One of the easiest ways to preserve your income is to have an annuity. Annuities are the products that were often used to guarantee pension income back when defined benefit plans were popular among private employers.
These days, while most employers don’t offer that same guarantee of lifetime income after retirement as they once did, you can create it yourself by purchasing your own annuity—most notably, the fixed index annuity.
For many retirees, the only way to ensure they get a lifetime’s worth of income out of their savings is by having an annuity. But a lifetime income isn’t the only benefit you get from a fixed index annuity. You can also enjoy more upside potential than you would from a fixed product, since fixed index annuities allow you to participate in a portion of the growth of the chosen indexes. Even better, they provide principal protection by ensuring you don’t lose money when those indexes fall—they even lock in the gains that you’ve made.
When you design your fixed index annuity, you have the option to add a guaranteed income rider. This is a mechanism that allows you to begin taking an income at some point after purchasing the annuity. The amount of the income is dependent on the date you begin taking it and the amount is locked in for life— which means you will continue to receive the same income payment long after your principal would have otherwise been depleted.
With nursing home expenses averaging as much as $6,235 per month in 2010, it’s not hard to imagine your entire retirement savings being depleted as soon as you need long-term care assistance. While long-term care insurance offers some protection, the cost of the premiums can quickly erode your income, leaving you struggling every month to make ends meet. With a properly structured annuity, instead of using your income to pay for long-term care insurance or expenses, you can rely on the annuity for long-term care expenses only if you need them— if not you can use the annuity for income and even pass on the remainder to your heirs.
Annuities are one of the few solutions for income preservation that offers you principal protection, locked-in gains, and can help you save on your longterm care insurance expenses. They are a great income preservation solution when designed with your needs and goals in mind.
Next month, in the final installment of the INCOME PRESERVATION SECRETS series, we’ll talk about some of the ways you can adjust your lifestyle in order to avoid overtaxing your income.