Income, the #1 reason we save for retirement is for income.  We spend our working lives, saving as much as we can so that one day, we have enough income to live the lifestyle we've always dreamed of in retirement.

You'd actually be surprised how many people answer this question incorrectly.  I guess income never comes to mind because we are so used to having a consistent paycheck from our employer that it just seems as a way of life.  The typical responses are usually the boat, the car, the dream house or vacation.  Yet, when we ask about income, we are met with the frequent "Oh yeah, that too!".

When planning a properly structured retirement strategy, the foundation should always be income.  But not just any ordinary income stream will do.  Sources of guaranteed income are preferred and arguably required.  If it's not guaranteed, can you really count on it to be there every single month for the foreseeable future?  With baby-boomers living longer than any previous generation, their retirement horizon can be 30 years or longer.  According to the Society of Actuaries, of baby-boomer couples, one spouse has a 60.7% chance of living past the age of 90.   Having guaranteed sources of income for the potentially long road ahead is key to a safe, successful and happy retirement.

Centenarians – those who live to age 100 or more - who were at one time considered to be a rarity, are now the world’s fastest growing age group. With more than 70,000 in the U.S. alone, the number of those who live past age 100 has more than tripled in just the past few decades. In fact, based on U.S. Census data, it is projected that there will be closer to 3.7 million centenarians across the globe by the year 2050 .

So, what are the different types of guaranteed retirement income?

• Social Security
• Pensions
• Annuities

There are only 3 sources of guaranteed retirement income.  The key is having enough from the 3 sources to at least cover your basic costs of living in retirement.  Unfortunately for many, pensions are a thing of the past.  According to CNBC Money, less than 13% of private sector employees have pensions these days.  So that leaves the majority of retirees relying on 2 sources of guaranteed retirement income; Social Security & Annuities.  Today's retirees are navigating uncharted waters full of potential financial risks that need to be hedged appropriately.  The new saying is "this isn't your grandparents retirement".  In an article from The Center of Insurance and Policy Research titled Managing Longevity Risk, Anne Obersteadt, CIPR Senior Researcher says of the various financial risks staring retirees in the face, "Longevity risk is the #1 risk that should be solved for first and foremost."  Longevity risk refers to the risk that actual survival rates and life expectancy will exceed expectations or pricing assumptions resulting in greater-than-anticipated retirement cash-flow needs.  For individuals, longevity risk is the risk of outliving ones assets, resulting in a lower standard of living, or a return to employment.

How to Build A Guaranteed Retirement Income Foundation and Eliminate Longevity Risk

Recently, we worked with a nice couple from Jupiter, FL.  They came to us looking for guidance on how to prepare themselves financially for retirement.   Their goal was to retire in 8-10 years. They did a good job at saving money over their working career.  Their biggest concern was how to properly structure their assets to provide them with a retirement full of happiness and less worry from a financial perspective.  Both Husband and Wife were moderately conservative from a risk perspective. The last thing they wanted to do was worry about potentially losing some of their nest egg due to market volatility.  

After some analysis on their current assets, basic costs of living, risk tolerances and retirement goals, we provided them with Step 1 of our Fiduciary Framework process; The Guaranteed Income Foundation.  After reviewing their basic costs of living which included their house, utilities, insurance (home, auto, & health), car, etc. the total came to $48,997.30.  After factoring in their Social Security Income which was $29,932, this left an Income Gap of $19,065.30.  The Income Gap is the difference between the basic costs of living and their guaranteed income from Social Security.  This is where a Guaranteed Lifetime Income option in certain annuity groups comes into play.  Using our software to analyze the best annuities on the market today, we researched and compared over 4,000 annuities from top rated companies to provide this couple with a recommendation to shore up their Income Gap. The amount of guaranteed income they needed was $48,997.  In order to fill the gap, they would need to move $203,447 into a Fixed Annuity. 

Moving this money to the fixed annuity  with a Guaranteed Lifetime Income option would guarantee them an annual income stream of $19,065 for the rest of their lives, helping them meet their basic costs of living (when combined with social security) so that regardless of market conditions and other uncontrollables, their retirement is secure.  The couple agreed to our recommendation and we put the plan to action.  The added benefit of having their Guaranteed Income Foundation solidified now allows them to spend the rest of their assets more freely, knowing that their basics costs of living are met every single month.  The peace of mind is just icing on the cake.

Annuity Association is happy to offer potential clients a complimentary evaluation appointment with a local licensed Fiduciary Advisor to help you determine the right financial strategy for retirement.  Complete the form below to request your appointment and a member from our client services team will contact your shortly.