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Social Security benefits are guaranteed for life.
Annuities provide lifetime income payments in exchange for a lump sum or periodic payments to an insurance company.
Fixed annuities combined with Social Security create predictable retirement income independent of market volatility.
A recent study identified one single habit that doubled Americans’ retirement savings and moved retirement from dream, to reality. Read more here.
Social Security serves as a financial lifeline for millions of retired Americans. And even if you manage to save a decent chunk of money for your senior years, you might rely heavily on Social Security for one big reason — the fact that those benefits are guaranteed for as long as you’re alive.
You could kick off retirement with $2 or $3 million in savings only to have that money run out on you in your lifetime. Granted, with a large sum to start out with and a smart withdrawal strategy, that’s less likely to happen. But it could happen.
Social Security, on the other hand, can’t run out on you. And yes, you’ve probably heard rumors that Social Security is going away, but that’s not true.
Social Security gets funded by taxing wages, so as long as there are people working, money to pay benefits will keep coming in. For this reason, it’s fair to count on Social Security as a guaranteed monthly income source once your career wraps up.
Social Security doesn’t have to be your only guaranteed income source, though. There’s another option you can look at if you like the idea of a retirement paycheck you can’t outlive.
With the right portfolio investments, you could set yourself up with low-risk assets that pay you on a predictable basis. But if you invest your retirement savings in low-risk assets with steady payments, your portfolio may not generate enough income to meet your needs.
Treasury bonds, for example, can be a good source of predictable interest payments, as can CDs (certificates of deposit). But the limited income these assets give you may not be enough.
If you like the idea of stable, predictable income, it pays to consider an annuity on top of Social Security. An annuity is a financial product that provides you with income for the rest of your life, thereby protecting you from outliving your savings.
Basically, it works like this: You pay an insurance company money (often a lump sum, though not always), and you choose a payment option that works for you.
In some cases, you could start receiving annuity payments right away (this is called an immediate annuity). In other cases, you could start receiving payments at a later point in time (known as a deferred income annuity).
If you buy an annuity with fixed payments, you won’t have to worry about market conditions impacting your retirement income. Your savings, on the other hand, could take a tumble if the stock market tanks.
Not all annuities are the same. They don’t all offer fixed payments, and there can be drawbacks, like high fees and complex contracts that may be difficult to understand.
Your best bet is to sit down with a financial advisor and see a) if they recommend an annuity based on your financial situation, and b) what specific type of annuity they suggest.
But all told, you should know that an annuity, coupled with Social Security, could be a great way to set yourself up with ongoing retirement income that won’t run out. That peace of mind could be invaluable, so it’s worth exploring your options.
Most Americans drastically underestimate how much they need to retire and overestimate how prepared they are. But data shows that people with one habit have more than double the savings of those who don’t.
And no, it’s got nothing to do with increasing your income, savings, clipping coupons, or even cutting back on your lifestyle. It’s much more straightforward (and powerful) than any of that. Frankly, it’s shocking more people don’t adopt the habit given how easy it is.