• 4-Minute Article
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  • Nov 19, 2020

How to Protect a Retirement Income Plan

Adding sources of guaranteed income can help give a retirement income plan a stronger foundation, with greater ability to weather unexpected events

Strong retirement plans provide a sense of security, therefore giving people confidence they’ll be able to cover their bills in retirement—no matter what surprises they may encounter during those years. That’s one reason why it often helps to build a retirement plan around a unique assessment of one’s retirement expenses and income sources.

A financial professional can help build a detailed retirement plan by matching anticipated retirement expenses with potential sources of income, including Social Security, withdrawals from retirement accounts, and other savings. Once that plan takes shape, you can make it even stronger by examining ways to diversify and protect a retirement income stream.

One approach to consider is using guaranteed income from an annuity to help ensure there’s stable income to cover mandatory expenses. This foundation of guaranteed income, in turn, can provide greater durability to withstand other key risks to retirement income.

Here’s a look at how guaranteed income can help protect against the common risks of market downturns, unexpected bills, and inflation. Then, we provide exploring examples for how people can use guaranteed income in different ways to address specific concerns.


Threats to retirement income and lifestyle

An income plan can help ensure there will be enough money coming in each month to support an individual’s desired retirement lifestyle, but that plan may still face threats. Annuities offer several features that provide a greater degree of income stability, including regular payments that don’t fluctuate with the markets, and options to secure that income for a lifetime—or even have payments rise with inflation.

These features can help protect against common risks like these:

1. Market downturns

When stock markets plummet as they did due to the recent global pandemic and during the 2008 financial crisis, retirement account balances can shrink. As a result, people who don’t have sufficient regular monthly income payments may need to limit planned withdrawals or risk running out of money sooner.

2. Unexpected bills

Even the most well-prepared retirees may face surprise expenses, such as those that might accompany a medical issue, or the cost of caring for elderly parents while also supporting children. These situations can force people to take bigger-than-expected withdrawals, potentially causing them to deplete their savings sooner than expected unless they have a source of guaranteed lifetime income.

3. Inflation

Even at low levels of inflation, the cost of day-to-day items will likely increase over the course of a long retirement. Relying on regular income payments early in retirement may allow people to leave more of their savings invested for growth potential, helping cover higher costs later in retirement


Flexible timing for different needs

Annuities come in many different forms. Financial professionals can help identify the option that best fits a particular plan. They also can help decide when to turn on that income stream, depending on a client’s biggest concerns.

For example, some people may want to turn on annuity income at the start of retirement, allowing them to delay taking Social Security payments and receive bigger checks later. Taking annuity income early also allows people to leave more savings invested, providing the potential to grow into a larger pool of assets for unexpected bills or higher costs later in retirement. People using annuity income also may be able to better withstand market downturns early in retirement, because they aren’t yet relying on withdrawals from retirement assets and can give their savings more time to recover.

In other cases, people may want to turn on guaranteed income later in retirement. This approach can protect against running out of money even if unexpected bills arise. It’s also possible to choose an annuity that offers growth potential with a measure of downside protection. These types of annuities provide the potential to create a larger pool of money to cover higher costs down the road, without exposing those savings to the full impact of a market downturn like assets directly invested in the markets.

These are just a few ways guaranteed income provides flexibility that can help protect and strengthen a retirement income plan. That protection can give people a greater sense of confidence that the retirement lifestyle they want remains in reach—even if they face surprise expenses and other risks.