If you are in your 50s or 60s, you have undoubtedly been thinking about how you will generate a sufficient income that will allow you to live a comfortable lifestyle in retirement. You are not alone if you are worried about outliving your money when you retire. Becoming destitute as you age is the number one fear of seniors planning for their retirement. A hundred years ago, people were lucky to live into their 70s. Today, thanks to healthier eating habits and modern medicine, it is not unusual for individuals to live well into their 80s or even into their 90s. That means you could live another 30 years after retirement. You need to be proactive and start planning today, so you will have a financially secure retirement.
Consider Your Options
You do not have to be a mathematical genius to figure out how much money you will need each month to maintain a comfortable lifestyle after you stop working. Each person is different, but we all need a place to live, food, clothing, and other basic necessities. You will probably have higher medical expenses but lower housing costs. Social Security can cover some of those fixed monthly costs, but it is usually not enough to cover everything. Plus, you will want a little money left over each month so that you can splurge a little and really get the most out of your golden years.
You may already have bonds, mutual funds, an individual retirement account (IRA), and other qualified or nonqualified funds set aside for retirement. A deferred income annuity (DIA), also commonly referred to as a longevity annuity, can assure you a regular monthly income even if you live to be 100. Stocks can provide a greater annual return than annuities, but there are no guarantees, and you can lose money in any given year. Certificates of deposit are very safe, but current CD rates are very low and will not provide the income you need and want. A recent Kiplinger article discusses the benefits of buying a deferred income annuity.
How Does a Deferred Income Annuity Work?
A longevity annuity allows you to invest money today that grows over time, so you can begin to receive a steady stream of income starting at a specified future date. The deferral period can be as short as two years or as long as 45 years, depending on the carrier. The longer you wait to turn on the income stream, the higher your monthly payout will be. Longevity annuities have become a very popular substitute for traditional pensions in recent years. Some of the key features are:
- No limit to the amount you can invest
- No taxes while your money grows (although you may incur taxes when your income stream begins)
- Guaranteed lifetime income stream
- A lifetime income stream for your spouse if you die first
- Option to add a cost-of-living adjustment at time of purchase to keep up with inflation
- No annual fees
Wait! There’s More to Like About Deferred Income Annuities
The U.S. Treasury Department recently instituted a new rule that makes it easier for individuals to reap the benefits of deferred income annuities. Prior to the changes, if you wanted to use the funds in your 401(k) account to set up a guaranteed future income stream, you had to first transfer your funds into a personal IRA and then try to find the appropriate investments to meet your retirement goals. Under the new Treasury Department rules, individuals who own 401(k) plans or have other qualified retirement accounts can now set up longevity annuities within those retirement plans. Longevity annuities, unlike other investments within retirement plans, are not subject to the Internal Revenue Service required minimum distribution (RMD) at age 70.5. That means you can defer your payout to a later age and receive higher monthly income checks.
We know that you are very concerned about outliving your money and are looking for a safe alternative to risky stocks and low-paying CDs. Advanced Capital Management is here to answer all of your questions and help you find the best longevity annuity to meet your retirement income goals. Please give us a call or request a free quote so you can secure your financial future now.