Build Nest Egg By Re-Investing Income From Annuities

During the past 50 years improved treatments for heart disease, stroke and other diseases expanded life spans and extended individuals’ ability to remain active.  Today, a man’s average life expectancy at 65 is 17.2 years (to age 82). A 65-year-old woman today can expect to live another 20 years, on average. 

People who are in good health can expect to live into their nineties and beyond.  But longevity has its price: Today retirees must confront and counter the threat of running out of money.  Some people are living past 90. Will your assets last that long? If you outlive your income, what then?  It’s a good idea to look and plan for a lifelong income.

Many of us either depend (or will depend) on Social Security to make up the foundation of our retirement income. Although this program will play an important role for many of us, it is important that we keep in mind the limits of what it can provide us and ensure we put in place elements to secure the rest of our retirement.

Many retirees or near retirees finances are a mess. Two stock markets crashes in 2000 and 2008 did their damage to retirement dreams. The 2008 market meltdown and the trauma it left in its wake, caused high anxiety among the elderly. If an investor retires when a bull market is taking off, he is in a good position, but not, if he retires at the onset of a bear market.

Consideration of your ability to take risk is necessary so you will invest your money carefully and wisely otherwise you may lose the savings of a lifetime. There have been numerous cases where people took voluntary retirement and then burned their hands by speculating in stocks or invested the same in some business ventures and lost the all the money.

Saving for retirement without an income distribution plan can be a mistake. How will you use that money once you have it?  The central questions are; how to turn a portfolio into an income stream-based on solid methodology?  How good is an investors’ understanding of how to convert their pot of retirement money into income with some measure of safety?

Most investors share the same goal of long-term wealth accumulation. Some of us have no problem watching our investments bounce up and down from day to day, while risk-averse investors or those nearing retirement generally can’t withstand short-term volatility within their portfolios. If you are this type of investor- or one who has a moderate risk tolerance – annuities can be a valuable investment tool.

Many individuals choose to invest in a deferred annuity because of the security that it can provide for their retirement plan.  The annuity provides a kind of retirement-income insurance: You contribute funds to the annuity in exchange for the guaranteed lifetime income stream of your choosing later in life. 

Before the 1980s, investors could still rely on company pensions and Social Security benefits to fund their retirements, and actuaries figured out how to make those funds last through retirement. As defined contribution plans, like 401(k) and 403(b), replaced traditional pensions, the burden of managing that money shifted to investors.

A good addition to your retirement program is an index annuity. Equity-indexed annuities combine certain aspects of fixed and variable annuities. They offer guaranteed minimum returns and your income is based on a stock index such as the S&P 500.  If you’re risk adverse and want a guaranteed return but still worry about the ravages of inflation, the index annuity is perfect for you.

Unlike a fixed annuity, you have the opportunity to increase your return in indexed annuities.  You have the advantage of participating in the growth of a specific market index with none of the risk. Insurance companies offer index annuities that provide a base interest rate. If the index selected increases, the owner participates in the growth at a specific percentage. If the market drops or remains flat, the owner of the policy receives the guaranteed interest rate. 

The ideal retirement involves getting a steady check without going to work. When most investors hear the word annuity, they automatically think of it in terms of an income stream for life. While that is certainly one option, it’s not the only way to take money out of an annuity.

Instead of entering a payout phase where a specific amount of money is sent to you on a regular basis, you can instead choose to withdraw money as needed.  There have been new trail-blazing products released, which are aimed at providing more retirement options.

The new income rider plans offer more flexibility in payout terms and the ages at which payouts can begin compared to traditional plans. These more flexible, less expensive products provide a way for investors to build their own pensions by purchasing a guaranteed income stream for life.

The income stream is guaranteed by the insurance company to last the rest of the annuitant’s life, even if he or she should live much longer than originally expected.

Best of All!!  The monthly payment of an annuity is not the only way to look at it, many people think that they have given up their principal. If that monthly income is not needed, you can take a portion of that money and put it back into the bank or reinvest in other funds.

You have the best of both worlds, a steady guaranteed income for life, and the ability to take large risks in the market and build a large investment fund.  If the market tanks, you still have the income.