How To Make Your Money Last Check in to AnnuityStraightTalk.com's fine selection of Retirement Income Calculators.
Finally, be strategic in the way you tap assets. Start with taxable accounts; then tax-deferred (401(k)s and traditional IRAs); then tax-free Roths. That way the latter accounts compound longer without the drag of taxes, so you can build bigger balances and draw more income over time.
Method Two; An Immediate Annuity plus Stocks and Bonds.
THIS MAKES SENSE FOR YOU IF:..
Your Pension income, if any, and Social Security, are not enough to live on. Or, you want to avoid market volatility.
THE STRATEGY: Invest a portion of your assets into a guaranteed lifetime income immediate annuity- while there are many varieties, the most common is an annuity that pays you and a spouse if you select to, every month for life. You'll manage the rest of your portfolio as in Strategy 1. The Goal: For those without pensions, this is a perfect way to ensure lifetime, guaranteed income AND to still retain some control over your portfolio.
This plan is better than Option 1, because you insure more income for less investment and offload the longevity risk onto the insurance company selling the annuity. Recently immediate annuities paid out roughly 8% for a 65-year-old man, or about $40,000 a year on $500,000. You'd have to invest significantly more to get the same assured lifetime income from long-term Treasuries. Why do these immediate annuities earn so much? Investors' money is pooled, allowing insurers to essentially transfer funds from early croakers to those who hang on past life expectancy. This is known as a 'mortality credit' and while not a particularly nice term it can have significant benefits for you.
THE MAIN NEGATIVE: You lose access to your cash when you buy an immediate annuity, so future flexibility is limited, You can't access the money for emergencies, inheritance, or medical needs, though there are some riders to assist with this. Plus, the mortality credits work both ways, and if you die early you may be benefiting others and not yourself. For these reasons, some see immediate annuities as wasteful, but you need to remember you are buying security, guarantees, and insurance first and foremost. That always comes with a cost.
Another drawback is inflation- immediate annuity payments are generally fixed so beware of inflation eroding your income's power. Inflation protection riders are available, but like anything, they come with additional costs.
And lastly, be aware that you are exposed to some risk from the insurance company's overall credit quality- even though you offload big risks list longevity.
HOW TO MAKE IT WORK: First, remember than an annuity is INSURANCE and that costs money. Get over the perception that this is wasted as it's the best option for maintaining income.
To make it work, you want to devote enough to the annuity so that the income, along with Social Security and pensions, covers your basic expenses. But you don't want to go overboard, as you'll lose too much liquidity. Plus, you'll need to use what's left to try to beat inflation, since your annuity payments won't.
Allocation rules don't apply here as every individual has different needs and assets to work with.
immediate annuities,
immediate annuities pros and cons