The New York Times points to fixed annuities to cover basic expenses

Fixed Annuities to cover basic expensesIt’s no surprise that our gene pool is considered a marker for living a long life, particularly if the family tree is awash with longevity.

On the other hand, according to an article in Consumers Report, “Can You Afford to Live to 100?” the influence of our gene pool might well be eclipse by our behavior—healthy eating, smoking less and exercise may ultimately trump the gene factor.

The savvy investor considers investments that will see him through those Golden Years, including annuities to anchor his portfolio with a predictable source of fixed income.

Fixed annuity for ‘guaranteed income.’

Indeed, The New York Times article ““6 Strategies to Extend Savings Longer,”  gives credence to the role of the fixed annuity in the investment portfolio to “ensure that the basics (expenses) are covered:”

“The payout rate on an income annuity can be higher than bonds because it provides a source of return that investments cannot,” said Wade D. Pfau, a professor of retirement income at the American College of Financial Services, referring to the fact that annuity holders who live longer benefit from those who die earlier since their money is pooled together.”

Fixed annuities are a viable insurance product that pays a set rate of interest. In fact, the rate can be much higher than CDs, and can be purchased as a deferred or immediate annuity.  

How much do we need to live on

The phrase, “It depends,” is quite accurate because of all the variables in play, particularly as we near retirement. For example, the decision when to start drawing Social Security can be a game changer in locking in the highest benefit possible. In general, one’s benefits increase 8% a year for every year we delay tapping our benefits; this, up until the maximum at 70 years of age.

Other considerations include income from a part-time job during retirement, and what the tax rate will be in retirement. What’s more, putting as much as we can into our 401(k), or even transferring funds to a Roth IRA, will impact how much we’ll have to spend.

As a guide, The Wall Street Journal says we can reasonably expect to replace “75-85%” of our pre-retirement income. Getting by on less would be an ideal for choice for some. Note the article even suggest it’s possible to get by quite well on 55% of what we were making prior to retirement.

In addition to needing less retirement income comes the added benefit of a lower income-tax rate during retirement. Obviously, this scenario is a strategy for “creating more savings.”

Online financial calculators can provide us with a baseline look at our future finances, particularly when projecting shortfalls: the difference between the money we have in retirement versus what we’ll actually need:

“In the aggregate, American households led by those between the ages of 25 and 64 face a total retirement shortfall of $4.13 trillion. That works out to $25,326 for each and every one of the more than 163 million Americans between the ages of 25 and 64, according to the most recent Census data.”

‘Withdrawal rates’ key to protecting portfolio depletions.

It’s a common financial, rule-of-thumb that we should shoot for a 4% withdrawal rate from a balanced portfolio with 50% stocks and 50% bonds. Generally, this mix can very likely see us through 30 years of retirement, as suggested in the New York Times overview.

It’s important to develop an investment strategy—and an estate plan— early on in life. Jump starting your retirement planning can take advantage of a longer investment time horizon  as well as lower premiums for key products like long-term care insurance policies.

Contact us to learn more about our investment services and how they can help you meet your financial goals.