the peace of mind that goes with knowing their living expenses are covered for life. For retirees with a small pension or no pension at all, the fixed indexed annuity can be critical to an overall retirement income strategy that otherwise may not be possible. For retirees with:
• A small pension or no pension, where Social Security retirement benefits are insufficient to cover living expenses in retirement, a fixed indexed annuity can cover the shortfall.
• No time to manage money, or those who aren’t comfortable with money management, covering some expenses with an FIA can be a good solution, since there s no need to monitor investments. As an insurance product, the company that sells the annuity is obligated to pay a fixed monthly distribution, regardless of how its own investments perform.
• No budget, or an inability to stick to one, a guaranteed monthly annuity payment eliminates the risk of using up retirement savings prematurely.
• Inconsistent income, which can prove troublesome in terms of available cash flow. Adding an income annuity to the retirement plan will keep cash flow steady, although growth investments may still be needed to offset future inflation.
As of April 2015, pension reforms have created new opportunities for individuals age 55 and over. These reforms are expected to change the way Americans approach funding their retirement. Most seniors will benefit immensely from the guidance of a financial advisor who specializes in retirement to help navigate rules and reforms, and put them to work for seniors.
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Release ID: 89668