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Annuities Can Make Your Savings Last a Lifetime


In “Turning a lifetime of savings into income,” Walter Updegrave of Money Magazine gives advice on the best ways for you to make your retirement portfolio last as long as you live.  He stresses that there are pros and cons to whatever options you choose and that you really need to tailor make a plan for yourself because nothing will work across the board.  Each individual needs an individual plan.

It is wise to compare annuities when looking for guaranteed lifetime income.  A fixed-income lifetime immediate annuity not only makes it nearly impossible for you to run out of money, it also ensures that you know how much money you are going to receive on a monthly basis.  You can plan your expenses around your retirement income payments.  A $500,000 annuity purchased today by a 65-year old man would get him $3,200 a month over his lifetime, which is an 8% payout each year.  When purchasing an annuity, you always want to have a separate emergency fund so that you don’t have to incur any early withdrawal penalties.  Also, make sure to choose a highly rated insurance company that will be around to make your monthly payments.

An alternative theory to purchasing an annuity is to keep your investment money in stocks, bonds, and cash while withdrawing 4% annually to cover expenses.  Your payouts are initially much less than with immediate annuities and while in a good market, you will receive income for many years there is always the potential for a steep market drop.  It appears that meshing both retirement plans together might be the wisest option for many.  Purchasing an annuity that will pay out enough monthly to cover all of your basic living expenses guarantees that you will be covered over your lifetime.  You can leave the rest of your savings in a riskier portfolio and use that money as extra needs occur.  It usually makes sense not to put all of your eggs into one basket; retirement planning is no different.

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