A steady stream of income can give retirees worried about stock market downturns a reassuring sense of stability.
When the economy tanked in 2008, retirees watched in horror as U.S. markets suffered historic losses. The Dow declined by more than 50%, its most significant drop since the Great Depression of 1929. Kiplinger’s article entitled, “An Annuity Can Help Restore Your Confidence in Retirement,” says that the oldest Baby Boomers, who are in or nearing retirement as things\ were at their worst, watched as their nest eggs cracked wide open and lost thousands of dollars — in some cases hundreds of thousands.
Most of them were left with two choices: (i) either keep working past the age they’d planned to retire or (ii) retire with a lifestyle that was significantly less than what they’d envisioned. Under both scenarios, they could struggle to piece back together the plans they once had. And time wasn’t on their side.
Pre-retirement is a horrible time to experience significant market loss. That’s because there’s often little time left for recovery. You need that nest egg you accumulated to generate income when the paychecks stop. If it shrinks, so will the amount of income you’ll get.
That’s why it’s important to consider market volatility and why you should start pulling back from risk as you get older. The markets will always move up and down. Given today’s domestic and worldwide uncertainty, some loss seems almost unavoidable.
However, there are distribution strategies that can help give you an edge in overcoming a loss.
For the average retiree, one way to help distribute retirement income is not by putting hope in the market but by using an actuarial-designed product, such as an annuity. With an annuity, distribution amounts are mainly calculated based on your age and life expectancy. The older you are, the more you get paid.
Using an annuity to distribute income is a way to overcome market losses—or to avoid them altogether. It can also offer you the confidence that you will be able to enjoy your well-earned retirement through the protection of the principal and regular income streams.
Knowing that annuities have surrender charges is essential, making them a non-liquid asset.
Annuities also have fees and can restrict your ability to participate in market gains, even with products such as fixed index annuities. However, some retirees enjoy the comfort of a steady income and the protection benefits annuities offer.
Most traditional immediate annuities are relatively straightforward after you’ve made the purchase. However, you’ll want to work with an experienced estate planning attorney to lock down an appropriate product and review any changes to your goals or financial situation as you age. Book a call.
Reference: Kiplinger (May 9, 2017) “An Annuity Can Help Restore Your Confidence in Retirement”
