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have an annuity question?
have an annuity question?

How much of your portfolio should be allocated to guaranteed income?

When you retire, it is likely that your portfolio will be structured a bit differently than it was throughout your working – and saving – years. That’s because you will be more focused on income and protection. But how much of your portfolio should be allocated to guaranteed income in the future?

The answer to this question can vary, depending on your age, risk tolerance, potential life expectancy, health condition, and time frame until retirement. It can also be dependent on any other retirement income sources that you have.

Yesterday’s versus Today’s Retirement Income Strategies

In the past, many financial professionals relied on “traditional” retirement income strategies like the 4% Rule. This entails “drawing down,” or withdrawing, roughly 4% of the assets in the retiree’s portfolio, and leaving the remaining funds invested so they can grow – and ideally, that growth will essentially replace the money that was taken out.

Given a portfolio that consisted of 50% stocks and 50% bonds, there was a high probability of success. It should be noted, though, that there was no guarantee. In addition, past performance does not dictate future returns.

Fast forward to today and you will find a different scenario. For instance, the stock market is much more volatile. So, even though it can rise rapidly, it can also incur significant drops like the 3- and 4-figure daily drops during the early 2020 Coronavirus pandemic.

In addition, since the 2008 economic recession in the U.S. interest rates have remained at historical lows. So, even though investors and retirees could move money from equities into bonds or CDs, the minuscule rates of return can also result in the risk of lost purchasing power.

Given all of this, many experts today believe that a safe rate of withdrawal is now under 3%. So, if you have approximately $1 million total, withdrawing 3% would provide you with $30,000 per year, or $2,500 per month in retirement income.

But is that enough for you to live on – particularly as the prices of most goods and services are rising?

In addition, this model assumes that the value of the portfolio will remain at $1 million. However, if there is a market crash and/or you have a costly emergency like a need for long-term care, your income base could end up dwindling.

Then what?

The Guaranteed Income Solution

One way to ensure that guaranteed income will continue to flow in for the remainder of your life is with an annuity. These flexible financial vehicles can provide you with a set dollar amount that will keep paying out throughout your lifetime, regardless of how long that may be.

It is important to note, though, that you should not place 100% of your savings into an annuity, because you could prevent yourself from having funds available for other uses, such as emergencies. You may also need to have funds available for uninsured medical costs.

With that in mind, it is important that you discuss your short- and long-term financial objectives with a retirement income expert who can point you in the right direction in terms of allocating your portfolio.

Does Your Retirement Plan Include a Guaranteed Income for Life Strategy?

There can be many moving parts within a retirement income plan. And, while a guaranteed income stream is extremely important, you will also have to account for other factors. So, it is recommended that you work in conjunction with an income specialist.

At Annuity Gator, we have a mission of helping people plan ahead for their income in retirement using financial tools that are right for the particular job. If you would like to talk over your potential needs and goals, feel free to contact us by phone at (888) 440-2468 or send us an email through our secure online contact form. We look forward to answering any of the questions you may have.

How much of your portfolio should be allocated to guaranteed income?

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