In this retirement blog we talk about retirement options that can help you get ready for Life’s Longest and Most Expensive Journey. You’ve reviewed your trip plans and recounted the money you’ll have to pay for your most expensive journey ever: retirement. You think you have enough money, but there could be trouble along the way. You’d feel better if you had a guaranteed lifetime income for you and your spouse. After all, your dad got a guaranteed pension for life from Mega Industries when he retired in 1972. Is there a way for you?
Most Americans have a guaranteed lifetime income: Social Security. The bad news is that this paltry pension will probably fall short of what you’ll need for the retirement lifestyle of your dreams. The good news is that it will be paid until you die. Plus, it has spousal benefits that could provide income to your loved one after you’re gone. If you’re already taking Social Security – and 50 million Americans are – you’ll get lifetime cost-of-living raises unless Congress eliminates them, which is not likely. Sadly, most current Social Security recipients started benefits before normal retirement age and will get lower benefits during their lifetime. Starting Social Security at the right time is a major retirement decision: to get it right, read my ‘Guide to Social Security… and A Better Retirement‘.
If you haven’t started your Social Security benefits yet, use SSA Gov. Calculators to estimate how much you’ll get. Let’s say you and your spouse will be entitled to $25,000 annually when you start. What’s more, you’ve estimated that $55,000 a year in today’s dollars will be needed for the lifestyle you’ve planned. Is there a way to “buy” this $30,000 shortfall so you’ll be assured – guaranteed – your yearly income in today’s dollars will always be $55,000 regardless of how long you live?
When facing a risk – in this case outliving your money – you turn to insurance. Insurance companies protect your home, car, life, health and more, so why not your retirement? They manage risk by spreading it across a large number of individuals. This allows them to accurately predict the probability of loss. For example, the odds of your house being totally destroyed by fire are 1 in 500 or being involved in a car crash are 1 in 82. The homeowners and drivers that have no claims subsidize those that do – the same principle works with guaranteeing you a lifetime income. If you live too long someone else will die too soon. Insurance companies know the odds and price their coverage accordingly. Buying insurance for longevity risk, or outliving your retirement money, is both cheap and easy.
Back to the $30,000 more in annual lifetime income you need to augment your Social Security benefits and maintain the $55,000 lifestyle you’ve planned! If you are age 65 and willing to deposit about $500,000 into an annuity, you can receive the $30,000 annually for as long as you or your spouse lives. The best part is that if you and your spouse die too soon, the balance in your account goes to your loved ones. Mortality tables show that for a couple aged 65, the median expected age that one of them will still be alive is 91. Of course, if one or both live beyond this ripe old age they will continue to get the $30,000 every year. The older you are when you lock-in the lifetime income, the less money it takes. The insurance company offers options about when to stop, start or store your income AND you will maintain control of your money in case you change your mind.
You’ll have more peace of mind knowing that regardless of what happens to the economy, your other investments, or how long you and your spouse live, you’ll have an adequate income for a good retirement lifestyle. Don’t move on this opportunity without shopping the market for the best annuity. The smartest way to do this is work with a financial advisor that specializes in annuities. If you want a guaranteed lifetime income, there is a way.
Shelby J. Smith, Ph.D.