For mountain climbers, reaching the peak of the mountain is the ultimate goal. They train for it and pack the right gear. But the truth is, when you reach the peak, you’re only halfway done. Getting down the mountain can be just as treacherous. Similarly, when we think of preparing for retirement, the main focus is on saving and growing assets. Having an effective plan to draw down those assets is just as important.
How long is retirement?
According to the CDC, the average life expectancy of a 65-year-old is 19.5 years. 1Since this is an average, some will live longer and some shorter. The bottom line is that you have to plan for 20-30 years’ worth of retirement income.
What we may be overlooking is a missing asset class. In addition to stocks, bonds, and other growth investments, annuities could be the missing link in ensuring clients can weather the journey down the mountain once they reach retirement.
Annuities come in many forms, from variable to fixed to indexed. What most annuities have in common is the ability to provide lifetime income in retirement—the path down the mountain. This sometimes overlooked and often misunderstood category of investments is one of the only products that can guarantee retirement income, essential to a successful retirement plan.
There are a few ways this can be done:
Income riders—often available on variable and fixed indexed annuities, income riders offer opportunities to capture high watermarks to be used as an income base. A percentage of the income base (usually based on the age income begins) is guaranteed annually for the rest of the owner’s life. Its income you can’t outlive.
Annuitization—an option for most annuities to annuitize the contract. In this case, the contract value no longer exists and can’t increase or decrease in value. Meaning, that at any point, the owner can turn the value of the annuity into a series of income payments that last for the owner’s lifetime.
Annuities can be funded with qualified or non-qualified money. A retirement plan that doesn’t effectively address income in retirement can leave clients without the means to navigate the last leg of their journey. Including annuities as an asset class is essential to your client's retirement plans and gives them the income to live out their retirement years in comfort.
1Centers for Disease Control and Prevention, 2017