When you retire, will you be financially free, without worry about running out of assets or income – no matter how long you live?
Will every little movement in the stock market have an impact on whether or not you’ll be able to pay your living expenses down the road? And if interest rates remain at their historically low rates, will you have to cut back on the items and services you purchase in the future?
If you answered any of these affirmatively, then even though you may be retired, you won’t be financially free – and there is a big difference between the two.
Retirement Yesterday and Today
Many retirees in the past could count on income from one or more of the following sources:
- Defined benefit pension plan
- Social Security
- Interest and/or dividends from personal savings and investments
Most traditional employer-sponsored pensions would pay out a set amount of income either for a pre-set time period, or even for the remainder of the retiree’s life. If the underlying investments did not perform well, it was oftentimes up to the company – not the retired worker – to make up the difference.
This guaranteed income, along with benefits from Social Security, provided a great deal of financial freedom to yesterday’s retirees – and interest and/or dividends that were generated from personal savings and investments would often be the cherry on top!
But today things are different. No longer can most retirees count on pension income from their previous employer(s). Plus, while Social Security benefits are currently still available, no one knows if or when the trust fund for this program will run out.
This, too, could remove a substantial amount of income security from millions of retirees’ lives. So, even though many people may no longer be actively working – and in turn, are retired – they are far from being financially independent.
Retired Does Not Mean Financially Free
According to a recent study on retirement and financial freedom, the latter appealed to 76% of the participants, but only 56% thought it was achievable. In fact, while the survey respondents were more likely to find the concept of financial freedom appealing than the concept of retirement, they also felt that financial freedom is more difficult to attain.
So, what is the big difference between the two?
Retirement, in its most basic sense, is defined as the action or fact of leaving one’s job and ceasing to work. Many people work for decades and save money so that they can generate one or more income streams in the future. They may also qualify for various retirement income benefits at a certain age from programs like Social Security.
On the other hand, while financial freedom can have several different meanings, it refers to being in a position where you do not have to work unless you have to. This, in turn, means that you are in control of your finances and your life choices… and this can be so, regardless of your age. So, it makes sense that approximately 75% of the survey respondents noted that financial independence feels more empowering than retirement.
How to Set Up a Lifetime Retirement Income Stream You Can Count On
Today, there is no longer just one single path towards retirement for everyone across the board. One reason for this is because retirement looks different for all. Although the concept of financial freedom or independence might seem far off, it is something that is attainable with the right planning.
One way to ensure an ongoing stream of income for as long as you need it is to purchase an annuity. These financial vehicles can payout for a preset number of years, such as 10 or 20, or for the rest of your lifetime.
Is an annuity right for you?
It could be. But before you make what could be a long-term commitment to one, it is recommended that you discuss your short- and long-term financial objectives with an annuity specialist.
At Annuity Gator, our mission is to educate people about how annuities work and how they may – or may not – fit in with specific financial planning goals. So, feel free to contact us, and let’s chat. You can reach us by calling (888) 440-2468 or by sending us an email to our secure online contact form. We look forward to hearing from you.