Lifetime Income — Build Your Own Pension

3 min read

Title: Create Your Own Retirement Safety Net with a Guaranteed Lifetime Annuity

Word count: 1,915


Retirement planning is crucial to ensure a secure and worry-free life during your golden years. With an average life expectancy of around 25 years after reaching 65, it’s essential to have a reliable source of income that lasts a lifetime. Annuities, particularly guaranteed lifetime annuities, offer numerous benefits that can help you build and preserve wealth while protecting against market risks and inflation. In this article, we will explore the advantages of annuities and how they can contribute to a safe and prosperous retirement.

The Benefits of Annuities:

Guaranteed Lifetime Income: Annuities provide a reliable income stream that you cannot outlive. This ensures that you will have a consistent source of funds to cover your living expenses throughout retirement.

Principal Protection: With a guaranteed floor of 0%, annuities safeguard your investment from negative returns in the stock market. This protection ensures that your money will not decrease due to market downturns.

Tax-Deferred Growth: Deferred annuities offer the advantage of tax-deferred gains, allowing your investment to grow without immediate taxation. Although there are no stock dividends in deferred annuities, positive gains tied to stock indices are locked in annually.

Bonus Returns: Many annuity products offer a guaranteed return in the form of a “bonus” credited to the accumulation value. This bonus typically ranges from 5% to 10% and enhances the growth potential of your investment.

Inflation Protection: Some annuities provide inflation protection through annual payout increases or gradually increasing payments over time. This helps your income keep pace with rising inflation rates, ensuring your purchasing power remains intact.

Peace of Mind: Annuities offer peace of mind by providing certainty in covering your basic needs or more, allowing you to pursue riskier investments with higher potential returns. This financial security alleviates worries about market fluctuations and economic uncertainties.

Guaranteed Death Benefit: Annuities often include a guaranteed minimum death benefit, ensuring that your heirs receive a predetermined amount in the event of your passing. This feature protects your legacy and provides financial support for your loved ones.

Long-Term Care Benefits: Certain annuities also offer long-term care and/or chronic illness benefits, providing additional protection against potential healthcare costs during retirement.

Retirement Risks and Annuities as a Solution:

Market Risk: Approaching retirement age exposes individuals to greater market risks, as significant downturns can have a severe impact on their portfolios. Annuities protect against market volatility, ensuring that your investment remains secure and continues to provide a steady income.

Sequence of Returns Risk: Sequence of returns risk is a critical factor to consider in retirement planning. An unfavorable market downturn during the early years of retirement can significantly deplete your savings. Annuities help mitigate this risk by providing a stable income source regardless of market conditions.

Withdrawal Rate Risk: Low interest rates have reduced the recommended safe withdrawal rate from retirement portfolios. Annuities offer an alternative by providing higher payout rates and ensuring a reliable income stream that aligns with your financial needs.

Inflation Risk: Inflation erodes the purchasing power of fixed income investments. Annuities, especially those with inflation protection features, can help you combat inflation by providing income that increases over time or by allowing you to invest in inflation-sensitive assets alongside the annuity.

Longevity Risk: Outliving retirement income is a significant concern, as no one knows how long they will live. Annuities address longevity risk by guaranteeing a lifetime income stream, ensuring that your savings will support you throughout your retirement years.

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