- 3-Minute Article
- Jun 07, 2018
Your Retirement Big Picture: Where Do Annuities Fit?
A guide to using annuities to strengthen your retirement income plan.
You’ve diligently saved and invested to ensure you'll have sufficient income in retirement. An income plan may include multiple sources, including investment accounts, Social Security, and pensions. But have you considered how annuities can also provide income and complement your overall plan?
Here’s a look at how annuities can support some of the most common sources of retirement income.
Guaranteed Income Sources: Pensions and Social Security
- What they provide: Steady monthly payouts that last as long as your retirement does. Social Security benefits represent about 34% of seniors’ income.1
- Potential risks: Income from these sources alone may not be enough to cover all of your expenses. And pension benefits are becoming less common—covering just 18% of private-sector workers today vs. 35% in the 1990s.2
- How annuities can help: Providing another guaranteed income stream to bridge gaps. You can use the money as an ongoing source of income or withdraw it periodically, as unexpected financial needs arise.
Brokerage/Investment Accounts and Tax-Deferred Retirement Accounts
- What they provide: Savings you can use to cover expenses, with growth potential to hedge your savings against inflation and longevity risk. Plus, funds may be available at potentially lower capital gains tax rates, which help manage your tax burden or cover unexpected expenses.
- Potential risks: Market downturns or high withdrawal charge can deplete your savings before your death. And a high tax burden from other income sources or emergencies early in retirement could force you to exhaust these accounts.
- How annuities can help: Providing guaranteed lifetime income without market risk. And providing an additional source of tax-advantaged income to balance higher-taxed sources, such as required minimum distributions (RMDs) from IRAs and 401(k)s. This leaves more of your other investments in place to continue growing for future needs.
- What they provide: A guaranteed stream of income and potential for growth.
- Potential risks: Interest rate increases and inflation can cause these investments to decline in value.
- How annuities can help: Annuities can offer higher income payout rates and tax-efficient income options that help provide the income you need when you need it most.