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have an annuity question?
have an annuity question?

2 Cheapest Ways To Get A Retirement Income

The majority of today’s workers heading down the yellow brick road of retirement are in need of a guaranteed income, the question is, without a pension, how do you get it? Most people are wary of annuities. They’ve gotten a lot of bad press and are one of the most misunderstood financial products on the market, in fact, some of them aren’t even fully understood by the financial professionals who sell them. If you’re off to see the wizard, metaphorically speaking, you might be disappointed by what you find once you meet the man behind the curtain. If your financial professional is using a lot of bells and whistles without giving you any real solutions, then you might be tempted to just figure this planning out by yourself. Here is a way to keep things low-tech and low-cost while securing yourself an income.

DON’T GET LOST IN THE FOREST

In the third annual Income Study done by Greenwald & Associates/ Cannex, more than half of consumers age 55 to 75 see high value in having a guaranteed lifetime income. An annuity is the only financial product that can guarantee you an income paycheck for the rest of your life. It’s financial protection against running out of money and peace of mind that consumers find the most value out of all the benefits and features offered by guaranteed income products, but survey participants also pointed out the perceived disadvantages:
  • Too many terms and conditions
  • Too expensive
  • You don’t always get back the full purchase amount
  • Too complicated
Lions and tigers and bears, oh my! So how can you navigate through all of this without getting hurt by high fees, complex terms, and inconvenient restrictions?

KEEP IT SIMPLE

At the end of the day, Dorothy didn’t make it home due to wizardry, tricks, or hot air balloons. She got home by waking up out of her dream and realizing, what she wanted was there all along. We don’t blame you for being wary of annuities; all of the things people say about them are true. They can be hard to understand, expensive, hard to get out of, and not in your best interest. They can also be simple, straightforward, and the best solution to your problem. If you need a way to turn a portion of your investment portfolio into a guaranteed lifetime income, if you don’t have a pension and need to make one yourself, then the annuity is likely the simplest, most direct way to achieve the peace of mind you crave. You don’t have to become an annuity expert, and you don’t have to pay an arm and a leg for all of the bells and whistles that annuity salespeople often make sound so invaluable. Focus instead on what you need: a reliable income you can’t outlive.

AVOID THE FLYING MONKEYS AND WICKED WITCHES

Before we look at the two simplest (and least expensive) ways to use annuities, let’s spend a moment talking about the annuity traps. Beware any financial professional who is selling you a guaranteed interest rate that sounds like it’s too good to be true. Fixed indexed annuities hold interest-bearing accounts that are tied to a market index without being directed invested in the market. They are not designed to give you returns to the stock market, rather they are designed to help you keep up with inflation. Generally speaking, they can earn you better than the 1 or 2 percent of a fixed annuity. Variable annuities, on the other hand, might very well be the flying monkeys of the annuity industry. If you’re not careful, they can make off with your basket of goods. It is the variable annuity that can’t promise you’ll get back your full purchase amount. If your financial professional is telling you that their variable annuity can give you a 6 or 7 or even 8 percent interest rate guaranteed, what they are talking about is the account created by the income rider, not the account that you can’t access as a lump sum. It’s the creation of this account plus the addition of mutual funds that may cost you dearly in fees.

HORSE OF A DIFFERENT COLOR

The cheapest way to get an income using an annuity is to annuitize the stream. To annuitize means to trade in a sum of money for a series of paychecks. The contract is simple, straightforward, and cheap. There are no fees for income riders, the interest rate is declared, and you know what your income will be. The two kinds of annuities that can give you this are an immediate annuity and a deferred annuity that’s known in the marketplace as a longevity annuity. Both of these annuities annuitize your money, but they do it in different ways. The immediate annuity goes to work fast – you sign the contract, put in the money, and turn on the income stream. For example, a 65-year old woman could invest $200,000 in an immediate annuity to get about $1,100 a month to supplement her Social Security. Her check will continue to arrive every month no matter what the stock market does and no matter how long she lives, guaranteed. The deferred annuity gives you a bigger income for the same amount of money, but the payments don’t start coming until several years down the road. Most deferred annuities grow your money for on average 10 years, during which time you have restricted access to your money. For example, a 55-year old woman could invest $200,000 in a deferred annuity to get just under $4,000 a month in 10 years’ time, when she turns 65. Both of these solutions do not involve the complications that come with adding an income rider, but they also don’t give benefits to your family in the event that you die before all the money in your annuity account is paid out. Once you pass away, these types of annuities go with you just like Social Security. If you want the money to go to your family instead, then you’ll want to explore annuity options that offer guaranteed death benefits. Those that come with income riders can give you greater access to your money and money to your beneficiaries, but there is a fee. To avoid this, you can plan for emergencies on your own by setting aside a portion of your portfolio in an emergency fund and talk to an advisor about legacy planning. The choice is up to you, but you do have options. If you have questions about how to get into one of these simple contracts, reach out to one of our retirement income planning experts and we’ll be happy to get back to you. Our passion is helping retirees pick the right annuity. Our advice comes to you unbiased because we are an independent company, not connected to an insurance company or investment firm. We hope this article has been helpful to you. If you have questions or suggestions, drop us a line! Build Wealth Like A Millionaire Without Saving In A 401(K)

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