Compared to earlier generations, you can expect to live a longer, healthier life. That means the money you have for retirement needs to last longer too. How can you make sure you will have enough money for retirement?
Figuring out your goals and putting a strategy in place can help you answer this question. It could include not only where to invest your money as you’re saving for retirement, but also where to invest once you retire.
When you shift from saving for retirement to living in retirement, you’ll likely want to protect your nest egg by focusing on low-risk investments. As tempting as it may be to try to avoid risk completely, you should still consider keeping some of your assets in growth-oriented investments to help protect against inflation and rising healthcare costs. Even in retirement, having a variety of investments could be key.
Something else to consider is your guaranteed income sources. Guaranteed income is one way to help provide some assurance that you can cover your essential expenses such as housing, healthcare and food for as long as you live. Guaranteed income sources include things like pensions, Social Security and annuities.
Unless you have sufficient guaranteed pension and Social Security benefits to cover all your basic expenses, you may want to consider buying an annuity with some of your retirement savings. An annuity can turn assets into a steady, guaranteed* income stream. This means that no matter how long you live, you can always depend on this money coming in. The rest of your assets can then be directed to investments with more growth potential.
An annuity can help cover your needs in retirement
Let’s look at a hypothetical example to see how an annuity can help cover retirement needs.
At 22, Carmen Cadena earned her interior design degree and began working for a prominent design firm. She knew that one day she wanted to own her own interior design company, so she diligently saved everything she possibly could to make her dream come true. On her 30th birthday, she took the plunge, cashed in her savings and went into business for herself.
Now, at age 50, Carmen doesn’t intend to retire for at least another fifteen years, but she’s beginning to worry that she hasn’t planned well. As a sole proprietor with no employees, she has always invested her profits back into her business and hasn’t been able to save much for retirement. She has managed to save $100,000 in an IRA and another $100,000 in mutual funds. She realizes that it won’t be enough in retirement to even cover her basic expenses, which she estimates will be about $50,000 per year. That amount doesn’t allow for any unforeseen expenses or anything extra like traveling to visit family.
She had always thought that she would be able to sell her business and live off the proceeds into her golden years. Now she’s starting to worry that she won’t clear as much from the sale as she had hoped or that she won’t even be able to find a buyer.
She recently received an inheritance of about $500,000 from her mother’s estate. She had thought of just investing this in mutual funds, but lately she’s become concerned about how drops in the market might affect her savings. She became confused as she tried to figure out how to invest her inheritance.
She wants an investment that helps her protect and grow her assets but doesn’t know what her options are. A friend referred her to Michelle, a financial professional who specializes in retirement planning.
A planning strategy
Michelle says the good news is that she’s not planning on retiring for at least another 15 years. She has plenty of time to continue contributing to her IRA. Whatever she accumulates can be used to help fund her retirement. While her mutual funds offer the potential for growth, they are subject to market volatility and won’t provide the protection Carmen is looking for. However, they will help her grow her assets, and they offer liquidity if she should need quick access to cash when she retires.
She also has time to put a business succession plan in place and to start looking for potential buyers. Michelle urges her not to wait too long. Unforeseen circumstances could force her to leave the business earlier than expected. Having a plan in place will help ensure her goals are met.
Michelle suggests Carmen use most of her inheritance to buy an annuity with a guaranteed lifetime withdrawal benefit rider. This can be an integral part of her retirement income strategy. Her money will earn interest, helping her to build her retirement savings. Carmen likes the fact that when she retires, the annuity will provide a steady, guaranteed* income stream. She will be able to depend on this source of income to help cover her basic expenses for the rest of her life.
Ameritas can help
Annuities can be powerful tools. They can help overcome unnecessary risks and important optional benefits to help protect the future. No matter how long you live, you can always depend on an annuity for income.
Contact a financial professional to learn more about how annuities can help make sure you will have enough money for retirement.
Sources and References:
*Guarantees are based on the claims paying ability of the issuing company.
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