Table Of Contents

Part 2 of The New Retirement Income Equation. Start with Part 1.

This is why I prefer to begin retirement income planning with expenses rather than investments.

Suppose a couple needs $8,000 per month and receives $5,000 from Social Security. We now have a $3,000 monthly income gap to solve. Portfolio withdrawals can fill that gap while preserving flexibility, but they also expose the household to market performance, sequence-of-returns risk and longevity risk.

That’s where an appropriately structured annuity may deserve consideration. Its purpose isn’t necessarily to outperform stocks or replace the portfolio. It can transfer some longevity and income risk to a highly rated insurance company and create income that continues regardless of how long someone lives or what financial markets do.

Annuities have tradeoffs involving liquidity, inflation protection, costs and estate objectives, and guarantees depend upon the claims-paying ability of the issuing insurer. They aren’t appropriate for everyone or every dollar because everyone’s situation is different.

But when the problem is income that cannot be outlived, guaranteed income solutions deserve to be evaluated alongside investment solutions.

Closing Remarks

The Fed’s latest decision reinforces something retirement planning always has to accommodate: interest rates change.

Several years ago, retirees wondered whether conservative investments would ever produce meaningful income again. Earlier this year, investors were debating when rates might fall. Now we’re discussing whether they could remain elevated considerably longer.

That’s why I wouldn’t build a 30-year retirement around today’s 5% yield. Some money needs liquidity. Some needs dependable lifetime income. Some needs long-term growth. And some should remain flexible because life rarely unfolds according to plan.

Higher rates have given retirees better choices. That’s good news, but the goal isn’t to find the investment paying the highest rate today.

The goal is to build a retirement paycheck capable of surviving whatever rate comes next.

Until next time, keep looking beyond the headlines. That’s where you’ll often find the margin.

Important Disclosures

Compensation received by licensed insurance agents for the sale of fixed annuities and other insurance products are separate and distinct from fees charged for advisory services. Insurance products also contain additional fees and expenses.

All insurance and investment strategies have the potential for profit or loss. Always consult with a licensed insurance professional who is qualified to evaluate your specific circumstances and to offer a professional opinion with respect thereto.

Annuity guarantees are subject to the claims-paying ability of the issuing insurance company. If you withdraw money from or surrender your contract within a certain period of time after investing, the insurance company may assess a surrender charge. Withdrawals may be subject to tax penalties and income taxes.

Social Security rules and regulations are subject to change at any time. Always consult with your local Social Security office before acting upon any information provided herein.

Information presented is believed to be current. It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. You should consult with a professional advisor before implementing any strategies discussed. Different types of investments involve higher and lower levels of risk. There is no guarantee that a specific investment or strategy will be suitable or profitable for an investor’s portfolio. There are no assurances that a portfolio will match or exceed any particular benchmark.