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Planning for the Unknowns of Social Security

According to a recent NAILBA post, the article discussed how social security is only intended to provide less than 40% of one’s post-retirement income. Social security will not be able to pay full retirement benefits starting in 2029.

That could leave a gap in your retirement planning strategy between your selected investments and retirement accounts. Where are your choosing to place your hard-earned retirement dollars? 401(k)? Roth IRA? CDs? Bank accounts?

You may want to consider an annuity product as well to diversify your retirement strategy. An annuity is one of the only products that guaranteed lifetime income (based on the claims paying ability of the insurance carrier). Annuities may not fit every consumer’s situation, but they fulfill the retirement needs below.

  • Looking for minimum retirement income: There is a minimum amount of income that we all need to pay our bills – the amount that isn’t expendable income. If interested in at least this level of income every month, an annuity might be the right choice.
  • Concerned about outliving the retirement income: Several factors to consider: Americans are living longer than ever before, with the average life span reaching more than eighty years. Social security is only intended to provide less than 40% of one’s post-retirement income. And, the Social Security Administration’s 2014 report indicates the trust fund reserves will fall to a point that Social Security will not be able to pay full retirement benefits starting in 2029. Given all this, an annuity might be a good choice to ensure sufficient income for extended retirement.
  • Wanting tax reduction on a paycheck: Annuities can be funded with pre-tax (qualified) dollars, and don’t require paying taxes on the money until withdrawing any funds from the purchased annuity. It is important to note that while purchasing an annuity while in a [38%] tax bracket, but plan to retire with a tax bracket of [20%], income tax rates are likely to increase over time. However, an annuity might be a good choice if interested in deferring the taxes being paid on income.
  • Interested in maximizing a return: Annuities offer an insurance element by guaranteeing a monthly paycheck, for the rest of one’s life, no matter what age. Sometimes this means the cumulative amount of income that’s received from the annuity exceeds the amount paid into the annuity. This is a risk the insurance company runs. Insurance costs money. If not interested in paying for the insurance in an annuity, these products may not be a good choice.
  • Wanting immediate access to money: Annuities generally have penalties in the event of surrendering an annuity for a large percentage of its cash value. These surrender charges are imposed because when the annuity was purchased, the insurance company understood they could use the funds to invest them, earn a return on them, and use the monies to help guarantee the paycheck “for life.” When cashing-out an annuity early, the insurance company faces penalties on their investment of the annuity dollars. As a result, the insurance company passes-on surrender charges to most people that withdraw more than 10% of their annuity in any given year. If there is a concern for having immediate liquidity, an annuity may not be the right choice.
  • Building one’s own annuity: No other financial instrument can provide a guaranteed paycheck for life like an annuity. As such, if someone is looking to “build their own annuity,” through purchasing some stock and a bond fund, an annuity may not be the right choice.

Are any of the above statements relative to your retirement planning strategy? If so, you may want to check out your annuity options by setting up an appointment with a licensed insurance professional through Annuity Alliance.