For most of our adult lives, we are given the impression that we need to build up a large stash of assets so that we can attain financial security in the future.
But, while this advice is partially on par, the reality is that many people who have a massive amount of assets are actually some of the most unhappy, and stressed out, individuals on the planet.
Take, for instance, anyone who held a large portfolio of real estate during the most recent recession. I can tell you with 100% certainty, these folks were not very happy – nor were they quite as financially prepared for the future as they originally thought. Rather, they spent a majority of their time just trying to get back to square one.
Likewise, there were countless “fortunes” lost when the stock market tumbled. Many people who had assets in the six- or even seven-figure range found themselves with little to show for it when the market “corrected” itself.
Compare that with someone who was able to rely on a set amount of income, month in and month out, regardless of what was happening in the market. I think that you’d agree, you can’t rely on assets for your retirement security.
The 3 Key Sources of Income in Retirement
When it comes to securing an ongoing income in retirement, there are actually three primary sources – although not everyone may be eligible for all of these. They include:
- Social Security
Let’s tackle Social Security first. If you’ve worked and paid into the Social Security system – and in turn, earned enough credits to qualify – you may be able to claim Social Security retirement income.
Initially created as a way to alleviate poverty for the elderly, though, Social Security was never meant to provide all, or even most, of the income retirees receive. In fact, according to the Social Security Administration, this income source replaces only about 40% of an average wage earner’s pre-retirement wages. So, unless you plan on significantly reducing your lifestyle down the road, relying solely on Social Security isn’t the answer.
Next, let’s take a closer look at pensions. In the past, many companies rewarded their retirees with a defined benefit pension. As its name suggests, a defined benefit plan provided a set amount of income to its recipient. Unfortunately, though, all good things must come to an end – and that is exactly what has been happening with the traditional pension plan.
Due in large part to the expense of paying out benefits, most employers today have done away with these plans, and instead, offer defined contribution plans – such as the 401(k). In a nutshell, this means that income in retirement is now up to the individual employee as versus the employer.
But, because most people aren’t financial experts, it can be easy to make mistakes with how these funds are invested – as well as how, or even IF, this money is converted over to a livable and ongoing income in the future.
Last, but certainly not least, let’s take a look at annuities. These financial vehicles can also provide a lasting income in retirement. Unfortunately, though, over the years, annuities have been the subject of many misconceptions – starting with the concept that if you invest in an annuity, you will never see your money again.
In actuality, though, just the opposite is true.
Annuities not only offer a way to save money in a tax-advantaged manner, but they also are the only financial product in the marketplace that can guarantee a lifetime stream of income – regardless of how long you may need it.
In addition, depending on the type of annuity you have, you can take advantage of the upward movement of the market, while at the same time keeping your principal – and your future income – safe.
Are You Relying on Assets or Income in Retirement?
The guaranteed income benefits that are found in annuities can far outweigh an unstable portfolio – even if it is flush with valuable “assets.” But, even given all of their advantages, annuities are not right for everyone.
If you’d like to “test drive” an annuity and see how this type of financial vehicle could provide you with the security that you need, contact us here. Our annuity experts can answer all of your questions about retirement income and how to best plan for a secure future.