Many people underestimate how long they are likely to live in retirement. According to a recent survey, only two out of 10 pre-retirees were able to estimate a personal life expectancy that is close to the average life expectancy for their respective ages, according to the Society of Actuaries.
Unfortunately, people who don’t plan for the possibility of living well into their 80s or 90s may wonder whether it’s really possible to both “live long and prosper.”
A period of poor market conditions, unexpected health-care costs, or other risk factors could potentially threaten your retirement security. Are you confident that your retirement savings will last long enough?
An immediate fixed annuity could possibly safeguard some of your retirement assets and provide a stable income for as long as you live. Most annuities have surrender charges that are assessed during the early years of the contract if the contract owner surrenders the annuity. In addition, if the contract is surrendered before age 59½, the owner may be subject to a 10 percent federal income tax penalty.
Immediate (or income) fixed annuities can be purchased with a lump-sum premium. In return, the issuer guarantees fixed monthly payments for a specific term, or for life. The guarantees of fixed annuity contracts are contingent on the claims-paying ability of the issuing insurance company.
Payment amounts for lifetime payouts depend on the age and sex of the annuitant, and whether they will be extended to cover a surviving spouse. With a fixed annuity, the insurance company bears the investment risk.
An annuity income can be a good way to help bridge any gap between the cost for essential living expenses (food, housing, and health care) and normal sources of monthly income (such as Social Security and pension payments). In fact, including a lifetime annuity in a diversified portfolio may help substantially reduce the risk of running out of money.
It can be reassuring to know that basic needs will always be covered by a steady income stream. For some retirees, a fixed annuity may offer the additional income they need to enjoy life indefinitely.