As you investigate ways to establish a stable retirement income, you may be presented with many different investment options and insurance products. Among the many factors you should consider before making financial planning decisions, some of the important considerations are:
- the length of your expected retirement (often 20 years or more, these days)
- your expected lifestyle and budget needs
- the rising cost of health care
- inflation (over a couple of decades, this can be more significant than you would think!)
- forms of retirement income available to you (Social Security, a pension from your employer, investment income, annuities, and so on)
- risks and benefits of different investment and insurance products
Most people would prefer to plan for a stable, secure retirement income, rather than one that fluctuates. Therefore, we are often asked whether the income produced by an annuity contract will change over time.
The answer is NO… and YES.
NO – your income from a fixed, fixed rate, or immediate annuity should not decrease over time. However, the payments received from the annuity are based on the claims paying ability of the underlying insurance company. In addition, many annuity products have surrender charges for early withdrawal, so if you need more income than the ongoing annuity payments or you need access to your funds in an emergency, there may be significant costs involved when removing your money. So – you must weigh the benefits of guaranteed income against the costs of fees and illiquidity.
On the other hand – YES, your income from an annuity can go up. Depending upon how you utilize your annuity, your monthly income could increase from the amount you originally expected, for several reasons:
- you chose to include protection against inflation in your annuity contract*
- your index-linked interest rates increase
- you wait a little longer to begin receiving payments
- …and many other reasons, depending upon your situation
The bottom line is this: With certain annuity strategies the income you receive from your annuity should not decrease, but it could increase. For this reason, an annuity product may be an ideal way to provide yourself with a stable retirement income, so that you can alleviate some of your concerns about running out of money one day.
For more information on our annuity strategies, call our office at 877-778-4611. We can set up an appointment to show you all the different ways an annuity can be tailored to suit your needs.
*There are additional costs associated with these riders – for more information, please read the article: “The Lowdown on Annuity Fees”.