When you’re looking ahead to retirement, the limitations of Social Security are one of the key things to be aware of. The sad reality is, Social Security is only going to replace around 40% of your pre-retirement income. It is up to you to provide the rest of the money that you will need for a secure retirement. Most experts recommend that you replace a minimum of around 80% to 90% of the amount that you were earning before retiring, so you’ll need a nest egg that can provide enough to do that.
You have a number of options for where to get this extra money. For many people, an annuity can be an ideal choice. Annuities are contracts with insurance companies that guarantee you a certain amount of income. You pay premiums or buy an annuity for a lump sum in exchange for guaranteed future income. They can be a great option for many seniors as an add-on to their Social Security benefits in retirement.
Here are three of the biggest reasons why an annuity could be the perfect Social Security supplement.
1. Annuities provide flexibility with limited risk
When you buy an annuity, you have many different options to consider. You can buy an annuity that you pay for over time, or you can buy an annuity with a lump sum payment. You can opt for a variable annuity or an indexed annuity. You can choose an annuity that offers guaranteed income for a set time period or for life. And these are just some of the many choices available to you.
Annuities give you a lot of power to customize what your investment will look like, when and how you pay for it, and when and how it provides you with income. And, while you do have all of these choices, annuities can also provide a guaranteed income that will come as expected. This can make them much less risky than just investing in stocks, which involves much more volatility and far less certainty.
If you are risk-averse and want to feel confident in a customizable retirement investment that you design to suit your needs, an annuity can fit the bill.
2. Annuities can provide a guaranteed lifetime income
Annuities can also be a great option because they can provide guaranteed income for the rest of your life. Just like Social Security, you won’t have to worry about an annuity running out if you opt for one that is guaranteed to last for life.
Many Americans have a major fear of running out of money in retirement. In fact, an Allianz Life survey found that 64% of Americans were more worried about running out of money than they were about death. Having a source of income that you can count on to come for as long as you need it can eliminate this very real and pressing fear and allow you to enjoy your retirement much more.
3. Annuities can provide income on a regular schedule
Finally, annuities pay out on different schedules, so you can pick a payout plan that meets your needs. For many people, an annuity offering monthly payments is a great choice. You can count on having money coming each month from both Social Security and from your annuity, which means that you have a predictable and steady income stream just as you did when you received a paycheck from an employer.
Since it is very common for people to have a hard time budgeting with irregular income, and since figuring out a safe withdrawal rate from investment funds can be complicated and stressful, choosing an annuity that provides a predictable stream of funds can be a major relief and the best way for many people to ensure they have the money they need when bills come due.
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