How Do I Use An Annuity for Retirement Planning?

September 1, 2019

Annuities are the only financial instruments available today, other than Social Security and pensions, that can guarantee* a lifetime stream of income during retirement. Along with giving retirees the financial confidence that comes from knowing they will not outlive their assets, annuities provide another important benefit—a way to increase current income.

Many of today’s retirees are faced with the challenge of how to systematically withdraw enough money from their portfolios to live comfortably during retirement without depleting their funds if they live a long life. Withdrawing money from an investment portfolio may not present a problem in the early years, but as retirees age, the risk of running out of money can increase dramatically. Allocating a portion of the portfolio to one or more annuities may reduce this risk.

Annuity payments can form an essential part of a retirement plan along with Social Security and pension income. The amount of each annuity payment reflects the fact that some annuitants will not live as long as others. This “risk pooling” allows insurance companies to make annuity payments that are larger than would be possible through a systematic withdrawal plan, where an individual retiree periodically withdraws funds in amounts that give reasonable assurance that he or she will not run out of money. Thus, annuities can serve to both reduce the risk of running out of money in retirement and increase the amount of each income payment received.

The methods for receiving annuity income are Lump-Sum Options, Systematic Withdrawal Plans, Guaranteed Minimum Withdrawal Benefits, Guaranteed Lifetime Withdrawal Benefits, and Annuitization which are discussed in our blog What Are the Various Options for Receiving Annuity Income?

If you are considering an annuity purchase, be sure to fill out our quote form to research suitable options available.

* 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.