Using Guaranteed Income to Help Overcome Common Retirement Concerns

Updated: August 11, 2022

No matter how well you’ve saved for retirement, it’s natural to have concerns about factors that could impact your financial future, such as not having a steady stream of income to cover expenses like mortgage payments or travel. Many retirees also worry about factors that can be hard to predict, such as unexpected health care expenses and the impact that market volatility could have on their portfolio.

When considering how to address these types of retirement concerns, it may help to talk to your financial professional about the role an annuity could play. Each of the basic types of annuities – fixed, fixed index, variable, and deferred – can offer guaranteed income and some element of protection that may benefit your retirement income strategy.

Here’s a closer look at the four common retirement concerns mentioned above and how guaranteed lifetime income from an annuity could help relieve some of the worries.

Between 1970 and 2016, the life expectancy of the average American increased by eight years.¹ Today, 1 in every 3 people at age 65 will live to at least age 90.² This typically extends their retirement and increases their need to have enough income to last several decades.

If your retirement income plan consists of making withdrawals from a retirement savings account such as an IRA, you should pay close attention to how much money you have left in the account after each withdrawal.³ Even if the money is invested conservatively, a market downturn could deplete the retirement funds available. Other factors, such as inflation or an unexpected expense, may cause you to need to withdraw more money than you anticipated in a given year.

How Guaranteed Lifetime Income Can Help

 

Adding another source of guaranteed income to your portfolio, like an annuity, can provide a consistent stream of income payments that you can’t outlive.⁴ Additionally, certain annuities can help offset inflation and balance stability with growth opportunities throughout your retirement.

Source: Secure Retirement Institute: Owning an Annuity Increases Confidence in Retirement Security. LOMA, June 7, 2021

As health care costs continue to rise, the average retiree is likely to encounter considerable health care expenses during their retirement.⁵ Even healthy retirees could see their total health care costs increase as they age. It’s estimated that the average couple will need approximately $285,000 for medical expenses in retirement, not including possible expenses associated with long-term care.⁵ For some, savings and Social Security benefits may not be enough to cover their out-of-pocket health care and long-term care expenses. 

How Guaranteed Lifetime Income Can Help

 

While no one can anticipate their specific health care costs with certainty, guaranteed income payments from an annuity can help you pay for the expenses that may not be covered by Medicare or supplementary insurance.

There’s a chance that you may have to navigate market volatility or an economic downturn during retirement. Even conservative investments such as bonds are subject to changes in yields that can make it challenging for portfolios to keep up with inflation. If you’re using withdrawals from investment accounts to fund your retirement, it’s important to consider what could happen if those accounts were to lose value.

How Guaranteed Lifetime Income Can Help

 

You can lock in a set payment amount with some annuities, so you’ll have a reliable base income. Talk to your financial professional during times of market volatility to review your overall plan for retirement and find new ways to stay the course.

Source: COVID-19 Retirement Reset #3 Tracker Report. Alliance for Lifetime Income, July 2020. Cited statistic refers to Americans age 56 to 75 who have at least $100,000 in investable assets.

A common guideline is that replacing at least 80% of your pre-retirement income in retirement will help you maintain your current lifestyle.⁶ Historically, both pensions and Social Security benefits have provided guaranteed income in retirement. However, Social Security benefits only replace about 40% of pre-retirement income for average earners.⁷ And about 30% of private-sector workers in the U.S. do not have access to a pension plan.⁸  

How Guaranteed Lifetime Income Can Help

 

Guaranteed lifetime income from an annuity can create pension-like income. In addition, certain types of annuities may provide greater flexibility than a pension, allowing retirees to decide how much to invest, when to invest, and when to begin receiving guaranteed lifetime income payments.

Source: Secure Retirement Institute: Owning an Annuity Increases Confidence in Retirement Security. LOMA, June 7, 2021

Next Steps

Adding a source of guaranteed income to your portfolio may help address a few common retirement concerns. Talk to your financial professional to determine if an annuity can help support your plans for retirement.